5 lessons of Photobucket Fiasco

Photobucket, which started out as a plain-vanilla hosting service, cried wolf last night when it claimed that MySpace was blocking its videos. The truth came out this morning: because Photobucket is selling ads on videos that get shown on MySpace via widgets, MySpace is blocking them just like it would anyone else.

It is clearly an emotional issue, as you can tell from the big debate that rages on the blogs. The fact is, Photobucket and MySpace are both for-profit entities, and this is less about emotion than it is about capitalism. Nevertheless, there are some lessons here for start-ups hoping to thrive in the new disaggregated web world.

1. 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.”
2. 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.
3. 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.
4. Pay to play and ensure longevity. Remember, even Google had to pay MySpace, and you the start-up are not that special.
5. Free is a tactic, not a business model, and has strings attached to it.

Liz pointed out during a chat this morning that these are all truisms of the old media world that some optimists had thought wouldn’t apply to to the new new media world. Now, it seems the new theories of disaggregation are getting throughly trampled.

I haven’t had a chance to ponder over that, but would like to throw this open to debate and get your thoughts on this. Are there other lessons to be learned from this fiasco? What does Photobucket do? Become a destination? Are destinations a better option for a start-up? Let the conversation begin!