by Dan Havlik
In less than two years as president and chief executive officer of Shutterfly, Andy Wood has brought the online photo service where few expected it to be so soonprofitability. The early milestone for Shutterflyoccurring last July, nearly a year ahead of scheduleled industry research firm InfoTrends to call the company a "bellwether for the online photo market" whose profitability was "a significant achievement not only for Shutterfly but for the digital imaging industry as a whole." Prior to working for Shutterfly, Wood spent more than 25 years in the consumer product and technology-enabled service industriesboth domestically and internationallyworking for such companies as Coca-Cola in Great Britain, EXEL Logistics and most recently, as CEO of Sevant Inc.
In this interview with PTN, Wood discusses the state of the online photofinishing market, the secret of Shutterfly's success and whether the rise of online photo services will help or hurt the print at retail market.
ptn: According to an InfoTrends report released last Spring, online photofinishing revenue grew by 183% between 2000 and 2001 in North America, while revenue per customer jumped by 110%. InfoTrends is predicting revenue will continue to rise by a compound annual rate of 39% over the next five years. After several years of instability in the online photofinishing market, how do you account for this recent growth?
Wood: This industry grew more slowly than once anticipatedalthough it does seem like the dot.com hysteria of those early days inflated the initial projectionsit grew more slowly because there has been a lack of awareness about the benefits of online photofinishing services. I'd argue that it has been the biggest hurdle our industry facesour 800-pound gorilla.
At Shutterfly, we have been working on our own and with our partners like Microsoft and Dell to address this problem and help grow awareness. Windows XP, for example, has done a fantastic job of making digital photography easy and fun for consumers, and our own Shutterfly Soiree Program, Tupperware-like gatherings in peoples' homes, also works to educate customers about the benefits of digital photography and online photofinishing while demystifying the technology behind the benefits.
We in the online photo industry understand that what customers ultimately want is choice. They want to be able to print only the images they like, have them sent anywhere in the world and do it all on their schedule without leaving the comfort of their own home. As more consumers have become aware of the choices available to them in the digital world, they have sought out the companies, like Shutterfly, that offer them the most flexibility available. As a result, our industry has witnessed the growth you mentioned.
I want to give you an idea about the kind of growth we've seen at Shutterfly. Shutterfly's 2001 revenues were double those of 2000 and 2002 is on track to double last year's revenues. Therefore, we are currently growing at 2.5x InfoTrends projected 39% compound annual growth rate for the industry. And we are expecting to almost double that CAGR next yearat this point, we are anticipating baseline growth of 70% in 2003 revenues over this year.
So, as long as we continue to offer innovative products and services that make it easy for consumers to stay connected with the people who matter most, we will continue to see this kind of aggressive growth. The market is still in its infancy so our opportunities are vast.
ptn: InfoTrends has also singled out Shutterfly, calling it the "bellwether for the online photo market" for achieving profitability one year ahead of schedule. What is your company doing that your competition isn't doing?
Wood: We are the only online photo service to have achieved profitability and we just completed our first quarter of EBITDA profitability (Q3). We have achieved our leadership position because of a very intense focus on our customers' requirements and needs. Our proprietary technology enables us to offer our customers really cool and unique products and services that they can share with family and friends.
A lot of the credit for our success goes to our customers who continue to confirm that we have, quite simply, the best value/price equation available in the market today. We have more than 70,000 new customers each month who are confirming that to us.
Just to give you a sense of the way the top-line has been driven, now we are talking about a business that has more than 50,000 transacting customers a month that are spending more than $20 and ordering an average of 31 prints per order. It is very clear that the top-line has been driven through the customer reinforcing our value/price combination.
Since joining Shutterfly 18 months ago, I have had a guiding principlelistening to our customers and delivering the products and services they want, while ensuring they have the best possible experience. As a result, I have focused on three areas: making significant infrastructure and proprietary technology investments that have resulted in improving site performance and doubling fulfillment capacity; reducing overall costs, including a dramatic reduction in the customer acquisition costs from last year's high of $150 per customer to $6 per customer this year; and launching an aggressive and effective value-driven promotions program that includes volume discounts and pre-paid prints options for locking-in lower prices.ptn: Some have argued that the success of online photofinishing will be at the expense of the retail photofinishing market, which has been struggling to draw customers to print their digital images in-store. Do you agree or disagree and why?
Wood: We have a complementary position with retail photofinishing and there is more than enough opportunity in this market for us both to succeed.