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5 lessons of Photobucket Fiasco

Photobucket, which started out as a plain-vanilla hosting service, cried wolf last night when it claimed that MySpace was blocking its videos. The truth came out this morning: because Photobucket is selling ads on videos that get shown on MySpace via widgets, MySpace is blocking them just like it would anyone else.

It is clearly an emotional issue, as you can tell from the big debate that rages on the blogs. The fact is, Photobucket and MySpace are both for-profit entities, and this is less about emotion than it is about capitalism. Nevertheless, there are some lessons here for start-ups hoping to thrive in the new disaggregated web world.

1. Don’t depend too much on one partner, especially one you don’t have a formal relationship with. Or as one smart commentator writes, “One line of code from that 3rd party literally puts these guys out of business.”
2. If you are going to depend on one partner, don’t make waves. Stay under the radar. I am sure bragging in Fortune didn’t help Photobucket’s case.
3. Don’t lose sight of your own mantra. Photobucket said all along it was just a service provider, and didn’t care about page views on its own site. How it was going to scale and build its revenues, based on that model, is a tough question Photobucket didn’t ask itself in the early days.
4. Pay to play and ensure longevity. Remember, even Google had to pay MySpace, and you the start-up are not that special.
5. Free is a tactic, not a business model, and has strings attached to it.

Liz pointed out during a chat this morning that these are all truisms of the old media world that some optimists had thought wouldn’t apply to to the new new media world. Now, it seems the new theories of disaggregation are getting throughly trampled.

I haven’t had a chance to ponder over that, but would like to throw this open to debate and get your thoughts on this. Are there other lessons to be learned from this fiasco? What does Photobucket do? Become a destination? Are destinations a better option for a start-up? Let the conversation begin!

32 Responses to “5 lessons of Photobucket Fiasco”

  1. “1. Don’t depend too much on one partner, especially one you don’t have a formal relationship with.”

    Right. However, 99% of the web relies on Google to send them the bulk of their traffic, not caring that a simple change in the ranking formula can sink revenue.

  2. MySpace isn’t going to allow somebody else to sell their property to premium advertisers, regardless of a revshare. Photobucket sales people will naturally brag to advertisers that their ads will appear on Myspace, creating competition. No traditional media organization allows somebody to compete with themselves to sell advertising, unless the outside seller focuses on a segment of the market they don’t reach, such as classifieds advertising, non-endemic categories, or crap inventory (remnant advertising).

  3. Jay (living in First Life)

    @ Om – excellent post. I just posted on TechCrunch and think that widget companies (Slide, RockYou, PhotoBucket, etc.) need to realize they are one-trick ponies and their only way to succeed is to either share revenue with the social networks or sell out to them (pure product devevelopment sale). I don’t think they can develop the advertising sales infrastructure to make the former option viable long term.

  4. I agree with most of the things that have been said here. Although it’s a nice concept to be altruistic and want to do good for the world, it’s also kind of naive. And it becomes borderline stupid, when you swing from being altruistic towards bragging about the success you’re essentially getting on the back of other properties.

    It’s a general lesson in life that it becomes a lot easier to control stuff if you stick to factors within your control. In other words: When you place the success of your business on someone or something over which you have absolutely no influence (aka the good will of MySpace and Rupert Murdoch), you’re asking for trouble.

    A lot of techies have very mixed feelings about biz dev persons and see them as Evil Doers simply because they have a commercial mindset. Well, newsflash, maybe it’s time for the techies to get to grips with the biz devs and accept that they are needed in order to secure the pay check…

  5. I think this whole thing is crazy, and too full of conflicting reports to really drill down completely. Welch (Photobucket CEO) obviously wants to shrug this off (or give that appearance) and is acting like this won’t affect PB at all. In reality, PB generates enormous traffic from MySpace. MySpace should allow people to customize freely, but if their terms of service indicateds no third party advertisement, then PB shoulda-oughta known better.

    I think PB should continue their video service under a separate name / wing of their business. Create a sub-brand of video products. It would be transparent in reality, but I think the difference in perception would create bit of psychological buffer. Read more on if you’re interested.

  6. You’d think that rule #1 would be common sense. The whole thing should be common sense. If your entire business depends on someone else, you had sure better be best buddies with them. If I was getting 25%+ of my traffic at the pleasure of someone else, I would stay up nights making sure that other person was happy!

    I think this was a case of Photobucket thinking that they were bigger than MySpace. You have to figure they realized that myspace wouldn’t be too happy with them making ad revenue on myspace’s pages. Yet they did it anyway because they thought that MySpace needed them more than they needed MySpace. I think it was a case of hubris, helped in no small part by articles and buzz from the mainstream media,

  7. What Photobucket should do is put the Remax sell outside and on their site “for sell”.
    I think startups should be desitination sites first so they can work out all kinks, and clearly define themeselves. Things photobucket were not conecern with at all.

    Another lesson that should be learned from the fiasco is that photobucket only had one product/ or one monetization scheme. In this uber competitive world people should know having one product/ scheme offering will help dig an early grave for your business.

    Photobucket RIP 2.0 bubble casualty.

  8. I agree that a “destination” approach is more sound in the long term. All that these “we’re just a tool” guys are really saying is that “we’re only looking to sell our app to somebody who’s really making money” (see flickr et al). The problem with Photobucket is that they started their business life on the wrong leg, so to speak, and changing the strategy half-way through will be tough…

  9. the dirty secret is that a huge number of these web 2.0 apps don’t have a f*ng idea of how they’re going to generate revenue.

    to generate revenue, someone has to be willing to pay you for something in return. most of these guys just kind of hope that they can somehow pull in enough traffic to allow somebody to want to place ads on the site…

    the better question, albeit much harder is figuring out how you can build a network of sponsors/advertisers to come to your site… this requires a sort of sales force, who will go push your offerings…

    gee… imagine that.. sales… biz dev… marketing…

    who knew!!!

    sarcasm off…

  10. Just goes to show that you need to think differently and go find other ways to support your service and make your money from in a unique offering while using the piggybacking on others just as a way to gain scale. You also probably could factor in a partnership model to offer something back to the the sites where you become really popular.

  11. DotPoet


    why won’t you spend-space?

    3rd-party block-space


  12. Biz Dev is back, baby.

    Not that it ever went away. It’s just that these ajax and ruby on rails developers that though they could just build “great products” that would spread naturally… all by themselves.

    Even the internet has a hierarchy. And key business relationships can drive a whole lot more… a whole lot faster. Especially when combined w/ a viral application.