Online Photo Shops Crop and Merge

By eweek  |  Posted 2001-05-07 Print this article Print

Online photo companies are consolidating or adding new revenue streams to adapt to the soft advertising market and slower-than-expected demand for digital photo processing and online storage.

Online photo companies are consolidating or adding new revenue streams to adapt to the soft advertising market and slower-than-expected demand for digital photo processing and online storage.

Photo giant Eastman Kodak announced plans last week to acquire Ofoto, a competitor in the online photo service market. The purchase will allow Kodak to quickly develop a broader range of online products, said Willy Shih, president of Kodaks Digital and Applied Imaging unit.

"We intend to use Ofoto as a fulfillment engine for our other online properties," he said.

The move could lead to further consolidation, according to one industry executive. "This is a big event in the space," said Raj Kapoor, president and CEO of "It doesnt impact us as much because were affiliated with Kodak, but many other players feel theyre left out in the cold." Kodak has an investment in Snapfish, and processes reprints and digital camera prints for the site.

InfoTrends Research Group also predicts further consolidation. "Whats become clear is that its going to continue to grow, but its not taken off the way it might have," said Kristy Holch, a principal at the firm. "There is not enough revenue being generated on the basis of [electronic] commerce alone to sustain [so many players]."

InfoTrends forecasts online photofinishing revenue will grow at an average annual rate of 57 percent through 2006. Many sites develop prints from film and digital images.

PhotoWorks, Shutterfly and Zing Network have recently cut their staffs. Analysts said the industry has about 30 key players.

Companies have tried to build consumer awareness by giving away film-developing, prints, storage and sharing capabilities. Many have relied on advertising revenue, but have been stung by the advertising slowdown.

Now the focus is on profitability, and some are altering their revenue models. PhotoPoint, for example, has begun charging members a subscription fee for services that used to be free, like photo sharing and storage. Zing has made the most dramatic shift by repositioning itself as an infrastructure provider to sites like Sony Electronics ImageStation.

Many are rushing to build partnerships with manufacturers or retailers. Shutterfly now has a cobranded version of its service bundled with some Dell Computer PCs and is considering selling photo cards through retail chains. Already customers dropping off film at CVS can check a box to have the images uploaded to a cobranded CVS and Kodak area for viewing.

Customers havent caught on to online photo sites as quickly as many companies had hoped. People commonly have trouble transferring the images from digital cameras to the PC, said Shutterfly CEO Andy Wood, and those with narrowband connections have to spend a lot of time uploading each image. "All these issues are constraining the growth," he said.

InfoTrends said digital camera penetration doubled in 2000 to reach 25 percent of U.S. Internet households, and predicts it will double again in 2001. Last year, 92 percent of digital images were printed at home on a printer, and only 2 percent were printed from online sites, according to IDC.

Soon digital camera users will be able to develop their images at retailers with kiosks that print photos on the spot, said IDC analyst Chris Chute. "Online is basically going to occupy what mail-order has occupied."

Snapfishs Kapoor disagrees: "The bottom line is there will be a niche market for kiosks, but increasingly in a digital world, people will want to upload their photos from home and get their prints back," he says. Kapoor also says 80 percent of his members have shared their photos online. "Theyre not just using us for low-cost film developing."


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