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Shutterfly’s Strategy: A Conversation with CEO Jeff Housenbold (Part 9)

Posted on Friday, Mar 28th 2008

SM: What do you think of SmugMug? It is very popular.

JH: It is popular for us because we are in the valley. When you look at the grand scheme of things, they are still a relatively small company with about $10M in revenue. I think what they have done well is they said in this whole value chain, where can we play? They said they could play in a space where they would go at a higher end, more male whereas we are more female, and they charge for the hosting. They have attracted more of the semi-pro to pro photographer. They have also decided to take the fact that they would be open and outsource as much as possible. They outsource fulfillment, hosting, storage to Amazon, and they have done some smart things as a small company that does not have a lot of resources to invest. It is a family run business and I’m not sure it can scale.

SM: What is your sense of

JH: I was going to get there when I was talking about people with our business models. God bless Max. Max is a smart guy, who made lots money at PayPal and a lot of people are using Slide, about 77 million unique users. That is phenomenal user adoption, but the last I heard is that from 77 million users they have less than $1M in revenue. We have the same valuations at around$500Mand we did $187M last year in revenue.

SM: If you plug a slide kind of user experience on top of your business model that would work.

JH: Again, Slide down-samples and compresses the images, so it is hard to actually produce e-commerce from it and they want to hold on the images in their database instead of passing it on. However, I think there could be a mutually beneficial relationship between the two companies where we each focus on our strengths.

We have seen the first wave of consolidation with Kodak buying oFoto and Snapfish selling to HP. In 2007 you saw the second wave of consolidation. PhotosWorks sold, you saw Yahoo exit, Sony exit, and Disney’s backed PhotoTLC go bankrupt.

I think the next wave of consolidation will occur when these companies start to realize there is an inherent cost of storage, and people want to do more than just look at images on a screen. They are going to start to look at companies they can partner with, best of breed, and we are neutral, not owned by a big company. Dell does have to worry about HP and Fuji does not have to worry about Kodak. We have built a brand of trust; we have a monetizable model where we can share revenue back with these partners. We are seeing that, as we have 48 active business development deals now. When I joined we didn’t have a business development team.

SM: I wrote about that at that time.

JH: When I joined Shutterfly in January 2005, the industry was all about the basic 4×6 print. We’ve built a great company since based upon our mission and vision, values and behaviors, and our culture. I have a whole new executive management team and a whole new board. We are now up to 470 employees. Revenue has grown at a 50% compound annual rate the past few years. We’re proud of our success but realize it is a challenging environment.

SM: It is a challenging environment. I have your stock as well, and lost a lot of money on that stock but it will come back. I don’t care; I am not going off and selling it. I just want to cover one other business model in that discussion. What about CafePress, Zazzle type model.

JH: I know those guys well. With CafePress, Fred and I are friends. I see them as an adjacent market. We are not competing head to head, primarily because their business is less about memories and their main product is T-Shirts. I would venture to guess more than 70% to 80% of their revenue comes from their T-Shirts business. Their demographic tends to be more evenly split male/female. They seem to be younger, for example a lot of the T-Shirts they are producing are politically or humor oriented.

This segment is part 9 in the series : Shutterfly's Strategy: A Conversation with CEO Jeff Housenbold
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