Digital photo start-ups are getting ready for their close-up. But will consumers like how things develop?
Photo Opportunities
Digital-photo start-ups get ready for their close-up
By the time Mark Platshon landed a meeting with celebrated Kleiner Perkins venture capitalist John Doerr in mid-1999, Platshon and his online digital-photo business, Zing Network Inc., had already been snubbed by a dozen other VCs. So Platshon couldn't help bracing for rejection when -- midway through his pitch -- Doerr walked out and began rummaging around in an adjoining office.
But as suddenly as he had exited Doerr rushed back in, hastily pulling a brand-new digital camera out of its box. Finding nothing in the accompanying literature about uploading, accessing, and distributing digital images on the Internet -- a major component of Zing's business -- Doerr concluded that Platshon had hit on a missed market opportunity. Kleiner Perkins took the lead in a $14-million round of financing for Zing that closed in August 1999.
"Doerr just got it," remembers Platshon. "He understood the significance of the consumer shift to digital photography and that it would remake the entire industry in just a few years." Indeed, Boston-based InfoTrends Research Group Inc. projects that online photofinishing will be a $4.4-billion worldwide market by 2005.
The start-ups jostling for position in this emerging field have staked their claims in slightly different territories. Some have opted to become digital photo processors, creating hard-copy prints of film and digital media, and uploading digital images to the Web. (See "Someday Your Prints Will Come," below.) Others, including San Francisco-based Zing, outsource their customers' printing needs and focus on Web-based storage and sharing of digital images.
A collage of services
Among storage-and-sharing sites, Zing's stands out for garnering some 3.5 million users each month. That's quite a following, considering that three years ago the company was headed in a completely different direction. When Platshon stepped in as CEO, in December 1997 -- after a yearlong stint with Zing investor Alloy Ventures Inc., in Palo Alto -- the company was developing imaging technology for use in Web-based advertising. But by late 1998, Platshon saw a bigger market for online photography management as part of an Internet business for uploading, storing, and sharing digital images. "And so," he says, "we changed the business."
Since making that shift, Platshon has made acquisitions a major part of Zing's growth strategy. He began by purchasing image-uploading technology developed by FotoNation Inc. that provides a camera-to-Web connection, enabling digital photographers to plug their cameras into computers and connect through the Internet directly with Zing. Platshon has also sealed deals with manufacturers that have agreed to install FotoNation's uploading technology in their cameras, making Zing the default Internet destination for users of digital cameras sold by Sony, Casio, and Nikon.
Those deals are driving customers to Zing's site, where product E-tailing accounts for some two-thirds of revenues, Platshon says. In E-tailing, too, he has bought his way into the business. Last January, Zing acquired Pix.com, which scans digital images onto everything from calendars and cookies to mouse pads and T-shirts. Platshon added another source of E-commerce revenues in August, when he snapped up Eframes.com, a high-margin, high-end framing business that handles its own digital printing. That deal may enable Zing to collect revenues from competitors that outsource printing and framing services to Eframes, which has retained its name within the Zing network. "Eframes can provide its services to anyone, even businesses that might be Zing competitors," Platshon says.
Enjoying its Kodak moment
In contrast with Zing, which has focused exclusively on digital converts, San Francisco-based PhotoPoint Corp. has positioned itself as a go-between for film users who are just now beginning to go digital. Launched in August 1998, PhotoPoint seized an early-mover advantage in the online photo-sharing space through a partnership with PictureVision Inc., a subsidiary of Eastman Kodak Co. In that deal, PhotoPoint CEO Ed Bernstein agreed to pay Kodak a flat fee in exchange for access to the film- and digital-camera users who bring their pictures to 40,000 Kodak PhotoNet processing locations throughout the country.
Bernstein proposed the deal as a way for Kodak's digital-development division to provide its customers with long-term Internet-based storage, sharing, and image-enhancement tools. Because PhotoPoint provides free long-term storage for Kodak's brick-and-mortar retail customers, the Kodak retailers stand to get more reprint orders over a longer time period, Bernstein says. And PhotoPoint enjoys direct access to established Kodak customers.
As Bernstein sees it, PhotoPoint's tie-in with an old-economy film-industry giant is the surest way to build market share in the burgeoning digital field. Close to 90% of camera users have yet to take the digital leap, after all. And although digital-camera sales are predicted to soar, a survey by Jupiter Communications Inc. found that 37% of consumers would rather store digital images at home than post them on the Web. Bernstein is betting that PhotoPoint can leverage Kodak's trusted brand name to reduce such consumer wariness.
When Kodak customers pick up their prints, they receive directions on how to transfer digital versions of their pictures from a Kodak site -- where the images are stored at no charge for 30 days -- to the PhotoPoint site, where they can get free long-term storage, as well as find tools to create and share online albums, and buy PhotoPoint merchandise. "We're all about making it brain-dead simple to get your digital images to the Web," says Bernstein, noting that PhotoPoint now hosts more than 13 million photos.
For PhotoPoint, Zing, and their competitors, consumer education remains the biggest and most daunting hurdle. As Bernstein puts it: "Our mission is to transform customers into digital users without fundamentally changing the way they think about and use pictures."
D.M. Osborne is a senior writer at Inc.
Someday Your Prints Will Come
Serial entrepreneur Kamran Mohsenin eased into the summer of 1999 with time on his hands. Having recently sold his second start-up, Mohsenin was scanning the landscape for a new business venture and playing with one of the toys he bought with the spoils of his company's sale -- a new digital camera. "The camera was taking great pictures," Mohsenin recalls. "The problem was, I wasn't able to get quality prints." In a flash, Mohsenin hit on the idea for his third and most recent start-up, Ofoto Inc.
Soon, Mohsenin was caught up in a heated race among online digital photofinishers, including Shutterfly.com. "It's a huge market, and the competition is fierce," observes David Hornick, who is on Ofoto's advisory board. Founded in July 1999, Ofoto, based in Berkeley, Calif., has adopted a clicks-and-bricks business model. Like Shutterfly, Ofoto has invested millions in terra firma photo-development labs. At the same time, online photofinishers have seized upon technological advances to carve out an Internet-based niche in the photo-processing market, which has traditionally been dominated by industry giants like Eastman Kodak Co.
