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Shutterfly’s Strategy: A Conversation with CEO Jeff Housenbold (Part 3)

Posted on Saturday, Mar 22nd 2008

SM: Before we move on with your Shutterfly story, can you shift gears for a second and tell us the history of Shutterfly?

JH: Shutterfly was founded in 1999 by two employees of Silicon Graphics – Eva Manolis and Dan Baum. Eva was a product person and Dan was a technology person. They teamed up and asked Jim Clark to fund it, which he did.

SM: What was their initial vision for Shutterfly?

JH: The vision at the time was that people were starting to buy these new things called digital cameras, but their pictures were stuck in them. They created a site that allowed people to get their pictures out of the camera, literally. Their early adopters where white men, technofiles, spending $2,000 for a 1-2 Mega Pixel camera. That was in 1999. They started programming in April, and the site launched on December 11, 1999.

The same day we launched, oFoto launched, and 4 months later SnapFish launched. It was an interesting time. It was still mostly a film world as there were very few adopters of digital cameras, and it was all about how to get a 4×6 print out of a camera.

Shutterfly hired a woman, Jayne Spiegelman who was the CMO at Good Guys and the head Merchant at Macy’s. She came in to be the CEO and grew the company to close to 300 people. She raised $60M and went through it in the first year doing a big deal with Yahoo and a portal deal with AOL, and spending on online advertising, all of which was common in 1999 because people were going out and getting real estate deals to be on the portals. The bubble burst and they brought in a turnaround CEO, Andy Wood, and he came in and slashed headcount down to 70, and got the company to roughly break even.

SM: What was going on in terms of numbers, metrics, and traffic? With $60M how much traffic and revenue did she manage to generate?

JH: Back then a lot of the portal deals were great for the portals but not for the people who were paying for that anchor tenancy. The business was on fire, but it was on a small base. Adopters were sharing digital photos electronically. Instead of sending an attachment in email, we took the high resolution image and put it on the server, and sent a link which could point back to the site which was unique at the time. They burned through the cash, and they literally were standing on Friday counting the number of orders they were getting to see if they had enough money to make payroll. Many companies were hunkering down at that time.

SM: It takes a lot of money to pay 70 people. JH: It is a lot. Keep in mind, though, that more than half of those were in manufacturing … hourly workers running machines versus software engineers costing over $100K. The Board then hired Dave Bagshaw as interim CEO. He stepped in and ran the company for a little over a year, while they did the search and found me. The year before I joined we did $54M in revenue. We were slightly profitably in 2003 and 2004. The board felt that user adoption was becoming mainstream and there was a real asset in Shutterfly. Jim Clark was a real believer in the space and the company.

SM: Let’s talk about the landscape when you took over. What were your initial challenges and objectives? JH: The challenge was, when I walked in we were largely undifferentiated from the competition; it was all about 4×6 prints and price. We were not helping people do more with their images and memories, we were much more along the old paradigm which was drop off a roll of film, develop prints and place them in clear sleeves for users to put in a binder on a bookshelf.

I brought a different perspective and said, “My wife and I use Shutterfly to stay connected in this dual income, geographically fragmented, time compressed society where we have friends and family all over the world.” I thought of it as a social connection and a way to share life’s memories with friends and family. The other part was that we were very early adopters of digital presses. The benefit of digital presses is that in the old printing world you would have to run large volume to amortize the setup costs. On digital it is all variable. Every unit that comes off is different, making it great for variable short runs, so it helped tremendously that we were early adopters of digital presses.

This segment is part 3 in the series : Shutterfly's Strategy: A Conversation with CEO Jeff Housenbold
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