Depositphotos has $8 million of investment, an external valuation of $100 million, and almost 500 staff under its belt. The company’s history began in a basement on Mezhyhirska street in Kyiv and continues in offices in eight countries across the world.
Today, Depositphotos is a group of content-related projects: a photo/video stock, an online advertising template editor, on-demand studio pavilions, entertainment YouTube channels, and media.
“I want to become a global content platform, with our team retaining control over the business and developing further. As a marketplace, we have traveled quite a long way. As creators of our own content, we are just getting started. We are constantly experimenting,” says Dmitry Sergeev, founder and CEO of the Depositphotos group of companies.
AIN.UA tells the full story of Depositphotos: not only about its success, but also about downfalls and crises, missed opportunities, project closures, and new endeavors that have not yielded a profit yet, but can once become The Next Big Thing.
The first entrepreneurial experience
Dmitry Sergeev first learned about the Internet in 1999. Back then, there were no ICQ, QIP, or Skype, and Google had just been launched. He earned his initial capital by making websites and simple online ads, buying and reselling all sorts of traffic.
“It is a pretty special feeling for an Internet entrepreneur back at the time: you whip up some stuff in an HTML editor to later upload it via a dial-up connection so that it can earn you some money.
Your wife is close by, the baby is crying in the kitchen, and then suddenly, you get a check for that from the US. You don’t know where to go: which bank will cash it. The check is for $52 – and that’s a hell of money! Because you have earned this money through a plug, to put it crudely,” Sergeev recalls.
Sergeev’s first significant project was the file hosting service DepositFiles. The entrepreneur explains its success quite simply: they entered the niche at the right time, riding on the hype, and offered users an interface that was convenient and easy to understand. Back then, there were some large online storage providers already, so Sergeev just took the existing model and improved it.
“We didn’t work with pirates or porn resources, nor did we generate traffic on purpose – we just made the whole thing a little better than others,” Sergeev comments.
Initially, there was just one programmer working on DepositFiles, besides Sergeev. He had come from Dnipro (still called Dnipropetrovsk back then), and he single-handedly, working in Sergeev’s kitchen, managed to do what is done by whole development offices nowadays: a project with millions of users per month.
Like everyone, they profited off download speed. It was deliberately limited, and if the file was large, a free user could wait 24 hours for it to load. But by paying a small amount of money via SMS – generally, less than $1 – he or she would get high speed and multiple transmission streams. Today this model is called “freemium;” the vast majority of mobile and desktop applications are monetized through micropayments.
DepositFiles soon rose to the top 5 but never took the lead. However, Google, PayPal, and other today’s Internet giants worked with the Ukrainian company, and some potential investors offered to unite.
A basement is a Ukrainian-style garage
The office was based in an old Khrushchev-style residential building not far from the Okruzhna beltway. DepositFiles was becoming widely known, and people wanted to work there, so Sergeev started to hire “people off the street” for the project. They were coming to the interview from all across Ukraine and even from other CIS countries. The team grew to 8 people, so the “khrushchyovka” felt too small.
Even before his online business, Sergeev had bought a basement on a downtown street, Mezhyhirska; he wanted to open a nightclub there but did not have enough money and failed to agree with the neighbors. So he decided to convert it into an office. A friend helped him with refurbishment, and the employees moved the furniture and belongings themselves in a van.
This basement was where the company’s corporate culture began to take shape, although the term was not yet in use in those days. The walls were decorated in the style of the then-popular House, M.D. series.
The absence of windows, the monotonous hum of the engine, and the exhaust system did not bother anyone: it was a place where they stayed late into the night, celebrated the New Year and birthdays.
At the same time, several people slowly and enthusiastically were working on Depositphotos.
“We were constantly trying something new, testing some kinds of models. A photobank was one of such experiments,” the entrepreneur says.
A beautiful adventure comes to an end
In the early 2000s, the file-hosting sector began to collapse amid the anti-piracy drive. Sergeev tried to transform DepositFiles and redirect its enormous traffic to the social media sector. At that time, VKontakte was booming on Runet, and the team tried to occupy this niche, but the attempt was unsuccessful. People just wanted to download or send over a file. And there was a lot of “trash” among those files, as Sergeev puts it.
“We were constantly receiving letters demanding to remove something. We were deleting files by hundreds of thousands every day; it was very bad,” Sergeev recalls.
“You couldn’t call DepositFiles piracy. It was a beautiful adventure. As soon as it became clear that the market was in trouble, I withdrew from the business.”
Many similar projects had been sold for hundreds of millions of dollars. Sergeev was less lucky. He sold DepositFiles not to make money but to get rid of the burden in Sergeev’s telling. DepositFiles was sold as a set of scripts and a user base-priced at approximately 0.03 cents apiece. Sergeev does not reveal the exact amount. Media have previously suggested a sum in the region of $2 million, but the entrepreneur calls that an overestimate.
“I was lucky to pick the right moment and find a buyer. Following that, file-sharing platforms ceased to exist as a business sector, and the remaining projects were sold for a song – if they were sold at all.”
Sergeev admits he has not visited the DepositFiles website for nearly ten years. Today any mass-scale uncontrolled file sharing is banned, so the model that was followed by DepositFiles, RapidShare, and other file hosting services that were popular back in the Aughties, is gone for good. Silicon Valley has come up with a new file sharing method: cloud storage platforms like Dropbox or Google Drive. Copyright has prevailed.
New Deposit. The beginning
The sale of DepositFiles was completed in 2009. The same year, Sergeev launched a new project with a similar name, the photobank Depositphotos.
This time again he did not offer anything revolutionary: by the time Depositphotos was launched, there had been some large photobanks on the market: GettyImages, Istockphoto (later bought by GettyImages), and others. They were also selling box scripts allowing users to build their own photobank. One such script was used as a foundation to build Depositphotos. Sergeev bought it for $250.
He admits he did not pay much attention to Depositphotos for a long time – just visited it to see how it was going and kept himself busy elsewhere. Meanwhile, the service was acquiring unique designs, features, and a user interface of its own.
As a way to attract photographers, they were simply paid for uploads: 10 cents per shot, which added up to tens and hundreds of dollars per person. According to Sergeev, about a million dollars were spent to stock up on photographs. Another $150,000 was put into the office and salaries.
Users were drawn in for a free trial period.
“Now it is a standard model that no Internet project can launch without. But back in the days, it was viewed as something next to fraud. You asked for their credit card details in advance, then people forgot to unsubscribe, you charge them money, and PayPal comes to you to find out who you are,” Dmitry recounts.
Many of those attracted by the free trial stayed, and Depositphotos hit its stride. An unsophisticated SEO brought good organic traffic to the website. The brand continuity also helped: everybody on the Internet knew DepositFiles, as it was the fifth most visited file hosting service in the world, and people were interested to see what the new project was all about.
Competitors did not hesitate to take advantage of DepositFiles’ “pirate” aura.
“They slung mud at us on web forums, signaling that the photobank market was being invaded by Russian pirates, who would now rob you. We mobilized our PR guys to deal with this wave of negativity properly from the start. And eventually, it worked in our favor because Depositphotos is actually pure copyright.”
Shares for sale. Expensive!
Depositphotos was growing “out of pocket” for two years, following which, TMT Investments put $3 million into the company in exchange for a 27% stake in 2011. Back then, the entire business was valued at $10 million.
Now, Sergeev says, he regrets not having raised investments earlier. But in 2009–2010, he vastly overvalued his company: when Depositphotos was 20 times smaller, Sergeev asked investors for 20 times more funding.
“When Instagram was acquired for a billion, I couldn’t sleep at night: I didn’t understand how this rubbish can be acquired for such huge sums of money. Riding on the hype, we went to a roadshow and put the value at $250 million while earning $1 million per year. When they asked us why so much, we told them, because! They replied they would think about it – and didn’t invest.”
One of the most generous offers that Depositphotos declined was to enter at 30% with a valuation of $50 million. This would be a $15 million investment, much more than the company eventually raised.
Another offer that Sergeev rashly declined had come from Fotolia, already a popular photo service at that time. Its founder Oleg Tscheltzoff wanted to buy part of the Ukrainian photobank’s stock at an early stage, but Dmitry would not sell.
After a while, Fotolia itself was sold to the giant Adobe for almost a billion dollars.
“If we had agreed then, it could have been a nice deal. I would make more money than I have now,” Sergeev recalls.
Depositphotos goes out into the world
Depositphotos used TMT Investments’ money to hire PR experts, prepare first bases for users, and enter all forums. The service attracted attention in the USA; Americans started to invite the company to conferences and offer partnerships.
“On top of that, Getty Images wanted to buy us,” Sergeev recalls. Obviously, he did not sell the service.
In 2011, Depositphotos already had 40 employees, and there was no room for all in the basement. Sergeev rented another semi-basement office nearby and then – several apartments. The team kept growing, and Depositphotos moved to a 5-story building in Podil. Within it, the company grew to 150 people.
In 2012, Yevgen Sysoyev, AVentures’ managing partner, joined the Board of Directors. It was he who explained to Sergeev that it had been a mistake to decline the above offers. He also introduced the founder to several journalists: Depositphotos began active life in the public eye.
By that time, the company’s annual earnings had already reached $6 million. Depositphotos had organic growth of 100% per month. In 2013, Forbes Ukraine valued Depositphotos at $100 million. As for Sergeev himself, he said that $70–75 million was a more realistic figure.
Depositphotos raised the next round of investment in 2015 when it received $4 million from the EBRD and $1 million from TNT. In March 2016, the company was valued at $82 million during TNT’s partial cashout: the fund sold a part of its stake to an undisclosed European investor. According to Sergeev, before 2017, Depositphotos was growing at an annual rate of 50%.
Other projects
Despite his success with Depositphotos and an increasing amount of work, Sergeev remained true to his entrepreneurial habit of trying new things all the time. In 2013, he attempted to harness the fast-growing smartphone market and launched Clashot, a bank of amateur photos. But the app didn’t make it a scalable project.
“We can acknowledge our failure. Although it seemed to me then that I had invented a new Facebook,” Dmitry says.
“Literally all photobanks, with no exceptions, did the same thing, but no one was able to monetize the collected content.”
During the ICO hype, Sergeev wanted to reanimate Clashot, but part of the Board did not approve of the initiative. The project was shut down and archived.
In 2014, Depositphotos turned to the media industry and began to publish an online art and photography magazine, Bird In Flight. It was headed by Eugene Safonov, the first editor-in-chief of The Village’s Ukrainian version. The launch of a specialized magazine gave Depositphotos an opportunity to raise brand awareness in the Russian and Ukrainian markets.
The edition was successful: BiF was praised as the best in its subject area. Inspired by this success, Sergeev launched another media outlet: WAS, an online popular history magazine with BiF’s Ivan Siyak as editor-in-chief.
In addition to WAS, the company launched two more projects in 2017: the Lightfield photo studios and the Crello image editor.
“Crello was a logical step in the development of Depositphotos within the content sector. We had a photobank with a colossal amount of images. Then our market was invaded by Adobe which bought Fotolia with a bank of 60 million images, for $800 million. Photobanks responded by launching online editing tools, so-called ‘browser photoshops.’ Shutterstock was the first one to do it. We also launched our own editor, Crello.”
By using templates, Crello allows you to put together ads and promotional materials, with no design skills required. At launch, the service was completely free. According to Sergeev, about 60,000 new users registered with Crello on launch day. At first, the editor grew by 100% per year while gradually introducing paid features. This led to a slowdown in the growth.
With a 2,500 square meter area, Lighfield was the largest photo studio in Ukraine and Eastern Europe. Depositphotos had invested UAH 40 million in its launch and planned to put up another 150 million, eventually investing about a third of this amount. But the plans changed in 2020.
Lightfield had two business streams. The first one was something like a coworking space for photographers, with an option to rent equipment and premises or organize a full working cycle of photo and video production. Lightfield also worked as a production facility for major customers: it handled large orders from agencies and companies. To do it, the company employed its own specialists and producers.
Everything went well until late 2019 when the world was hit by the coronavirus pandemic.
The pandemic changes the plans
Lightfield was affected by the pandemic more than Sergeev’s other projects. Projects were shut down, and studio pavilions stood idle. Neither did the coworking space pay off: for a photographer, an hour of work in Lightfield cost UAH 400, but these earnings were too little.
“With those immense spaces, we were just standing by and paying for them,” says Sergeev.
We decided that, instead of closing the project, we should reinvent it. We laid off part of the employees, half of the premises were given up. The remaining part was used to shoot stock content: short-themed clips that users could combine to create complete videos for sale. It was then that Sergeev paused to think: why not create the end product independently?
“Having produced stock content on a wholesale scale, we shoot a lot and have a wealth of experience in it, anyway. We are familiar with the greater part of the filming process. We have begun making our video content more sophisticated and are trying to reach a wider audience with it. Now, it is a range of channels on YouTube, Instagram, Facebook, and TikTok. It is the only text for now; we shall see what can grow out of it.”
One of such projects will be the YouTube channel “How it WAS: popular history,” a reincarnation of the closed WAS. The magazine has lost all advertising revenue, and its investor has decided to remodel it.
According to Sergeev, this area has required but minimal investment: so far, they have been delivering the very cheapest DIY entertainment content; if it works out, the team will go for more complex filming.
Bird In Flight has suffered less than WAS: according to Sergeev, its adverting revenue has fallen dramatically, but not to zero. Today BiF pays back 50% to 70% of the allocated budget.
“BiF is quite complex content. It may pay off, but it doesn’t have to. The project has different objectives,” Dmitry says.
BiF has 20 editorial staff, its readership comprising about a million users. Sergeev has no plans to disband the project.
Crello also continues to develop, currently being an unprofitable startup. And that in addition to being quite expensive: according to Sergeev, nearly a third of Depositphotos’ budget is spent on Crello.
Crello remained free of charge from its launch until 2019 when the board decided to start monetizing it. This led to a churn of users.
“Canva costs $9 per month with a trial period of 30 days, and we offer $8 per month with a trial period of 15 days. But in terms of the product, Canva is ten steps ahead,” Sergeev explains.
Crello has now turned to the freemium model: the basic service is free of charge, but some features are only available for a fee. This way, Sergeev wants to gain customer traction.
“I am sure that now profit is not the most important thing for Crello. In our pursuit of money traction, we risk losing time and missing the market. We need to become more visible, and we are getting closer to that,” he explains.
“Now we need a user base more than money. We need to gain a firmer foothold in the market, and then we can start the monetization.”
Before the pandemic, Sergeev planned to raise investments in Crello, but he has dropped the idea now: “Until there is clear traction, it will be very difficult to talk to investors. Money-wise, you gain a 20% annual growth rate, but the user base is shrinking. Or the user base is growing rapidly, whereas monetization is falling. This would raise many questions. Investors should see a clear strategy and the point.”
Tough times
The pandemic has taken a terrible toll on the small and medium-sized businesses that Depositphotos focuses on. Sales fell by up to 20%, depending on the market, with the maximum drop in March and April. In March, the most noticeable slowdown occurred in the EU (Italy, Spain, and Poland), and in April, in Russia and the CIS. Besides the global pandemic, the Latin region experienced a political and financial crisis related to the devaluation of the Brazilian currency.
The sales recovered only by September 2020. According to Sergeev, there was even a slight increase of about 10% compared to last year.
However, very few employees use the company’s 3,500-square-meter office, costing the company almost $500,000 a year. In fact, 90% of the employees work from home, but Sergeev refuses to give up the office.
Depositphotos currently employs 450 people, with about 400 of them working in Kyiv. Although Depositphotos is legally a US group of companies with offices in Ukraine, the US, the UK, Germany, Russia, Poland, Italy, and Cyprus, in fact, it is a Ukrainian company.
“There are about 50 people in all these counties. In this way, we keep the minimum required for the proper legal structure of the European representation and business security in general.
In Cyprus, we have 20+ people – the Depositphotos sales department, part of the Crello marketing team, and part of the Crello developers hired outside of Ukraine. In the US, we have an API team, sales representatives, and management. There are also a few representatives in Western and Eastern Europe, England, China. There are up to 20 people for all Western regions and Asia,” Sergeev explains.
The foreign staff may soon grow significantly. Despite the difficulties the pandemic has caused, it has its advantages.
“We do like hiring all over the world now, and it’s becoming the norm. Previously, you had to show a job candidate the office, a coffee machine, a sea view from the window, a parking lot, nametags, smoothies, and a three-course lunch, and a lot of people turned their noses up and said, “It’s hot in here.” And if you wanted the staff to come to you from Spain or Egypt, you had to surprise them with some meeting room and a sleeping bag right there. And now everyone has an equal footing, a kitchen. I don’t know how long we can operate like this. But I have the feeling it has gotten better.
By the way, I also have a small child sitting on my lap most of the time while I work. So I would not say that I like remote working just because I’m so privileged and have a bigger apartment,” Sergeev says.
Unconquered China
The pandemic is not the only difficulty; the competition has also intensified. Canva entered the market with huge resources, which, among other things, provides a free image database in its service. FreePic with $250 million from good investment firms, a newcomer Storyblocks, and others – all of them eat away market share, slowing the growth of Depositphotos and other players.
“I can’t say what market share we have today. If we talk only about micro stocks, the volume of the global market is about $12 billion a year, and we occupy up to 1% of the market,” Sergeev estimates.
The primary income of Depositphotos comes from the markets of English-speaking countries (including the US) and Europe, which account for 65% of the company’s business. Ukraine and the CIS countries, where Depositphotos has a leading position, 12% of the company’s income, take second place. The rest comes from Asia and Latin America. According to Sergeev’s estimates, China could double the company’s turnover if Depositphotos entered that market directly. The market is huge and rich, and there is a significant uncovered demand for the service. But all attempts by Depositphotos to open a representative office in China have failed. Therefore, the company still works there through resellers, similarly to the largest competitors, including Canva.
“An American or Ukrainian cannot start a company in the PRC; only a Chinese citizen can do it. You have to go there, look for people who won’t steal your business, get a license, and register a company. All this takes a very long time,” says Sergeev.
But that’s not the most challenging part. China has its regulatory agency, similar to Roskomnadzor, which closes down everything without warning from time to time. Not just any particular page, but the whole project at once.
What’s next?
Now the growth of Depositphotos has significantly slowed down. If in 2019 the service grew by 20% compared to 2018, then in 2020, Sergeev does not expect the result to be more than 10-15%. Nevertheless, the company has enough income to support itself and its startups.
In December 2020, Depositphotos rebranded for the first time since its founding. The new visual identity for the company was developed by the CREVV agency. It changed the logo, font, communication, and positioning. “Ordinary Stock for Unordinary People” is the new concept of the rebranded Depositphotos now.
“In the 11 years that our service has been in operation, we have been able to understand our users well. They are brave in their expressions. At the same time, they are in constant search not only for inspiration and ideas but also for simple and effective solutions for their tasks. That’s why we have strengthened our communication with a new visual identity, which is based on simplicity and creativity, emphasizing the diversity of the content of our platform,” explained Depositphotos CMO Alina Volchek, who was in charge of the rebranding.
Sergeev has no plans to leave the business and calls himself an “involved founder,” that is, a founder who personally leads the team. Sometimes he does this haphazardly, but it has worked so far. However, he says that he has never received any offers to buy the business that would satisfy him.
“I don’t see an opportunity to get out of the business at the current moment. You can get out a little bit, lose control and start building a rocket to Mars and then it turns out that this niche is occupied.
When the time comes to get out, I will get out. When there are more powerful ideas for the future and serious proposals, I think I will agree. But not right now. I feel the way things work, and I realize that right now is not the time.
I’m thankful for the current investors who are also with me and don’t want to exit the business and reject the offers that they receive sometimes,” Sergeev explains.
