SM: What are your margins on the photo book business?
JH: We do not disclose margins specifically. What we report to Wall Street are prints which are all prints from wallet size to the 20×30 pictures, and personalized products and services, and that’s how cards, calendars and photo books are counted. What we have said is that they are in a fairly narrow range next to each other. There is a misconception that prints are not a profitable business. We not only own our manufacturing and have the lowest costs in the entire industry, but we have the highest prices because of our quality.
SM: Is manufacturing here in the US?
JH: It is, we have one facility in Hayward and another in Charlotte, North Carolina. Between the two we have 175,000 square feet of manufacturing and about 50% of our 470 employees are in the manufacturing facilities. We have the lowest costs and the highest price because we are the premium brand with the best quality and the best return policies.
SM: You can’t be in the other businesses without the print business.
JH: That’s right, it is the cash cow. We are using that to fund the innovation on the personal publishing side. We don’t break out the margins specifically.
SM: Why not?
JH: Mostly for competitive reasons at this stage. We have said that our gross margins have been 54-56% over the past several years, and the range is 40-60% so everything falls into the mean. There are a couple of products out of the spectrum, but for the most part they are close to the mean. As we continue to evolve and expand we will, over time, give more visibility to Wall Street, but since we are the only company that is public (SnapFish is buried inside of HP, oFoto is buried inside of Kodak, Flickr is buried inside of Yahoo, Wal-Mart does not break out theirs, neither does Target), so for competitive reasons we try not to give away some of our secrets.
SM: You are taking these children book authors, poets, and so forth, and offer them a self publishing option, but how do they market their books and distribute their books? Are you offering anything to facilitate that?
JH: Today, we do not offer a marketplace for them on Shutterfly. They tend to have a website and use guerilla marketing and use local craft shows; downtown Menlo Park, the streets of Manhattan, they are going to 4H clubs and local bookstores, and just creating their own advertising.
SM: The marketing is their responsibility.
JH: Marketing is up to them today.
SM: That is one of the biggest problems in the publishing industry, the marketing of books.
JH: Amazon allows you to do that today. You can make your own book and put it into their lists.
SM: Do you have any distribution relationship with Amazon? If I publish my book on Shutterfly, can you distribute it on Amazon?
JH: You can. We don’t facilitate it through APIs. What we did when we launched galleries is we allowed you to take that about me page and that flash animated flipping of the book, and you can take that snippet and put it on Facebook, Amazon, or your own personal blog. We have now created a forum where you can publish outward and simply embed it in a lot of other places. We are partner with Amazon, Buy.com, Target, P&G, Columbia Sports Wear and lots of different partners. You can imagine doing a deal with travel sites allowing people to post their travel photographs.