Is there an equivalent to "every program expands to read email" for web services? Because just about every image hosting service seems to go down this feature creep route.
Sure, there's some complexity in doing it at scale, but it doesn't actually need to be done at scale to be done easily. 50 different small image hosts is as good as one big one from the perspective of end users.
As a result, it's /really/ hard to get people to pay for it, and you cause exoduses by trying to embed advertising. The only thing you can do is grasp for features to validate your business.
Anyway, Reddit gets paid via ads and gold, so people are paying for it. They just won't pay for it on it's own, because image hosting on it's own is not really worth much. You could make your own perfectly adequate image host on a raspberry pi. Reddit's value is not in it's image hosting. Nor is Wikipedias or 4chans.
Imgur picked a shit business model, the internet will survive their inevitable passing.
Think of it as analogous to sanitation. Being in the garbage hauling business isn't something that really revs that many people up, but civilization literally depends on it.
It didn't last forever, but Imgur was great for a long time.