03 Jul 2015 Is there a Price War in Microstock?
Every now and then someone asks the question: is there a price war in microstock?
I always say that there isn’t, but there’s occasionally some debate. Let’s explore.
What is a Price War?
It is said a price war exists when companies continually lower their prices to keep up with their competitors who are doing the same thing.
For a price war to exist in microstock, the top microstock agencies would need to be continually dropping their prices in response to competitors doing the same. As one drops, the others follow to match. Then another agency drops again, and so on.
Price Movements in Microstock
Here’s the historic price changes I could dig up from archives (let me know of any errors or omissions).
The last time iStock changed prices was in 2014 when they finally introduced true subscriptions to compete for volume buyers. This was clearly a drop in prices compared to their credits or subscription-of-credits offers. But then in September they drastically simplified everything, reducing down to just two collections and two pricing tiers. With the 1 for 5 credits re-valuation, these changes effectively created a price increase, not a decrease. Prior to that there was a reduction of prices for the mail collection in July of 2013.
Shutterstock‘s most recent pricing move was in April this year. Although royalties were not increased, they raised image prices by 20 cents. Subscriptions, all the way back in 2005, were $139 per month for an unlimited quantity. Today it’s $250 for 750 images a month. Certainly not a dropping.
Fotolia‘s most significant price change was in January 2010 when they increased the price of credits by about 30% – it varied by currency. This was that infamous incident when the credit value used for calculating royalties didn’t change, effectively providing a 30% royalty cut without having to change any of the numbers of the royalty page. But I digress. Then in July 2013 they lowered the prices of photos that hadn’t sold, or hadn’t sold much. The cuts were severe, resulting in contributor outrage, which then forced Fotolia to lessen the cuts (although many think that was the plan all along). That change came shortly after price drop at iStock and was perhaps the closest we came to responsive price cuts.
Dreamstime modified their price size/rank level pricing structure in April 2011 adding level 0 to the previous 1 to 5 scale, boosting all levels -hence all existing images prices- one step up on the ladder.
So, clearly there’s been some movement over the years, but certainly far from an all-out price war.
Signs of Damage?
It is said that for a price war to truly exist there must be damage to one or more competitors.
Shutterstock and Fotolia both appear to be healthy and growing. In Shutterstock’s case the public numbers confirm this. And Fotolia’s recent sale for a record price is certainly a sign of health and growth.
iStock is having some trouble, but most of that is coming from the strategic objectives and financial problems of parent company Getty Images, presumably not from competitive pressure.
Dreamstime could be hurting: they’re not doing any business development and many top contributors report falling royalties. But inactivity isn’t necessarily a sign of damage, and even if it was, it’s just one of the top four.
Why there Won’t Be a Price War in Microstock
There are many reasons why a price war won’t happen in microstock.
The main one is that prices are already low enough that they aren’t buyers’ first priority. So most customers don’t price compare. There’s two key reasons for this.
First, there’s switching costs. If they’ve invested the time to learn one agency’s search functions, built lightboxes, gotten to know their favorite contributors’ usernames, and possibly also invested in setting up a subscription, there’s too much to lose to switch providers just for a slightly cheaper price. Most of those are minor points, except the subscription is a major inconvenience to change at companies.
Second, is content. As top microstock agencies have mostly the same images, it raises the importance of search. It must be fast and quick so they find what they’re seeking as quickly as possible. The cost of time spent searching far outweighs the cost of licenses for the majority of microstock buyers. From those I’ve spoken with over the years, more buyers consider switching agencies for a better search experience even if the prices are higher.
Is the War Elsewhere?
While there may not be a price war going on among the top microstock agencies, it’s certainly something ill-informed entrants to the market often cite as a competitive advantage, mistakenly presuming that simply dropping profit expectations they can undercut competitors on price. Cue the eye-roll.
But if not a price war, perhaps there’s a royalty war. Except instead of competing for suppliers by raising royalties, they’re leveraging their selling power by dropping them. Hmm…
And what about the traditional market? Microstock has certainly had a catastrophic impact on prices in that space. But that is another post.
What do you think?