To the extent that these nimble start-ups can secure a foothold -- and create new, Web-based efficiencies -- before bigger competitors lumber into the market, their payout could be huge. Margins in the traditional photo-development business typically run as high as 50%.
Thus the game right now is all about grabbing market share. Toward that end, Ofoto and Shutterfly are competing to become the photo processor of choice for a bundle of other start-ups that outsource printing for their online photo storage and sharing. At the same time Ofoto and Shutterfly are reaching out to picture takers of all stripes by offering steep discounts on old-fashioned film processing (returning prints by snail mail), as well as digitizing the images for online viewing and distribution.
It's an updated twist on a low-cost, mail-order film-processing service popularized a few years ago by Seattle Film Works, recently renamed PhotoWorks Inc., in its own bid to straddle the digital divide.
For its part, Ofoto has concentrated on high-level business-to-business partnerships. It's teamed up with InfoSpace Inc., for example, to become the preferred print shop for that company's affiliate network of 2,500 Web-based businesses, which provide communications and commerce infrastructure services for wireless devices. Ofoto has also sealed a deal to print the digital images sold through the Internet division of Corbis Corp., which boasts an online archive of 2.1 million images -- from fine art to quirky photography.
Meanwhile, Shutterfly, based in Redwood City, Calif., has gone directly after consumers. Since cofounding Shutterfly, in December 1999, CEO Jayne Spiegelman has cut cross-promotional deals with such portals as Yahoo and Homestead.com. Spiegelman, who hails from senior-level retailing posts at the Good Guys and Macy's West, has also persuaded electronics retail outlets to display Shutterfly's sample prints at camera counters. "We wanted to connect with customers at the point of purchase," she says.
Market Snapshots
A sampling of other digital-photography players
Snapfish.com, San Francisco
Business concept: Offers basic printing and digitizing of film images free of charge. Depends primarily on advertising revenues but also sells photo equipment and merchandise and charges for reprints.
Competitive advantage: A superlow price point and a catchy marketing campaign engineered by a branding expert with experience at Kraft and Nabisco.
Major challenge: Proving its advertising-revenue model, which has fallen out of favor among investors. Also, to access image files stored on the site, customers must provide demographic information used for advertising purposes.
eMemories Inc., Los Angeles
Business concept: Enables amateur photographers to create online photo albums. Makes money selling hard-copy prints and albums.
Competitive advantage: Being the exclusive photo-sharing community for the Women.com network and the teen site Alloy.com, and securing a slot on the Earthlink personal start page.
Major challenge: Beefing up its E-commerce offerings. At press time, eMemories' merchandise was limited to mouse pads, mugs, hats, and T-shirts.
DotPhoto Inc., West Trenton, N.J.
Business concept: Allows digital-camera users to upload images, create their own voice-over "captions," and share pictures through E-mail links. An ad-free site, DotPhoto offers a sliding-scale subscription-fee plan that may appeal to people who don't want to be bombarded with marketing come-ons.
Competitive advantage: Its proprietary "talking pictures" technology. DotPhoto is the first site of its kind to accept both image and sound files from digital devices.
Major challenge: Gaining traction and getting noticed. A relative latecomer to the market, DotPhoto is funded by founder Glenn Paul and carries less clout with prospective partners than its venture-backed competitors do.
Q&A
The Big Picture
Can these digital-photo start-ups successfully take on the Kodaks and Fujis of the world? The outlook might best be described as blurry. To help us bring this expanding and highly competitive space into focus, Inc. spoke to Lia Schubert, an analyst at Boston-based InfoTrends Research Group who follows developments in the online digital-image arena very closely.
Q: Some entrepreneurs describe what's happening in the online digital-image domain as a renaissance in the photography business. What's your reaction?
A: Yes, we're seeing all the signs of a renaissance. Digital photography combined with the Internet is creating a paradigm shift in the way personal pictures are captured, shared, stored, and printed. New players are coming out of the woodwork with innovative business models. We're seeing renewed interest in photography as a result.
Q: Traditional photo processors are expected to offer digital photofinishing services in their retail centers. How can these start-ups compete with them?
A: The key advantage that online photofinishers have is that they've already developed their services before retail solutions have been actively promoted. Online photofinishers are reaching out to digital-camera users through strategic partnerships and free-print promotions, teaching those users that it is possible to order photo-quality prints online. If the online start-ups can gain significant mind share before retail services become more competitive, then they may be able to lock in a certain portion of the market.
Q: How big a slice of that market do you expect the start-ups to capture?
A: It would be too speculative to predict a precise number right now. Start-ups will succeed according to their ability to secure the capital necessary to scale up their operations and to draw in and retain members. But it's safe to say that traditional photofinishers, like Fuji and Kodak, will garner a significant portion of market share.
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