Since the beginning of 2012 there has been an explosion of interest by Venture Capitalists in investing in microstock companies. This is notable for several reasons.
For the last two years or more there has been absolutely no interest from outside investors in the stock photography space. There have been a few small acquisitions by companies already in the stock photography business – BigStock acquired by Shutterstock, Canstock acquired by Fotosearch and Crestock acquired by Masterfile to name three – but the stock photography space has been ignored by venture capitalists.
It is hard to tell what brought about this sudden change. Some observers point out that Venture Capitalists have been sitting on a lot of capital for a long time waiting for the economy to turn around. Now that the confidence level of investors in general, both in the U.S. and Europe, seems to going up they are ready to jump back in.
It is also hard to understand why they have chosen the microstock area to examine other than it is “technology” related, and they are aware that in the last few years the microstock industry leaders have experienced dramatic growth. It is notable that the people I have talked to show no interest in the traditional stock companies. For them stock photography is microstock.
For the most part the VC’s I have talked with are in the early stages of their investigations and have a very rudimentary understanding of the stock photography business.
If the VC’s listen to me they’ll find that I believe the market for microstock photography has already reached the mature stage. There will be modest future growth at best, but nothing dramatic. And, of course, what VC investors want to see is very dramatic revenue growth. Some companies may be able to take market share from others by introducing new strategies or efficiencies, but overall demand for still stock imagery will rise very slowly.
One possible course to achieve revenue growth, even if actual usage is relatively static, is to raise prices. We have seen a good bit of that in the past year, but I think we have already reached the point where price increases will result in falling unit sales. As companies raise their prices customers will turn to cut rate sources for the imagery they need. Some individual suppliers may benefit from these rising prices. The microstock companies themselves may not.
Another thing that is hard to understand is how additional capital would help most microstock companies grow their businesses. Traditional advertising won’t work, at least in a cost effective way. All professional users are already well aware of microstock and use it whenever they can. They have settled on a company to deal with -- mostly one or more of the big 4 leaders – and there must be a very compelling reason for them to switch their allegiance. Most future growth will come from small businesses and consumers (BtoC) who are very occasional users. They will use the companies their friends recommend, or those that pop up first when they search Google for stock photography. Supplanting the industry leaders will be very difficult.
There is a very interesting story in the April, 2012 edition of Wired Magazine entitled, “
For High Tech Companies, Going Public Sucks.” This story talks about how using VC money can be a bad idea for many small technology firms.