Butterfield co-founded the photo sharing website Flickr and its parent company Ludicorp with then-wife Caterina Fake. In March 2005 Ludicorp was acquired by Yahoo!, where Butterfield continued as the General Manager of Flickr until he left Yahoo on July 12, 2008.
In 2009 Butterfield co-founded a new company called Tiny Speck. Tiny Speck launched its first project, the massively multiplayer game Glitch, on September 27, 2011. Glitch was later closed due to its failure to attract a sufficiently large audience. The game world closed down on December 9, but the web site, with most of the content, is still available.  In January of 2013, it was announced that the company would make most of the game's art available under a Creative Commons license.
In 2005, Butterfield was named one of Businessweek's Top 50 Leaders  in the entrepreneur category. He was also named to the MITTechnology ReviewTR35 as one of the top 35 innovators in the world under the age of 35. In 2006, he was named to the Time 100, Time Magazine's list of the 100 most influential people in the world. In the same year, he appeared on the cover of Newsweek  magazine.
In November 2008, Butterfield received the Legacy Distinguished Alumni Award from the University of Victoria.