Om Malik writes in 5 lessons of the Photobucket fiasco: "Free is a tactic, not a business model, and has strings attached to it." (I'm not going to recapitulate the whole bruhaha here, but basically MySpace blocked Photobucket videos that had embedded ads.)
This is just another aspect of the "free API problem" that I wrote about last week and discussed in more detail in the context of January's Mashup Camp at MIT. Reliance on the good will of for-profit corporations is a dangerous page in anyone's business plan. If you're an arts program or a local theatre, perhaps the realities of the market are that you have to depend on the generosity of civic-minded business sponsors. But I sure wouldn't want to sell a business plan to a VC that rested on the hope that Rupert Murdoch's minions might not notice me.
Om Malik's other "rules":
Don’t depend too much on one partner, especially one you don’t have a formal relationship with. Or as one smart commentator writes, “One line of code from that 3rd party literally puts these guys out of business.”
- If you are going to depend on one partner, don’t make waves. Stay under the radar. I am sure bragging in Fortune didn’t help Photobucket’s case.
- Don’t lose sight of your own mantra. Photobucket said all along it was just a service provider, and didn’t care about page views on its own site. How it was going to scale and build its revenues, based on that model, is a tough question Photobucket didn’t ask itself in the early days.
- Pay to play and ensure longevity. Remember, even Google had to pay MySpace, and you the start-up are not that special.
- Free is a tactic, not a business model, and has strings attached to it.
[UPDATE: The facts in this particular case seem to be "fluid," but that doesn't matter for any of the basic principles involved.]