The Pain and Potential of Making a 180-Degree Policy Shift

Photo-hosting service Photobucket in May quietly restored third-party hosting of photos, reversing its unpopular year-old policy that required users to pay nearly US$400 in subscription fees for hosting privileges.

Many irate users had reacted to the policy by claiming their photos were "taken hostage." Hosted photos on blogs, forums and other sites were replaced by an image of a dial indicating the hosted data quota had been surpassed.

Users were not given advance notice. Instead the company sent out emails with the message, "Some features on your account will be disabled. Your account has been restricted for excessive usage and 3rd party hosting."

Photobucket then encouraged users who previously had relied on the service for hosting to upgrade to a Plus500 Membership Plan, which cost $399 per year.

At the time, then-CEO John Corpus admitted that it was not an easy decision to make, and that he knew many people would be unhappy with the change in policy.

However, the ad-based model wasn"t working, and the company was losing money, Corpus suggested.

Ted Leonard, who joined the company last fall as its finance officer last fall, took the reins as CEO in March and had the images turned back on in May. The reversal, which took place with little fanfare, was viewed as an attempt to correct what was regarded as a business debacle.

Under the new policy, the company will offer free photo-sharing and ad-supported storage only, but no free third-party hosting. A basic plan includes 2 GB of photo-sharing with ad-free hosting for $2.49 per month. Users needing more storage can upgrade to an intermediate 20-GB plan for $3.99 per month, or an expert plan offering 2 TB of photo storage for $8.99 per month.

Regardless of the subscription plan chosen, the fees for third-party hosting are a lot less than the $399 price tag of a year ago.

Photobucket"s Story

Former CEO Corpus probably was right in suggesting that the company couldn"t continue with an ad-only business model. Photobucket has struggled in the past decade to generate a reliable revenue stream.

The company once was owned by Fox Interactive, a division of News Corp., which bought it -- along with MySpace -- in 2006. After it became clear that MySpace was losing ground to Facebook, News Corp. sold it off along with Photobucket, which proved not to be the next Instagram, in 2010.

At its height, Photobucket employed 120 people in its downtown Denver offices; currently it has just 10 full-time employees.

"The Photobucket subscription reversal shows how difficult it is for independent companies to find a successful business model among the giants," said Josh Crandall, principal analyst at Netpop Research.

"Even with a powerful platform and first-mover advantage, Photobucket has to compete against companies that offer a variety of "digital lifestyle" services through one account," he told TechNewsWorld.

"When Google offers 1 TB of Drive storage for $9.99 a month -- for photos, files, videos or other data -- it"s difficult to compete at a higher price point for a dedicated service," Crandall added.

Tech"s Giant Missteps

Photobucket is not the first tech company -- and likely won"t be the last -- to make such a notable misstep in policy: one that drove away once-loyal customers, and that subsequently required a policy reversal.

Ironically, another photo-sharing fiasco, which involved Instagram, occurred back in 2012, just three months after Facebook acquired it for $1 billion.

Facebook in essence turned the imaging-sharing service into the world"s largest stock photo company -- telling users that they wouldn"t be paid for sold images, including those used in ads. Due to the backlash that followed, Instagram backpedaled, issuing a statement that it was not the company"s intention to sell anyone"s photos.

Microsoft has had its share of bad decisions over the years, but its biggest centered on its Xbox One, which restricted the use of "pre-owned" games and limited games to one machine.

Anyone who wanted to play a game on a second Xbox One console had to pay an additional fee. That came after Microsoft already had reversed a policy requiring that the Xbox One be online even to play offline games -- or at least connect every 24 hours to "check in." It was soon "game over" for both restrictions, which quickly were reversed.

"When companies make major missteps in their policies or practices, they risk losing their most valuable asset -- customer trust," said Bram Hechtkopf, CEO at Kobie Marketing.

"You want best customers to be emotionally invested and passionate about your brand -- and incidences like these can tank a brand, but they don"t have to," he told TechNewsWorld.

"Sometimes we all have the best intentions but fail to see the broader picture," remarked Jim McGregor, principal analyst at Tirias Research.

"This is the problem of every company, not just high-tech companies," he told TechNewsWorld.

These types of decisions often are made in a vacuum, with little -- if any -- input from the consumer. Moreover, they often are made with little insight into any possible impact on the company"s existing business strategy, added McGregor.

"This, combined with the increasing influence of consumers and rapid feedback in the Internet age, can make the wrong decision a company killer," he said, "and it is important for individuals and companies to seek outside opinions and advisors to help avoid costly mistakes."

Reversal of Fortune

Many key policy reversals come with new leadership, and bad decisions can be blamed on the old guard. "Young Turks" such as Photobucket"s Leonard can claim to bring not only change, but also an improved business strategy.

Then there is the case of Steve Jobs, who essentially was fired from Apple"s Macintosh Division by John Sculley, the former head of Pepsi-Cola, whom Jobs had recruited to take on the top role at the company.

Jobs wasn"t technically out at Apple, but he was relegated to a position with nothing to do. He left and formed a new business -- NeXT -- which Apple acquired in 1996. A year later Jobs became Apple"s CEO.

Under Jobs, the company released the iPod and iPhone, and in the process became one of the most successful companies of all time -- which is notable in itself, but more so because it had been teetering on the verge of oblivion just prior to Jobs" return.

The moral of this story may be that it takes not only a new vision to correct past wrongs, but a special kind of vision at that -- and along the way, knowing who deserves trust.

"One of the common pieces of advice from successful people is to surround yourself with good people," said McGregor. "The same is true with companies, and they need other sources that can see things from a different vantage point and provide open and honest advice."

Brand Recovery

Even when the course is set right, it can take additional effort to restore faith among former users.

For example, Photobucket hasn"t made it clear that the restoration of existing third-party hosted images is permanent, or if users once again could face a situation in which they are held hostage -- albeit for a smaller ransom/subscription.

More importantly, even if Photobucket should allow the restored images to remain, it might not be enough to attract users to the new pricing strategy.

"Apple, Microsoft and Amazon Prime Photos all offer free or subsidized services for basic photo editing and storage," noted Netpop Research"s Crandall.

"For most users, these options are sufficient for their needs," he added. "So, when Photobucket raised their fees, it was pretty easy for users to migrate to other services. Unfortunately, it won"t be as easy to get those users to come back."

Rebuilding Trust

Even if users embrace the reversed policies, it can take time to truly win them back.

"Globally recognized brands can overcome major policy blunders and rebuild trust," said Bob Noel, director of strategic relationships and marketing for Plixer, a developer of network traffic monitoring and analysis tools worldwide.

"However, to be successful, the effort must have board-level sponsorship, include a highly coordinated PR effort, and have a dedicated, very large budget," he told TechNewsWorld.

"Companies in this situation looking to re-ingratiate themselves with consumers should acknowledge their misstep and adopt an open, honest line of communication -- and listen carefully to what their customers have to say," advised Kobie Marketing"s Hechtkopf.

"To begin the long process of earning back customer trust, they must vow to do better by their customers, and move forward with a well-thought-out revamp of their policies that both addresses the customer and ensures similar missteps will not happen again," Hechtkopf noted.

"Overall, it"s important to understand that customer trust is foundational to developing long-term customer loyalty, and without establishing this trust after a blunder or backlash, you cannot successfully bring back loyal users or customers," he suggested.

Photobucket could be an example of a company not really trying to restore trust. It has done little in the way of a PR push, as even its policy reversal took place largely under the radar and was barely reported outside out the company"s home base in Denver.

Even if a PR push should be forthcoming, there also should be changes in customer service initiatives so that customers truly feel the company is as good as its word, added Noel.

"Uber and Wells Fargo are recent examples of brands reacting to missteps," he noted. "Very expensive marketing and PR campaigns are under way with coordinated messages being delivered across multimedia channels. However, it will still take significant time to gauge how effective these efforts will be to right the wrongs of previous management decisions at these companies."

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 FoxNews.com. Email Peter.

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