iStockphoto sees new rivals everywhere

CEO Bruce Livingstone is bracing for online competitors to do to him what he did to the traditional stock-art market.

iStockphoto Chief Executive Officer Bruce Livingstone thinks of his company as Web 1.5.

The site, where members can sell their photos or graphics as "stock art," employs the Web 2.0 idea of user-generated content. But Livingstone founded iStockphoto in 2000 when the Web 1.0 e-commerce idea still prevailed. The company resembles eBay: when a customer buys an image, iStockphoto charges the seller a commission.

iStockphoto survived the dot-com bust by selling stock art for dramatically lower prices--as little as a buck a pop--and became profitable at the end of 2002. At present, 35,000 members upload about 30,000 images each week and customers download one every 2.5 seconds. A year ago, Getty Images, the dominant seller of stock art, acquired iStockphoto for $50 million.

Other "microstock" companies including Fotolia, Dreamstime and Shutterstock remain rivals, and photo-sharing sites pose a new threat. A revamped Zooomr will let photographers sell their images and keep 90 percent of the proceeds, compared with just 20 percent to 40 percent for iStockphoto. And there's talk that .

But Livingstone has been steeped in stock art since taking a job as a mail clerk at Image Club Graphics in the early 1990s. The company didn't like his idea of selling the art online, but Livingstone was hooked.

As a result of its stock-art heritage, the company has always vetted images for quality and compliance with legal requirements--signed forms for any subject with a visible face, for example. About 40 percent of submissions don't make the cut.

Livingstone discussed iStockphoto's history and challenges with CNET's Stephen Shankland.

Q: Who are your competitors today?
Livingstone: Everyone. This year I think everybody is going to enter this market. I think a lot of companies have identified this model as being successful. Anyone who has images, a digital asset in the form of a picture is going to enter this space and try and sell it in one form or another.

Zooomr will let members sell their photos, there have been discussions whether Flickr might, too. What happens to you when that happens?
Livingstone: Companies like Zooomr and Flickr--they're great innovators and I think they just might be able to figure it out. It's tough, because you have this community that's used to sharing and they do things a certain way, and then suddenly you're introducing this business element that wasn't there before. I'm not sure it's going to be as easy as they think.

We can't be scared of competitors. It's natural and it's healthy.

What about legal repercussions? There are a lot of photos on Flickr with faces visible that don't have a model release form attached.
Livingstone: It's a very complicated process. A model release in France is much different than a model release in the United States. For example, in France, they actually get to say, "I can only be used in ads that have to do with this, this and this, but I don't want to be used in ads for pharmaceuticals or sexual preference." There's also copyright.

But could they put competitive pressure on you just by combining Flickr with Google search and Flickr ratings? Could be good enough for a lot of people, just like iStockphoto was good enough for a lot of people who used to be in a higher category?
Livingstone: Competitive pressure is natural in any business, and we've had competitive pressure from other microstocks that started after we did and from subscription services. We can't be scared of competitors. It's natural and it's healthy.

You started in the online direction in 1994 while working at Image Club.
Livingstone: They didn't buy into this newfangled e-commerce thing, or maybe it was just too soon for them. I went out on my own, wrote a business plan and quit school. A few years later I had funding and released four CD-ROMs, which never really sold.

So what did you do?
Livingstone: Well, I got a little bitter that I wasn't able to actually sell my own images. It didn't feel very good to have failures, so I thought I would pull a bit of a rebellious move and give away these images.

I bought the domain from Network Solutions for $25 and launched this site where you could register, download as many high-resolution photos as you want and use everything with a royalty-free license. About six months later, we kept hearing from all these photographers and designers that they wanted to share their images with everyone as well.

So they didn't want to just download your stuff, they wanted to share their own stuff?
Livingstone: That was important for us, because it started the community. We also at that time invented this credit system where if (a person) downloaded one of my photos, then I would get a credit. I can use that credit to download one of Kara's photos. It was a barter system. That worked for a while--until we got this massive (Web site) hosting bill of about $10,000.

That's when you moved from barter to dollar signs.
Livingstone: To 25 cents per download.

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