Online Darkrooms Shoot for a Bright Future

Ron Hurst doesn’t own a digital camera. But he plans to use a computer to process, view and perhaps even touch up all the family photos he took over the holidays.

Even as he continued to rely on old-fashioned film over the last year, Hurst was able to improve his pictures courtesy of a digital photography Web site.

“I love it. It’s like having your own digital darkroom,” said Hurst, 53, of Vallejo, Calif.

“For an old guy like me, this was a great vehicle to break into the digital age.”

Sites such as Shutterfly.com, Snapfish.com and Ofoto.com convert traditional film into a digital format for little or no charge. Hurst uses Shutterfly, mailing his negatives to the Redwood City, Calif.-based company in a postage-paid pouch.

The sites notify photographers when their images are posted online, where the shutterbugs can crop or clean them up. It’s a good way, for example, to remove that annoying red-eye effect caused by a camera’s flash.

The pictures can be sorted into online photo albums, which site operators say can’t be viewed by uninvited guests, and most sites also offer e-mailing services to pass along the digital images.

“We can make even lousy pictures look good,” boasted Jayne Spiegelman, Shutterfly’s chief executive. “People who try our service usually become evangelical about it.”

The sites also give photographers, as well as their relatives and friends, the option of selectively ordering prints instead of paying for an entire roll of prints.

Most offer free prints initially to entice new customers--some with processing included.

Snapfish, for instance, will develop up to 24 rolls of film annually for a $1.69 shipping and handling charge per roll. After introductory promotions, prints at Shutterfly and Ofoto range from 49 cents per 4-by-6 to $2.99 per 8-by-10.

By offering relative bargains now, the sites hope to persuade the photography masses to go digital.

“The endgame is to get all the people still using film to go online and then have them eventually migrate over to digital cameras,” said Raj Kapoor, CEO of San Francisco-based Snapfish.

This month shapes up as a prime time for the digital photography sites to win over converts, because digital cameras landed under a lot of Christmas trees.

Digital camera sales nationwide rose 26% in December from the previous year, said CS First Boston photo-industry analyst Gibboney Huske--not as much as many in the industry hoped, but still a decent gain.

About 7 million digital cameras were shipped in 2000, according to IDC, a Framingham, Mass., research firm. IDC expects digital camera sales to average a 40% annual increase during the next four years.

“Digital cameras are like an oncoming tidal wave, and we are going to float with the rising tide,” said James Joaquin, CEO of Berkeley-based Ofoto.

Although almost everyone agrees digital cameras are bound to become a must-have gadget, analysts aren’t convinced the digital photography sites are going to survive to capitalize on the trend.

“It’s a neat idea, but I’m not real optimistic about their prospects,” said Chris Chute, an IDC analyst. “There is going to be some tough competition, and a lot of these sites have pretty kooky business models.”

They have, however, won some well-known financial backers.

Two former allies at Netscape Communications, which developed the Web browser that revolutionized the Internet, have invested in two of the digital photo sites.

Netscape co-founder Jim Clark is chairman of Shutterfly and contributed a chunk of the company’s $25 million of venture capital. James Barksdale, Netscape’s former CEO, invested a portion of the $16 million behind Ofoto.

Analysts say it will take more than an impressive pedigree to survive in a treacherous environment for e-commerce companies.

Huske predicts at least two digital photography sites will run out of money this year as their losses continue to mount.

Besides Shutterfly, Snapfish and Ofoto, other high-profile sites include PhotoPoint.com, Ememories.com and Zing.com. All the sites are privately held and don’t disclose their financial data.

Posting digital pictures is already immensely popular. About 15 million people have displayed pictures online, according to InfoTrends, a Boston research firm.

Relatively few people, though, are spending money to have their pictures developed and printed by the Web sites.

“The revenue from prints doesn’t seem to be meeting expectations,” said InfoTrends analyst Lia Schubert.

Online photo printing was a $13-million business in 2000, Huske estimated. That’s a mere speck in the overall $40-billion photofinishing industry. Despite the expected growth of digital camera sales, online photofinishing will remain relatively small at $1.3 billion in 2005, Huske projected.

Perhaps the biggest obstacle facing digital photography sites is the absence of high-speed Internet access in most U.S. homes and increasing competition from deep-pocketed retailers.

High-speed Internet access is an issue because transferring, or “uploading,” the images taken by a digital camera to a Web site can be a time-consuming task over a dial-up modem connection.

Until faster Internet connections are widely available, analysts reason, most consumers won’t make the effort to transfer their digital pictures to the leading Web sites.

“It can certainly take a while to transfer the pictures,” Spiegelman acknowledged, “but people find that they gain so much with the quality of their pictures that they usually conclude that it’s worth the pain.”