As you may know, Twitter announced a partnership with PhotoBucket and the ability for Twitter users to upload photos and attach them to tweets right from Twtiter.com. The functionality will also roll out to Twitter's mobile apps.
This leaves questions about what will become of services like TwitPic and Yfrog, which are essentially designed to serve this purpose. TwitPic does cater to videos as well, but how long until Twitter also caters to videos. They do seem to be competing with Facebook more and more, and the addition of video uploads would seem like an obvious addition for the future, especially in light of the photo announcement.
At the All Things Digital D9 conference today, Twitter CEO Dick Costolo said, "We have over 600,000 of these developers. Anything we do is going to have some overlap with what they do. What we will try to do as a company is signal where we’re going so we can give you room to move up the value chain. Everyone has to understand we’re going to innovate."
Apparently they haven't been signaling very well so far, as TwitPic's founder told Mashable, “We had no idea Twitter was building a photo feature. Communication between developers and Twitter has never been very clear and the relationships between Twitter and its developers has changed a lot since the Chirp conference last year. A more clear feature roadmap and better communication would have been much appreciated by all their developers.”
Uploading photos to Twitter is currently available on the twitter.com desktop version, and its access is initially limited to a very small number of users. In the next couple of weeks, as we progressively ramp up the number of users who have access to the feature, we'll provide you with more details about how you can use the "Tweet-with-photo" API.
For now, the only change you'll notice on the API side is a new "media" entity in the status object. We encourage you to support rendering, and to help you with that, we just revamped the Tweet Entities documentation page, describing in detail how you can use this structured data: http://dev.twitter.com/pages/tweet_entities
Note that we also updated our API Terms of Service  and our Display Guidelines  to include this new feature.
As ever, if you have questions about the new media entity or our ToS changes, let us know on the list or through @twitterapi.
In other words, why Twitter's new feature might not be the best thing in the world for the current models of TwitPic and YFrog, it looks like it will create some interesting opportunities for third-party apps in general.
Twitter will continue to support existing third-party photo sharing, so it's not like Twitter is just kicking the TwitPics and the YFrogs out of the club. It's more just a matter of whether or not people will continue to use them when Twitter has a native feature that does essentially the same thing.