The biggest Web site you've never heard of

NEW YORK (Fortune) -- Photobucket is the most important site on the Internet that hardly anybody understands. Unpretentiously, it has built an essential service that didn't need to shout out for attention, the way MySpace, YouTube, Facebook, Flickr, or other related sites have. Yet it's built an audience of 38 million members, a figure now growing more than 80,000 per day. That's up from just 50,000 members at the end of 2003.

Photobucket is where your photos live. Its name is well chosen. The whole point is to allow you to show those photos anywhere else you want on the Internet. "We let you aggregate and share your personal media with the rest of the world," says CEO Alex Welch.

Photobucket is built on linking. You put your photo or video there, and link it to whatever other site you want - be it your MySpace page (where the largest single number of Photobucket links, by far, are directed) or your personal blog. Large numbers of links go into Facebook, Xanga, Friendster, LiveJournal, Blogger, and other such sites.

There is a secret sauce here---once somebody has stored their photo somewhere they will guard it zealously. Their online social life, so built around images, depends on it. That is what excites CEO Welch. "We're fad-proof," he declares. "If one social networking site goes away and another comes up the user just moves, but their content stays with Photobucket." He tries hard not to compete with the sites where his users congregate, which he calls "the social edge." "We focus very much on not being a community," Welch explains. "We let the communities build around us."

A recent story on News.com tried to poke holes in the Photobucket, so to speak, by saying that "critics" claimed the business would be at risk if MySpace ever withdrew permission to host links there. But that's about as likely as MySpace simply ejecting members by the millions. If it prohibited their precious links it would face a user revolt.

But in fact the flexibility Photobucket gives users to shift their links to other sites does enable them to flee MySpace, something many teenagers have recently been doing as they migrated to Facebook, where security and control provisions are greater.

The real risk to Photobucket would be if the next hot social network were able to become popular while prohibiting linking from the outset. But given how users have learned to behave, that might be difficult to achieve.

Meanwhile, Photobucket is happily learning to monetize its 17 million unique visitors per month, as counted by ComScore. That's slightly more than Facebook and half as many as YouTube (though far fewer than MySpace's 64 million). Interesting, it's more than double the 7 million at Flickr, the site many people believe is the largest photo-sharing site. Photobucket pushes over 2.5 billion images out onto the Net each day, and its visitors come to manage that photo and video stream.

So far, 80% of revenue is from ads. While I was uploading my own photos recently I saw ads from eBay (Charts), eBags, and AT&T (Charts). Disney (Charts) recently launched a shareable "Peter Pan" slide show to promote its upcoming movie. Photobucket also makes money from its "pro" service, which gives you the ability to store more and larger images (and videos up to 10 minutes in length) for $25 a year. Welch claims the company will break even this year.

Jerry Murdock, an investor in Photobucket and close advisor to Welch, says that linking is a far more important phenomenon online than most people realize. "Linking is the new currency of the Web," he effuses, proud of the formulation. He notes that when Photobucket surveys its users, only 30% say they are storing photos. The rest just say they are making links.

Welch and Murdock believe that because they know how many people are linking to a piece of content, and who they are, it will allow them to build the Web's best ability to search for images.

Photobucket knows what's on its site. It employs 80 people who scrutinize images to prohibit porn or illegal commercial content. While they're looking, they also add so-called "tags" to the images to identify them. That will enable users to search for things by category, something that so far is very difficult elsewhere, even at Google. Photobucket plans to start pushing image search in the near future.

Welch says that when he asks Silicon Valley audiences if they have heard of Photobucket, few have. But when he recently asked the same question to a group of teenagers on a New York street, every single one raised their hand.

David Kirkpatrick will be on vacation next week. Fast Forward will resume the week of April 9.

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