Free Services are Changing (and why it's Good for Consumers)

by Photobucket Team | Dec 03rd, 2018

Free Services are Changing (and why it's Good for Consumers)

The immediate road ahead is changing. Not just for our beloved photo-hosting industry, but for the concept of ‘free services’ as a business model.

The Internet was once a secondary marketplace of experimentation, flush with investment and the assumption that money will inevitably be made. It quickly matured into a platform that now drives the modern economy. Many early concepts of how the Internet would be utilized in the long-term succeeded, many more failed. Photobucket was undoubtedly a success (a massive win that was copied by even the largest of companies) and we couldn’t be prouder that we’ve been servicing a worldwide subscriber base of tens of millions for over 15 years.

It made sense at the dawn of services on the Internet to follow the working models of successful monetization: commercial TV and radio. The end product would be free of charge to all comers, and advertisers would ultimately foot the bill that the consumer would otherwise pay in exchange for the ability to serve an ad.

Additionally, in the early days of our business, digital offerings were considered something of a novelty and largely supplementary to core consumer behavior. Analog film cameras were still in use alongside the emerging functionality and affordability of digital cameras. However, that “wow” factor and sense of novelty that existed in digital services were replaced by dependency. Format and sharing mediums of choice became wholly digital. In hindsight, being as sharp as it is, this trajectory of digital services seems predictable. But, as it was happening, the future remained a place of unrealized potential and outcomes.

Obviously, changes to our shared online space have largely been shaped by users of that space, so it’s important to understand that the consumer has also evolved in this modern economy, and his digital behavior has changed. This is most evident in the widespread adoption of ad-blocking software, which is estimated to be used by close to 1-in-3 users in 2018. For any platform whose sustainability relies on the delivery of ads, ad-blocking software has had a negative financial impact that can’t be understated.

As the market evolves, our ability to employ people, to innovate, to continue being a reliable resource for our users, demands that we serve the today’s market while we make plans to adapt strategically to meet new challenges and opportunities.

There’s A Price to Free

Flickr’s recent announcement on limiting free users to 1,000 photos (down from 1TB of storage) further indicates that changes are afoot in the free photo storage and free hosting industry. Free services that are strictly supported by advertising revenue are proving to be unsustainable

People want quality services and would prefer not to pay for them. They’ve told us as much, both directly and in their adoption of free offerings. Who wouldn’t want a quality product or service without having to pay for it? But these services cost money to operate. Servers cost money, bandwidth costs money, storage media costs money, employees cost money, office space costs money. It costs money to deliver quality products, and it costs even more to deliver an innovative quality product.

When we ask our consumers for a subscription fee, what we are really asking from them is to invest in us. Invest in the sustainability of the service, invest in retaining control over their assets, and invest in the ability to innovate to meet their needs of tomorrow. To someone who has always received those services for free, it may come across as greedy; in action, it’s simply insurance that they can continue to rely on those services, and that the services will continue to adapt to their expectations.

LiveJournal is an example of what can happen if you entrust your most intimate memories and interactions to a free service without considering how its bills are getting paid. Unable to keep up with the high costs of providing a free service to a high volume of users, and with no other options, LiveJournal was ultimately sold to a Russian media company SUP Media. All of LiveJournal’s servers, and all of its users’ photos, were relocated to Russia. People’s private digital interactions were moved into the hands of an overseas company. This is a problem because international privacy laws are significantly different from country to country. In the United States, privacy laws protect you and your photos. This is often not the case in other countries. How is that data being used, and why was an overseas company interested in procuring it in the first place? Reflecting on what transpired, would the users of LiveJournal have paid $5/month if they could’ve seen into the future of where their private data would land?

I’m certain that LiveJournal didn’t want this to be the legacy of its company. But, being a strictly ad-supported service was a tough road when it was first sold in 2005, and it’s only a more difficult one 13 years later. With the best of intentions, LiveJournal set out to be of service to its consumer base, and it paid the price that most pioneers pay… learning the lessons that no one had ever had to learn previously.

Financial instability triggers panic which can result in decisions that cost more in the long-term than is gained in the short. It’s true with people. It’s true with businesses.

Unfortunately, we were a case study of this behavior. This happened in 2017 when Photobucket made short-sided decisions to boost revenue by restricting access to billions of users’ photos unless they paid an unrealistic fee of $400 annually. I hate that we were the case study, but that doesn’t change the fact that an unsustainable model will catch up with every business and, most importantly, the customers that rely on them. Because we were the pioneer in photo storage and hosting and continue to be an industry leader, we were the first to suffer the pitfalls. Due to what can best be described as a refusal to accept that business is an ever-altering entity, a desperate and risky hand was played. We told our free users that, without warning, they would be required to pay an exorbitant sum, or else…. Our users equated it with holding their memories ransom, and I don’t disagree with that assessment. Unfortunately, it illustrates the behind the scenes problems that are occurring when the give and take between the provider and consumer falls severely out of alignment.

This is a good thing.

The move away from an exclusively ad-supported model will result in high value to the consumer.

When I assumed the role of Photobucket’s CEO this year, my first action was to reverse the decision to restrict free photo hosting. Clearly, changes had to be made toward sustainability, but the extreme spectral shift made by the previous executive team was indefensible. My aim was to first mitigate the damage done and then create a sustainable and equitable model. What the previous team missed was that simply doing the exact opposite of what we’d previously done traded one incompatible extreme for another. The end goal of sustainability, though, requires a balanced adaptation, and adapting we are.

Photobucket and Flickr aren’t the only companies that have chosen to adapt rather than accept a preventable demise. Even that early model of commercial TV has had to adopt subscription models as of late. It’s difficult to find many examples of strictly free services from the early 2000’s that are still able to survive, much less grow, while remaining entirely free to their consumers. Today, we see other companies who are focused on survival following in our footsteps and doing their best to learn from our missteps. It’s the smart play for both the business and consumer.

Since restoring our customers hosted photos and doing our best to restore trust in our product, my focus has been on reorganizing the business to ensure the long-term viability of Photobucket. As our team gathers evidence from the past to inform the future of our industry and our service, we are seeing that trust and sustainability lies in transforming into a paid service with a free offering rather than leading with a free service and hoping that we can find a way to make it work in a market that remains inhospitable to a fully ad-supported model.

With these changes, we are intent on returning Photobucket to its innovative roots, and we will continue to be the most trusted place to safely store and host photos. We expect that we won’t be alone in our pursuits. Consumers shouldn’t be surprised when the free services that they’ve relied on for years begin to ask for money. In return, consumers should expect these services to emerge from stagnation, to excel in their current form, to find new and interesting ways to be of better value, and to continue to be reliable partners for years to come.