What startups can learn from Photobucket's 'ransom' disaster

Popular image hosting site Photobucket has come under fire for charging users to embed pictures on third-party sites, as users accuse the site of employing "gangster like" tactics.

Initially launched in 2003, Photobucket is a free service that allows users to host their images, with a capacity limit of 2GB. Users could pay for a premium subscription which removed ads on the platform and granted a bigger storage allowance.

The service is used by many people to host images that are then embedded on third-party websites such as Amazon, eBay and assorted messageboards. However, a recent update to the company's terms of service introduced a change to this model, cutting off the ability to embed images from all but the highest tier of premium subscribers.

With little to no warning from the company, users discovered that their images had disappeared from their forum posts and online marketplace listings, replaced with a message telling them that they will have to upgrade to a Plus 500 account - charged at $399.99 per year - in order to re-enable the functionality. Users have also reported that they cannot download affected images until they upgrade.

The Photobucket community has responded with outrage. Users have accused the site of holding their pictures to ransom, and compared the sudden change to the WannaCry ransomware, which locked people's files until they paid up. Many have been using Photobucket's platform for years, and complain that they were given no time to extract and transfer their content before the changes took effect.

Rather than pay the (frankly extortionate) annual fee, several users have simply opted to abandon the service altogether, leaving their pictures locked up.

It's not hard to work out why Photobucket would introduce such a radical change. The company was huge in the early 2000s, tripling its annual revenue between 2006 and 2007. It was one of the early players in online photo hosting, but the emergence of cloud storage platforms and social networks have almost certainly put a major dent in its business.

There's no solid evidence to prove this, of course; the company's publically available financial reports only date up to 2007, following its acquisition by Fox, but this is right around the time when services like Dropbox and Facebook started to set off a tectonic shift in the way we share, store and catalogue pictures. As these companies, and others like them, grew to dominate the distribution of online images, it's not hard to imagine Photobucket's userbase and revenues taking a very serious beating.

What, then, can Photobucket do to prop itself up? The company experimented with offering value-added services over the top of its existing photo storage offering, like a service that allowed users to order customised prints and products based on their pictures. It's unlikely that this proved to be a money-spinner for the company, however - HP offloaded a similar service, Snapfish, in 2015, presumably because it failed to turn much of a profit.

While Photobucket may no longer have a unique business proposition, what it does have is a sizeable number of existing users on its platform. If the company couldn't monetise its users through adding new services, bolstering the revenues earned from its existing services would appear to be the next logical option - and the simplest way to do this is by charging for services that were previously free.

Naturally, users are not going to be particularly happy about this, and herein lies the essential problem for any startup that wants to scale a free service - you might have the best service and the biggest userbase, but what happens when you want to start making money?

There are no easy answers to this problem. Some companies have managed to nail the thorny prospect of monetisation, while others still struggle with how best to go about it - even household names like Spotify, which remains an unprofitable business to this day.

Subscriptions, one-off payments, sponsorship and advertising are all frequently attempted by various companies, as each tries to find the magic bullet that will propel them to infinite, Elon Musk-level wealth.

Sadly, there is no magic formula for monetising your company. There is a way to ensure you don't end up like Photobucket, though, and that's to have a plan in place for how you're going to monetise your creation before you launch it. It may not be foolproof, but at the very least it'll minimise your chances of backing yourself into an embarrassing corner.