They provide a place that is wildly popular, huge traffic. They don't have to pay anyone to provide content, nor do they have to pay people to do marketing work. The users provide the content and the marketing when they upload photos and then stick their flickr widgets in their blog sidebar and email everyone they know about their flickr page. A huge swath of their budget is a fraction of what it would be had they had to pay for content production and marketing staff and campaigns.
So, they have eyeballs glued to their site as being a flickr user becomes cachet, especially for bloggers. It becomes THE place to go for amateur photographers who create a community, often critiquing each other's work, sharing tips, sharing info about the equipment used to take the photo.
It's called branding: it establishes the dominance of the brand, Flickr. A lot of money gets spent on branding. In this case, the cost is thought to be marginal b/c so much of the heavy lifting gets done by fanatical users.
They make money by the massive traffic a portion of which will predictably click on a yahoo! advertisement. If Yahoo ads are like google's, then the advertiser can select which portion of Flickr they want their ad served on by selecting keywords. Canon can sell their cameras by serving up ads on the pages of flickr users who post info about the Canon camera they used. N00bs who say, "Ding! I want to be as good as that photographer! I need to buy a Canon!" will click on the ad.
Internet advertising is a big numbers game. You need huge numbers. Yahoo not only sells the advertising but created a captive audience with buys like Flickr
They also make money on the model of some users being so dedicated that they will pay the premium price for Flickr account. Thus, they subsidize the casual users who are their for the free ride.
And any smart company is using all of this traffic and info about social networking to collect data. They use it for themselves or sell it or both. It is a very cheap way to collect marketing data for developing your own business plans. You get some whiz bang MIT and Stanford grads to set up applications to crunch the numbers and it tells you things about the demographics of users and what they like to look at, search on, upload, etc. Massively interesting info.
The "lefty" that first came to my attention for his gimmicks in this regard was Jonah Perreti:
All the things he's been involved in seemed innocuous and lefty causes. But what he was really doing was crunching the data on social networking as part of his work at MIT's media lab which is all about advertising and marketing.
http://mailman.lbo-talk.org/2002/2002-January/002203.html http://mailman.lbo-talk.org/2005/2005-March/006414.html http://www.thenation.com/doc/20010409/peretti
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