Startup Review

Flickr Case Study: Still about tech for exit?

written by Nisan Gabbay, posted on August 27th, 2006

Why profiled on Startup Review

By financial measures, Flickr’s sale to Yahoo was not a huge success, at least by VC standards. Rumored to be sold for ~$20M-$30M, the company has certainly made a much larger impact on the Web 2.0 landscape than its valuation would indicate.

Regardless of how one views the size of the exit valuation or whether Flickr will prove to be a large, successful business, I still think Flickr makes for an interesting case study. Flickr got a lot of loyal users in a very short amount of time with no marketing spend, and that’s something that many web entrepreneurs are interested in understanding.

Interviews conducted: There is plenty written in the blogosphere about what made Flickr successful, and I have linked to quite a few of these references below. Most of what I have written is based on a public discussion with Caterina Fake at Y Combinator’s Startup School on April 28, 2006 and a subsequent follow-up interview. I have also discussed Flickr with a Yahoo executive for a perspective on the motivation behind the acquisition.

Key Success Factors

Flickr prioritized the development of viral product features.

Flickr might not have had a formal product roadmap, but they did explicitly focus their limited development resources on product features that directly helped to grow their user base. Features that have become synonymous with Web 2.0, like easy blog integration / export and post to Flickr badges on people’s sites were developed early on. As a result of these efforts, nearly 80% of new users found Flickr through the blogs of other Flickr users. Flickr also gave incentives to its power users to actively promote Flickr to friends by offering premium features (e.g. extra storage) in exchange for user referrals.

Emphasis on making a user’s first interaction with Flickr a positive one.

The first time I came across Flickr was a friend sending me a link to a picture. Right away I liked Flickr because it didn’t make you register just to view your friend’s photo, unlike the major photo sharing sites at the time. This is just one aspect of the many things Flickr did right to convert visitors into Flickr users, such as a simple user interface with no intrusive advertising. But even beyond the product and UI, Flickr emphasized making new users feel welcome. Caterina mentioned how there would be a member of the Flickr team moderating the Flickr forum 24/7 just to make people feel part of the community. While this might sound a bit exaggerated, you get the idea. Flickr put a tremendous amount of effort into community development and support.

Flickr makes discovering and accessing quality photos easy.

When Flickr came on to the scene there were really two kinds of photosharing services out there: those focused on efficiency around creating prints (Shutterfly, Ofoto) and those focused on public sharing of photos (Fotolog, Buzznet, Webshots). Flickr was really competing with that second group. What strikes me about Flickr is how easy it is to find quality photos – the best quality pictures on a certain theme rise to the top. In all of the talk about tagging and open APIs, what do these features really contribute to the service? The APIs and tagging make it easy for professional, semi-professional, or other photo enthusiasts to interact with the service in a way that casual users don’t.

The Flickr team targeted these professional and semi-professional photographers as the core of the initial Flickr community. They worked very hard to nurture the development of this community. Catering to the power users raises the quality of the photos, thereby benefiting the entire community. Flickr, unlike the hobbyist sites (Fotolog or Buzznet), emphasized that Flickr was indeed a for profit business. I think this perception of Flickr as a company gave users, particularly the power users, more confidence in the service.

Rapid development cycles.

Flickr most definitely falls under the “release early, release often” theory of web software development. Caterina said that Flickr does very little traditional usability testing, instead preferring to get the product out quickly and listen to users. Flickr was able to build a following with the techno-geek crowd because users didn’t have to wait long to see their suggestions implemented. On a good day, Flickr would release a new version every half hour!

Launch Strategy

I have discussed above how Flickr emphasized viral feature development to build its user base. I think that Flickr also benefited from a general market need around photo hosting for use in blogs and social networks – as witnessed by the success of services like PhotoBucket and ImageShack. Flickr made a good decision by enabling this functionality, but they clearly were riding a wave there, not the ones creating it.

Flickr was also the beneficiary of a great amount of mainstream PR, even if they did not instigate it themselves. Flickr did not hire a PR firm to generate publicity early on, only hiring a firm to help manage PR requests after the initial buzz created by viral marketing.

Exit Analysis

Flickr was acquired by Yahoo in March 2005, when Flickr was just on the border of becoming cash flow breakeven. According to Alexa, Flickr’s traffic is up >10X since the acquisition, so the company was able to extend its reach outside of its initial core user community.

So what was Yahoo’s motivation to acquire Flickr? Flickr was acquired into the Yahoo search group, thus indicating Yahoo’s intention to integrate Flickr photos into the general image search engine. It’s interesting that the acquisition was not initiated by the Yahoo Photos group, thus revenue, revenue growth, and profit were not the main motivations for the acquisition. Secondly, Flickr had developed a robust tagging platform that could be applied to other Yahoo products. Third, Yahoo was interested in acquiring the people behind Flickr and absorbing their thinking and DNA into the company. The least important factor in the acquisition was the user community that Yahoo acquired. While Flickr’s growth and buzz were important in validating the technologies that Flickr pioneered, the sheer number of Flickr users was not an important factor in the acquisition. Thus, at its heart, the Flickr acquisition should be thought of as a technology and people acquisition.

I did not get a chance to ask Caterina about the decision to sell Flickr to Yahoo rather than take venture financing. The valuations for Internet companies in early 2005 were not nearly as robust as they are today, so perhaps Flickr would have gone the VC route if it were executed in today’s environment. Perhaps we can get Caterina (or someone else from the Flickr team) to comment on this below?

Reference Articles

There are plenty of articles and blog posts that analyze the success of Flickr. Those that I found most useful (and contributed to my analysis – thanks!) are listed below.

Stewart Butterfield on Flickr, O’Reilly Network (February 2005) interview

Flickr and WebShots – A Classic Web 2.0 Case, Thomas Hawk’s Digital Connection (November 2005) Also a good follow-up to the original post.

Weights and Measures: Flickr vs. Photobucket, No Soap Radio (November 2005)
This is interesting because it is a blog post written by WebShots ex-founder Narendra Rocherolle.

Webshots and Flickr: A Possibly More Thorough Analysis
A nice commentary to the above two posts from a Software Engineer at Webshots.

Why Flickr and not Fotolog?, Atomiq (April 2006)

5 Reasons why YouTube and Flickr are successful – InfluxBranding (August 14, 2006) Nice post on the guiding principles behind Flickr’s success.

Untitled blog post from Antenna, a blog by design firm Giant Ant (December 2004)
A little known fact is that the founders of Flickr originally started their company in late 2003 by developing a game platform for a social MMOG. Flickr was originally an unintended outgrowth of this game platform. This post discusses how the game platform influenced Flickr.

An Interview with Flickr’s Eric Costello, Jesse James Garrett - Adaptive Path (August 2005)

Flakey Flickr goes down. Again, The Register (April 2005)
Interesting perspective on the photo quality aspect of the Flickr service.

Caterina Fake and Meg Hourihan Share Flickr, Blogger Lore – Christine Herron, VC at Omidyar Network (August 16, 2006)
Good recap on the origins of Flickr and how they managed the community in the early days.

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