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.

Online_photos

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.