How Shutterstock Made $120 Million Last Year Selling Photos on the Internet

The unlikely story of a company that built a business selling the recent torrent of digital photos.

The stock photo company Shutterstock has grown tremendously as companies of all sorts realize that they're in the media business. And if you're in the media business, you need visuals. The incumbents in the stock photo space, like Corbis and Getty Images, get expensive if you need to illustrate hundreds of pages on a website.

So, Shutterstock came along with an all-you-can-eat subscription model and said, "Here, use tons of photos from this library of 19 million images." Some of the images are cheesy, but they serve the role that clipart used to: filling a space that you know needs an image with something vaguely topical (see above).

Now, after doubling revenue growth over the last two years, the company is preparing for an IPO.

It's an interesting game that Shutterstock is playing. Individual customers pay an average of about $3 per image. That's dirt cheap, but they make up for it on volume, bringing in $120 million of revenue in 2011. On the producer side, my read of their SEC filing is that they paid out $39.3 million in royalties to 35,000 contributors. So the mean contributor is making something like $1,100 a year by posting their work on the site. (I don't know exactly what the distribution looks like; we only know that no entity received more than 10 percent of the royalties paid out.)

This is clearly a buyer's market. In fact, it's amazing that some entity, i.e. Shutterstock, has been able to build a nine-figure business on the flood of digital imagery emanating from DSLRs across the world given that buyers aren't paying much and sellers aren't making much. They've come up with a cost structure that's low enough to enable them to turn a decent profit. The company's had net income of around $20 million a year since 2008.

From an investment perspective, the most obvious red flag, though, is that their revenues have more than doubled in the last several years, but their net income has been stagnant. They're having to spend a lot more money on sales and marketing than they did back in 2008. If that trend continues, something will have to change on the revenue side.

Alexis C. Madrigal

Alexis Madrigal is a senior editor at The Atlantic, where he oversees the Technology channel. He's the author of Powering the Dream: The History and Promise of Green Technology. More

The New York Observer calls Madrigal "for all intents and purposes, the perfect modern reporter." He co-founded Longshot magazine, a high-speed media experiment that garnered attention from The New York Times, The Wall Street Journal, and the BBC. While at Wired.com, he built Wired Science into one of the most popular blogs in the world. The site was nominated for best magazine blog by the MPA and best science Web site in the 2009 Webby Awards. He also co-founded Haiti ReWired, a groundbreaking community dedicated to the discussion of technology, infrastructure, and the future of Haiti.

He's spoken at Stanford, CalTech, Berkeley, SXSW, E3, and the National Renewable Energy Laboratory, and his writing was anthologized in Best Technology Writing 2010 (Yale University Press).

Madrigal is a visiting scholar at the University of California at Berkeley's Office for the History of Science and Technology. Born in Mexico City, he grew up in the exurbs north of Portland, Oregon, and now lives in Oakland.