Digital photo printing firms face a changing landscape

One of the big battles of the dot-com era centered on a space where new media converged with old: printing pictures taken with digital cameras.

Shutterfly, Snapfish and Ofoto emerged as the pioneers of, and key rivals in, the fast-growing market that enabled consumers to store their photos online and then order prints from home computers.

But 10 years later, the rivals find a changing landscape in which customers are looking beyond 4x6 prints for other ways to share their photos.

“There has been an evolution and a revolution in what we do,” said Madhav Mehra, chief product officer at Kodak Gallery. “The market has very high peaks and very low valleys. . . . It’s very interesting that the three companies have weathered those storms and adapted.”

Only Shutterfly remains as a stand-alone in the photo processing market. Snapfish is now part of Hewlett-Packard Co., while Ofoto is now known as Kodak Gallery after being acquired by Eastman Kodak Co. in 2001.

“They’re 10 years old and they were successful in maintaining themselves throughout the first wave of digital photography, which was storing pictures for free and making prints,” IDC analyst Chris Chute said.

The companies have since entered what Chute called the next wave, which is focused on creative products such as photo books, posters and calendars.

“They’ll do more exciting things with pictures,” Chute said.

The three San Francisco Bay Area companies plunged into the market around the same time, from summer 1999 to spring 2000.

The battle initially focused mainly on who could produce the cheapest prints, typically in the 4x6 format. But improvements in home printers and growing use of sites such as Facebook for photo sharing have altered demand. Now consumers want to do more with images, including putting them on photo books and calendars.

“Technology was advancing, allowing people to tell their stories in a much richer way, like photo books,” Shutterfly Chief Executive Jeffrey Housenbold said.

The trend is evident in Shutterfly’s bottom line.

In February, the company reported a 29% year-over-year jump in quarterly revenue for its personalized products and services business, which includes photo books, greeting cards and calendars. That business also made up 71% of Shutterfly’s revenue, which rose 22% year over year.

Snapfish does not break out its financials as part of Hewlett-Packard. But Ben Nelson, its general manager, said that since 2005, when Hewlett-Packard bought the company, Snapfish’s print business has grown more than 500%, while its merchandise business has expanded 700%, he said.

But the three companies face a steadily changing arena, highlighted by the rise of social networking sites led by Facebook.

Asked if Facebook has hurt his business, Nelson said, “It hasn’t yet. In fact, Facebook for us has been a huge boon.”

Nelson says Snapfish focuses on giving customers the tools to share photos “with a very small circle of those friends and family that you want to communicate with proactively.”

Facebook, on the other hand, “is about managing your larger social network.”

Pimentel writes for MarketWatch.com/ McClatchy.