iStock growing pains show crowdsourcing challenge

When crowdsourcing goes well, an army of contributors collectively can create impressively large-scale works such as Wikipedia's online reference site and iStockphoto's vast library of images that can be licensed relatively cheaply.

But there's a flip side, as iStockphoto is seeing this week: when you enrage your community of contributors, the wrath is on a correspondingly large scale.

On Tuesday, the Getty Images subsidiary announced a new payment structure for those contributors whose photos, videos, and other content it sells. But many fear the new plan--based on the contributor's performance during the previous year rather than the total images sold--will mean a significant cut in their payouts in 2011. iStockphoto stands by its forecast that the change will benefit most contributors, but in the meantime, those contributors lashed out in thousands of overwhelmingly negative forum posts in two days.

The clash offers a glimpse into growing pains that can come with a new generation of Internet businesses. The Web made iStockphoto possible, providing a global network to harness legions of amateur photographers and to reach countless customers. But when it's time for change, that structure and scale adds challenges that conventional companies don't usually face.

Reworking an ordinary company requires buy-in from employees and customers. For a companies such as iStockphoto, Digg, or eHow, though, the large group of people who supply the content also must be persuaded to make the change.

Pay cut?
iStockphoto photographer Cat London, aka Stray Cat, is one of many who fears the worst from iStockphoto's new compensation plan, expecting to see her royalty rate to drop in 2011 rather than increase from her arduous work to rise through iStock's ranks.

"My math ain't good, but I know that 30 percent is lower than 40 percent, and I know when I've been cheated out of something I worked my ass off for years to get," said London in a forum post.

Added Shaun Dodds, aka sonny2962, in a forum post: "As I remember, ten years ago or so, big greedy established stock agencies got caught out by iStock. They were complacent and err...greedy. How long before iStockphoto wounds so many of their faithful that they too lose out to something new?"

Some contributors warned of the dangers of putting all one's eggs in one basket through iStockphoto exclusive relationships, while others threatened to leave. "As things stand now, for every extra $100 I make at a 60%/40% commission, iStockphoto get $150. I don't see any good reason why they need to lever things further in their favor. So as things stand now, me and my work will be going elsewhere early in the new year," said George Clerk in a forum post.

iStockphoto management, though, believes some people are miscalculating, says its forecasts show photographer payouts will get better in the new year for most contributors, predicts that licensing will continue to grow overall, and assures contributors it will revisit its formula if necessary. But those hoping for a change in policy shouldn't get their hopes up, because the current seniority-focused system fundamentally corrodes iStock's long-term business health, said Kelly Thompson, iStock's chief operating officer, in an interview.

iStockphoto currently pays contributors using a variable system based on the lifetime download total of a contributor's works. The more times photos have been downloaded, the better the "canister" level a contributor earns and the larger the fraction of the royalty payment iStockphoto passes from the customer to the contributor. In addition, contributors who sell exclusively through iStockphoto get a higher percentage.

With the current system, "eventually everyone drifts up to the higher canister levels, which isn't sustainable in the long run," Thompson said. "The more successful iStockphoto is, the less profitable it becomes," and iStockphoto contributors need iStock's long-term health as much as iStockphoto does, he said.

Thompson has plenty of convincing yet to do. His follow-up post has more than 1,700 responses, still generally outraged in tone.

Cultivating or exploiting the community?
Thompson bristles when questioned whether iStockphoto's size and market power might mean it's turning from cultivating its community of contributors to strip-mining it.

"There's no way we could do that," he said. "We have no motivation to watch our contributors go elsewhere. Unless we provide a fair royalty, that will happen."

The new iStockphoto compensation mechanism bases the royalty percentage on the contributor's performance in the most recent year as gauged by how many credits customers redeemed to license the content. That means lifetime totals will become irrelevant as photographers are measured by only their last year's sales. It also means that royalty rates will become relatively better for those who sell larger images that cost customers more credits. Also with the new system, contributors who don't sell exclusively will see their royalty rate drop--from a minimum of 20 percent in the old system to a maximum of 20 percent in the new one.

Among those who'll see royalty payments drop, Thompson said, are some non-exclusive contributors and those who uploaded photos in years back but who aren't as active today.

But there also are fairness issues for new contributors, he said, and the desire to better remunerate those who sold high-quality, high-resolution photos that customers like better and spend more credits buying.

"We tried really hard to reward people who have been active and produce great work," Thompson said. Measuring that by credits rather than downloads "was asked for and asked for and asked for" by community members. "We gave exactly them what they asked for there."

Sean Locke, a top iStockphoto contributor who said he spends 50 to 70 hours a week at the job, could see some merit in the new structure that factors the size of photos that customers download into royalty rates.

"This is interesting, because we had asked for this over the years--that we should get more reward based on the value that a buyer spends at the site," Locke said in a blog post. "Should someone who brings in 100 1-credit sales get the same 'reward' as someone who brings 100 30-credit sales? Or in other words, should those that continually bring in more money get a higher bonus from the base level of [for exclusives] of 25 percent?"

The new system will reward those who work continuously on their portfolios, Locke predicted. "Now we are in a system where far-reaching historical performance is not as important as recent [last year's] sales data," he said. "It looks like it will require a concentration on constant creation and updating."

Not surprisingly, rivals are eager to capitalize on the iStockphoto disgruntlement. "Artists want to be treated with professionalism and to know they're participating in a marketplace that's fair and clearly explained. Shutterstock doesn't ask for exclusivity, our payout rates are straightforward, and we reward artists whose images are downloaded the most," said Shutterstock founder and Chief Executive Jon Oringer.

Math error?
One reason contributors are doing math wrong is that they're estimating their 2010 performance without taking the last four months into account. Typically that's when iStockphoto busines picks up, with September through December yielding as much business as the eight earlier months, he said.

Thompson also said that higher-quality photographers whose works are selected for iStock's premium, higher-priced Vetta collection will see more revenue, because Getty Images will be licensing that work. iStockphoto also is introducing an even higher grade, the Agency Collection, that also features imagery from outside iStock.

Thompson detailed some of these financial issues in a follow-up forum post Wednesday.

"Historically HALF of our annual credit usage take place in the last four months of the year. If that holds true, most of you should see your current redeemed credit total approximately double by the end of the year," Thompson wrote. "None of this is comfort to the 24% of Exclusives who will see a rate decrease--or to any of the non-Exclusives who are, quite frankly, bearing the brunt of these changes. But, we expect to see our total royalty payout increase by more than 30 percent next year, from $1 7-million per week to well over $2 million per week. Make no mistake, the total amount of money iStockphoto contributors are making is going up."

Updated 11 p.m. PDT with comment from microstock company Shutterstock.