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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 News.com'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.

Before that, you had to be a member of the community if you wanted to actually benefit from having stock art available. After the change, anybody could buy, whether or not they were supplying photos to the site.
Livingstone: When people like me who are crappy photographers first started using the site like this, they're willing to pay 25 cents for an image, but didn't really have anything really great to contribute. We were paying 5 cents of every quarter to the photographers, so it was funny--we were all getting nickels for a photograph.

When did you switch to the system where money changed hands?
Livingstone: We started charging in 2001. Probably toward the end of 2002 or the beginning of 2003 we actually had a bit of a budget and realized, "Hey, there's a business here."

When did the existing stock-photo shops realize, "Hey, iStockphoto has a bit of business there"?
Livingstone: Around 2004. I would go to industry events like CEPIC in Copenhagen, and people had no idea who I was. They just knew that when they searched in any of the search engines iStockphoto was always at the top, and they didn't really know what we did or who we were. They weren't very Internet-savvy. (In a speech in 2004, one rival executive said that) "iStockphoto was a crappy company selling crappy images to crappy customers."

Laughing at you is the first stage of recognition. But by early 2006, Getty bought you. What's the story behind that acquisition?
Livingstone: In 2005, we knew that we were going to have to grow a lot internationally in order to keep up our pace and in order to keep being No. 1 everywhere--search engines and traffic rankings. Even today our hardware is overburdened. So I was in New York and Boston and everywhere looking for venture capital money in 2005.

At this point you got by on $50,000 to start and then were self-funding?
Livingstone: Yeah. But we did a budget and (the server hardware spending) was $6 million that year. I had a term sheet I was ready to sign with Insight Venture Partners, but I decided I'd better phone Getty and see why they keep calling me. I had a meeting with (Getty CEO) Jonathan Klein within a few days. I went to Seattle and we hit it off. It was obvious that we were cut from the same jib. We struck a deal within a couple of weeks.

The problem was that if we took venture capital money, how involved would they be, and would they influence the growth of the company in a negative way.

It's always a tough call for founders to lose that independence.
Livingstone: The problem was that if we took venture capital money, how involved would they be, and would they influence the growth of the company in a negative way, and would they do things that I wouldn't agree with? And then I thought what would be best for the photographers and the artists on iStock. It just seemed like a really natural progression to have them be part of the Getty family and have a career path. They can move on from iStock, start submitting to Getty and move up the food chain.

Is the argument from Getty's perspective that it's better to cannibalize yourself than be cannibalized by somebody else.
Livingstone: That's what Jonathan said, but I still I look at it as complementary. Sometimes (stock art customers) can't pay huge money. The handshake is a totally generic image--why not get it for $5 instead of $200?

At the end of that first year before you started charging, how many were people in the community submitting photos?
Livingstone: It was definitely under 500.

And how many do you have today?
Livingstone: There are 35,000 photographers and illustrators today.

Realistically, how many of those are going to graduate to Getty? Probably the vast majority of those people have no expectation of turning fully pro.
Livingstone: It's going to be an additive solution for them. The first 100 or so (iStockphoto members) now have Getty contracts, and their images are going to be on Gettyimages.com in October.

What reception did you get from the professional photographers when they started seeing competition from some amateur who happened to have a digital camera who happened to snap a picture that was good enough of something like the Golden Gate Bridge?
Livingstone: It's a natural thing to blame us, but we didn't make inexpensive cameras. We didn't make semipro photographers. We made a Web site, an open marketplace for people to sell.

Have the pros decided that it's better to band with you than to try to fight you?
Livingstone: The ideas are changing. A lot of pro photographers are now submitting to microstock agencies, and at least testing it out and seeing, "Can I actually make money here?" I think a lot of them are finding that yes, they can.

There are about 30,000 submissions a week. About 60 percent make it through. What growth do you expect to see in numbers of contributors and submissions per week?
Livingstone: We just started localizing. In September 2006 we did a French version, a German version and a Spanish version. In June we're going to start rolling out the rest of the languages that we have in the Getty-controlled vocabularies (technology to improve image-labeling accuracy). We're going to start in Japan and stop when we get to China.

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