Thinking About Online Photo Services

I woke up this morning thinking about online photo services. Probably because of my friend David Kirkpatrick's column this week on Photobucket. David points out how huge Photobucket has become by riding on the coattails of the social networking boom. I don't use Photobucket but my girls do.

In our family, we use three online photo services, Photobucket (the girls), Flickr (me and Gotham Gal), and Shutterfly (Gotham Gal). The Gotham Gal used to use Shutterfly more, but she doesn't use it as much these days. She mostly used it to get prints, but now she uses iPhoto for that.

The online photo business is big and getting bigger every day. Shutterfly, which is the only pure play public company (SFLY) did $66mm in revenue in Q4 2006 and almost $20mm in operating income. But the stock's been flat all year at about $16/share which is a $380mm market cap. The problem is the analysts aren't projecting much growth in Shutterfly's business in the coming years.

Which brings me to the point of this post. About a year ago, my friend Helene asked me why I used Flickr. I told her that I thought it was the best online photo service. I could upload my photos, store them, share them, tag them, blog them, and see everyone else's photos as well. And it was free to use for a basic account but that I had quickly upgraded to a Pro account. She was using Shutterfly and liked it. I told her that I felt Shutterfly was closed and not likely to  succeed long term with that model.

I may be wrong about that. Shutterfly might succeed long term with it's business model, but it's going to be surpassed (and has been surpassed when it comes to user base) by the open services.

Take a look at these worldwide numbers from comScore. I used Google search results plus my own knowledge of the market to put together this list. If I missed a popular online photo service, I apologize in advance.

There are two juggernauts in the online photo market right now; Photobucket and Flickr. They are blowing everyone else away. Webshots was once the leader in the free/open market has been in decline for the past year. Fotolog, which is largely an international phenomenon, is doing well too (again with a free/open model).

The closed/web 1.0 players which to my mind are Snapfish, Shutterfly, and Kodak (fka Ofoto) are flat or in decline. They may be sustainable and large businesses (just look at Shutterfly's numbers), but they aren't growing.

And it's not just because the services are more expensive than the newcomers (although they are), it's because they don't take advantage of the web. They aren't about sharing, self expression, linking, blogging, social networking, and everything else that the web has become today.

The Gotham Gal and I have this long running debate that will never end about digital photography. She is still all about the photo album and we have dozens of them. In my view, the photo album is now the web, and when we are old and gray (getting there), a simple google search (or some other better image search engine) will produce the images we want to look at. For now, we are hedging our bets. I suspect many people are doing that.

But back to the money part of this issue. Shutterfly is worth $380mm and hasn't increased in value in the past year. Photobucket is talking about selling the company for between $300mm and $400mm with revenue projections of $32mm for all of 2007. So the market values Shutterfly at 3x revenues and Photobucket (potentially) at 10x revenues. What does that tell you?

It tells me that Yahoo! got one hell of a bargain when it bought Flickr.

Comments

[Charles]

I used to work at FilmLoop. I'm not sure if you have considered photo sites like RockYou, FilmLoop, Slide and their friends in this analysis. But the one site I think is quite relevant to this discussion is Yahoo! Photos, which brings in massive numbers from what I remember. I'm surprised that Flickr even approaches the same amount of traffic as PhotoBucket, it makes more sense if somehow Flickr's numbers are conflated with Yahoo! Photos somehow?

[Dan Malven]

I won't comment now on the economics of these services, but it is a fruitful area for discussion for maybe later. The point that piqued my interest is the different usage between you and GG. My wife and I have the same debate. I don't think keeping both online and offline is hedging bets. Its recognition of different purposes. When you want to *find* a certain picture, of course online is better. But when you want to sit back and be *told a story* about a time or place in your life, the album is probably better. Its kind of like the web vs. TV. The web is a lean-forward self-directed exerience. TV (and movie theaters) are a lean-back linear experience. Yes, web viewing has been growing far faster than TV viewing, but that's because the web/interactive experience didn't exist previously and its still growing until it reaches some level of equilibrium with TV/linear experience. Humans need both, some humans are more inclined to one or the other, but its in everyone's nature to at times want to be in control of the experience (interactive), and other times to have the experience control you (linear). Photos are like good TV or movies in that they elicit emotions, and the human desire for the linear experience of that will never go away.

[Matt]

How does Facebook fit into this?

"We are also the largest photo-sharing site in the United States; we have over a billion photos, and our users upload over 6 million new photos every day."
"In terms of total photo page views, we exceed all of the next largest photo sites combined."
- http://www.facebook.com/jobs_engineering.php

[Rick]

oFoto (Kodak) is the worst. My wife has uploaded all of our photos there for years and we recently realized that we have to pay to get high quality images "out" of oFoto.

Made me very angry.

However, there is something to be said for the privacy that's built into the "older" photo sites.

[Heiko Hebig]

You might want to add Yahoo! Photos to your comparison chart which is much, much larger than its "sexy" cousin Flickr.

[Dan Buell]

I have begun to use Phanfare, which I think is an excellent way to manage photos...

[Grand Egress]

Fred, I think you are looking at the wrong numbers for SFLY

To wit, SFLY is now trading at a darned healthy PE of 29X. But oddly its trading at only 3X trailing 12 months revenue (whereas most tech stocks these days are trading at 5-6X trailing 12 months revenues.)

But the issue isn't , as you say, that "the analysts aren't projecting much growth in Shutterfly's business." They are, as is SFLY. The company's annual revenues have grown from $16MM to $31MM to $54MM to $84MM to $123MM last year. Pretty great! But SFLY is a *public company* and as such, is subject to much more precise and disciplined analysis (unlike say, PhotoBucket, but more on that in a minute.)

So SFLY's issue, IMHO, is that SFLY's operating cash flows are 1) negative ("operating cash flows," as in, when you take out the sale of stock to raise cash) -- and, worse, 2) erratic.

The key to SFLY's unfortunate cash flow situation seems to be their massive, growing spending on CapEx, from $3.5MM to $7.4MM to $10.8MM to $20.7MM last year -- wiping out any chance the company has to create positive cash flows. Why is this? I don't know. But I suspect it has to do with the tangible side of their business, the printing and shipping of prints? As w eknow, in the real world, the demographic of the Gotham Gal and my wife RULE THE ROOST.

Any case, as for PhotoBucket, I wish everyone involved success. But come on -- first of all, "the market" hasn't valued that company yet at all. The company's i-bankers have leaked a wish number to a cheerleading blog! Every time this happens (metacafe anyone? facebook?) we get all hyped up then conveniently don't do an post-facto review when no transaction of the sort happens.

Also, are we really again seeing exits valued based on forward revenue projections? Jeez, I'd rather buy a company based on traffic -- which, messy as the metrics are, are more trustworthy than forward revenue projections, I think. Show me PhotoBucket's historical P&L and historical cash flows and then show me their projected P&L and projected cash flows and I'll give you a valuattion -- which, if revenues are any measure, should be 10/123 of SFLY (2006 revenue/2006 revenue) or $30MM valuation.

Unless of course NEWS or somebody overpays simply as a defensive move...

[Eric Strauss]

You missed a huge one. Picasa. Ironic and silly that picasa doesn't show up when you search for 'online photos'

[Jeremy Pepper]

You're thinking like a digerati on the Coasts, not one of them peeps from the flyover states.

Yes, you can make your photos private on Flickr, etc - but they are really private on Ofoto, Shutterfly, Snapfish.

And, there are still scrapbookers and people that like their prints. There are still people that like to get a final print, that feels like a real print (not a home print print) that will last long (that wonderful Kodak moment), and sit down and look at them with the family ... and not in front of a computer.

Is that my generation? Maybe not, but I don't have kids. It's probably different with kids and prints.

And, yes, I am biased because of my past work in the photo industry.

[matt brezina]

Hey Fred, I would like to echo Dan's thoughts; what do you think about Facebook's position in the photo market? Among college students and recent college graduates this has to be the largest photo repository. I'm lazy about uploading and tagging photos but Facebook lets my friends do the work for me. Plus, I'm already on Facebook everyday. Why use another photo site?

[AJ]

I've been liking Smugmug. It's not a free service but allows unlimited storage. It's targeted more towards organization, presentation and customization than e.g. flickr and apparently is used by lots of professionals. On the other hand, while it does allow tagging and geotagging, it doesn't seem to have hit the same critical mass in terms of 'social software' use and buy-in as flickr. I use both and view them as complementary.

[Drew]

There are very different usage models in play here. I use Flickr and think its great flexibility is pretty cool. But much of what I actually do is sharing friends and family photos, and when I do that I get constant complaints about the geeky, incomprehensible interface. For photos that have intrinsic, personal value to them, the photo and a simple interface (and simple privacy) are better.

[P-Air]

Fred, tell Gotham Gal to start using QOOP on flickr for her photo printing. Ever since that service came on to print all sorts of things they've been doing great, but when they also started offering plain ol' photo prints that business took off even more. High quality at probably better prices than SFLY.

[OffBeatMammal]

I like Zooomr - got a pro account.
I used to us Flickr but the whole swith to Yahoo login caused my grief so I don't upload there any more.
And I archive my own material as well

[Greg]

Jeremy Pepper's right. All of my relatives in the Midwest use Ofoto and Shutterfly. They don't share pics with strangers, they don't look at other people's pics, they don't blog (although they read my blog!) What they do do is upload pics to these sites to a) make high-quality prints and b) email to their friends to let them make high-quality prints. That's what's floating these businesses. Will their number come when more and more people are experiencing photos solely online (like I do) and fewer and fewer people are all about the prints (like my Mother-in-Law)? Makes sense to me...

[Douglas Karr]

I just read that Slidez is on the way, too.

[James]

On the "web" vs "photo albums". I personally use to think that it was great just upload all my photos to a website (i personally have my own online gallery and don't use a public one), but recently I've been thinking I really like the feel of having something in my hands, that I can open pass around and share with people, that we don't have to wait for images to load etc. Which is why I've started creating photobooks from my most recent vacation. I have to agree with Gotham Girl, that the web isn't the end all of media storage. Flickr at any time could decide to turn off the power(not that they would), and where are your image now? Too me, it's too much risk to rely on someone else to store your memories.

James

[A.Jr.]

Hey guys. wow great site and interesting topics. does anyone know anything about online photo development? and what the market analysist consists of for this feild? im looking to start my own business and cant find any market data to see if its worth getting into .
im trying to get a project plan together for a bank loan. any charts or links would be great help.
Thanks again guys.
J.L

[David H]

I'm surprised that no one has mentioned Sharpcast....Wikipedia suggests that it may be the next Killer App. So far I like it. I would however, like more choice re: where I can send my photos to print.