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Has Photobucket Painted Itself Into a Corner?

By Peter Suciu
Jul 20, 2017 10:46 AM PT

Various celebrities over the years have "broken the Internet" when risqué photos or shocking revelations surfaced, with or without their knowledge or approval. Photo hosting service Photobucket may have surpassed Kim Kardashian's most notorious stunts, though. The company recently changed its user agreement for the hosting of images on third-party sites, and as a consequence truly may have broken the Internet.

Photobucket users in recent weeks have been receiving emails with this message: "Some features on your account will be disabled. Your account has been restricted for excessive usage and 3rd party hosting. In order to restore 3rd Party Hosting, please upgrade to the Plus500 Membership Plan."

On the surface, this seems like business as usual for an online service, because nowhere in the email does Photobucket mention that its Plus500 Membership Plan requires a nearly US$400 a year subscription! Worse, users were given no advance notice, while all images hosted on Photobucket were replaced by a graphic that suggested third-party hosting was at 100 percent.

It didn't matter if a user had a single image or hundreds that were posted to third-party sites -- those who had not subscribed to the Plus500 plan suddenly found they had reached 100 percent usage!

Hosting of Images

To understand why this is such a problem, one needs only to look at Internet forums, eBay, Etsy, Amazon's third-party sellers and the plethora of blogs out there. For more than 100 million users, Photobucket has been the de facto photo and image hosting service.

Since its founding back in 2003, the service has been an online "Great Library" of images from around the world, and the service today hosts billions of photos.

Photobucket's messages telling users their accounts had reached full capacity for third-party images were more than a bit disingenuous, given that it didn't matter how many images were hosted on third-party sites. In fact, according to the new terms of the user agreement, anyone with a free account is still allowed 2 GB of free storage -- but the free accounts no longer allow users to link any images to third-party sites.

The user agreement states that those interested in image linking and/or third-party hosting need to subscribe to one of the Plus Accounts -- but in fact it is only the P500 level -- the most expensive option -- that allows for such hosting.

Where it becomes more confusing is that those who already had paid for lower-tier accounts and were in good standing as of June 1, 2017, would still be allowed to utilize third-party hosting until the end of 2017. This in essence makes an exception for those who already were paying for service -- and understandably so, given that the Internet community has taken Photobucket's move as tantamount to extortion.

Even those who have been paying for hosting will have to upgrade at the end of the year or they will lose their images -- but at least they have time to find another solution.

Photobucket's Side of the Story

Criticism has been heaped on Photobucket since it updated its user agreement last month, especially for giving users little notice.

However, from the company's perspective, "this path to a more sustainable business model allows us to develop an even more robust product to meet our customers' needs," Photobucket CEO John Corpus said, according to The Denver Post.

Photobucket's chief problem is that it is a small shop, with 50-some employees and little way to make a profit. About 75 percent of Photobucket's costs come from hosting non-paying users' photos on third-party websites.

Historically, Photobucket largely was supported by ads -- but in recent years the site has received almost zero revenue from non-paying users, who typically ignore the ads.

Extreme Business Strategy

This move to charge for third-party hosting of images essentially has left users with few options, and many forum administrators have advised seeking another hosting service. The problem is that the "next Photobucket" -- assuming it operated the same way -- would suffer from the same lack of revenue. Switching could create a domino effect that would bring down more services.

Photobucket's decision to charge $399 a year actually might not be such a bad move -- and reports that this is the death knell for Photobucket might be a bit exaggerated. Consider this: If just 1 percent of those 100 million-plus users agree to pay up, the service could reap nearly $400 million in revenue that it previously didn't have.

That also would allow Photobucket to clear out a lot of its free users. As with much of the Internet, people simply don't like paying for what once was free, but ads can't support everything -- especially if people are so quick to tune out.

A better strategy for Photobucket might have been to add third-party hosting tiers instead of making it an all-or-nothing play. Only the top-tier plan now provides third-party hosting, but $399 a year is a steep sum for casual users to pay. Offering a $99 option, for example, might have made it easier for some disgruntled users to adjust to the new reality and stick around -- or come back later.

What makes Photobucket's strategy so confusing it now can't back down without burning the loyal minority. At this point, it isn't clear how many people have agreed to pay the $399 a year, but even if the number of paid users is less than 1 percent, Photobucket is a lean shop with little overhead apart from server space.

The company's decision could be a good move in the long term, as it will have fewer important customers to keep happy, as well as lower operating costs. The move to a paid model isn't a bad one -- it's the execution that's been lacking.

Future of Hosted Images

In the short term, the name "Photobucket" will trigger cursing across the Internet, as blogs and forums -- as well as eBay, Etsy and Amazon -- suddenly are filled with the same annoying graphic. This won't represent an opportunity for another hosting service either. If Photobucket can't make money by hosting third-party images for free, then no other service is likely to embrace a similar model.

The big winner could be Facebook, which already provides the hosting for forum-like interest group pages. Facebook already has proven that it can offer hosting of images, and it has enough revenue to afford it.

The big losers are going to be forums and forum users. The sharing of images of stamps, collectibles and other items of interest is going to cost more. Some forums already have responded by banning the use of third-party hosting, but members of those forums are being asked to cough up to cover the image-hosting costs.

What this signals is something that the media world has been dealing with for almost 20 years. Users think that everything online should be free, but no one has the slightest clue as to how all those freebies can be paid for -- and anytime a subscription model is introduced, anger follows.

If I were running Photobucket, my message would have been more honest and to the point: "Look, hosting images is really expensive, and the current business model meant we'd go out of business eventually. That would leave a broken Web with lost images, but we're trying to offer an alternative. We hope we can convince some of you to take advantage of the benefits we're offering."

Peter Suciu has been an ECT News Network reporter since 2012. His areas of focus include cybersecurity, mobile phones, displays, streaming media, pay TV and autonomous vehicles. He has written and edited for numerous publications and websites, including Newsweek, Wired and Email Peter.

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