By Hans Hartman – Chair at Visual 1st
The news last week was of course the three-fold announcements regarding Shutterfly: New CEO, acquisition by Apollo Global Management, and the additional acquisition of Snapfish (from District Photo) by that very same Apollo.
Much has already been said about these announcements, but I’d like to zoom in on the move to bring Shutterfly and Snapfish under the same umbrella, which has more or less the same effect as Shutterfly acquiring Snapfish, and gives the combined unit a substantial share of the US photo print product retail market (35% based on 2016 numbers, according to the Expanding the U.S. Photo Printing Market report from F/22 Consulting and Photo News).
Why is this a remarkable move? For one, Shutterfly has a tradition of acquiring complementary companies, e.g. to enable them to pursue more upscale markets (MyPublisher), adjacent use cases (cloud storage through ThisLife; camera rental through BorrowLenses; one-click subscription photobooks through GrooveBooks), or additional use cases and channels (volume photography with a direct sales force through Lifetouch). (For the sake of completeness, Shutterfly also bought the customer database of Kodak Gallery, a direct competitor, when Kodak was working its way out of bankruptcy.)
Snapfish is more similar to Shutterfly than it is complementary: it offers similar products to similar customers through similar ordering platforms.
Did Apollo have alternatives for boosting Shutterfly’s long term market value by acquiring complementary rather than competing vendors? Absolutely! We can think of many players ranging from innovators in AI-based photo curation and auto-layout, startups that bridge the world of photo print with video, personalized gift product companies, vendors that tackle the high-end wall décor photo market, companies that profitably offer free photo print products, companies with substantial market share outside the US for overseas expansion, innovators that tap into the photo gig economy market, AR startups that tie printing to engaging AR experiences, instant print camera vendors to attract a new generation of print customers, companies that offer photo print products that cater to long tail vertical markets or special use cases – you name it!
Two of these photo print innovators just signed up as Gold sponsors of Visual 1st and will participate in our “Print. Yes Again” panel: Forever Connected, which adds video and messaging to traditional school yearbooks, and PastBook, which offers one-click solutions for consumers to relive in print their Facebook or Instagram photo memories – both will announce new products at the conference.
But Apollo choose to acquire Snapfish instead. In other words: it is a merger of “similars.” There is of course nothing wrong with merging sizable incumbents in a mature market, but usually there are strong economic incentives for doing so: most typically, the prospect of substantially reducing operating or marketing costs by being able to do business at a larger scale or by dominating the market and increasing prices while raising the barriers to entry.
There will always be some reduction of costs when an acquisition enables operation at a larger scale and some duplication of resources can be eliminated, but I don’t see tremendous savings for Shutterfly-Snapfish on the horizon, especially since there are no superfluous printing facilities that could be eliminated (Snapfish doesn’t have their own printing facilities).
In terms of barriers to entry: in the photo print product market these have been extremely low for quite a while now. With overcapacity in the photo print manufacturing industry, any startup or larger entrant into this market can easily and economically offer printed products by outsourcing to a range of candidates. Couple that with the broad availability of photo organizing and print product creation APIs/SDKs, and the barriers to entry to start a photo print product business are minimal these days. The Shutterfly-Snapfish merger won’t change this.
Therefore it’s safe to assume we’ll continue to see startups being launched who are nimbler and more innovative than a company the size of Shutterfly-Snapfish could possibly be, and who will keep nibbling at Shutterfly’s core B2C market. While these entrants have been smartphone print app developers in recent years (taking advantage of the fact that Shutterfly was late in showing traction with their mobile offerings), going forward they could also come from any of the innovative and adjacent areas described above. In particular, entrants in the volume photography business have a great opportunity to out-innovate Shutterfly’s Lifetouch business, as we describe in our new Building the Gig Photo Economy report.
One last thought, as I keep hearing comments to that effect: Most of us have a knee-jerk negative response when hearing of a merger that leads to one giant dominating a particular market. And yes, it’s often true that merging market leaders puts the brakes on innovation or hurts the consumer through higher prices, bad service or mediocre products.
But it doesn’t have to be that way, especially not in a market that has low barriers to entry that keep the juggernaut on edge – the Shutterfly-Snapfish combo needs to compete not just with startups coming out of the woodworks, but also with bigger established companies that could see photo print products as adjacent to their business (Google’s and Amazon’s still nascent photo print product offerings are examples, but additional larger entrants could come from other areas as well).
For example, take Adobe, now a $134B company, grown to that size by acquiring a large number of companies over the years. It completely dominates the creative publishing business as well as many areas in marketing optimization and ecommerce, but the company is still very much considered to be an innovator and has a good reputation among its customers. They’ve shown a remarkable focus on spotting emerging trends and responding fast by acquiring companies with technologies or customer bases which they felt they couldn’t generate themselves in a timely fashion.
Let’s hope the new Apollo Shutterfly-Snapfish combo will become the Adobe of photo print products!
And a few more things…
PhotoLynx. The ink of our new Building the Gig Photo Economy report is barely dry and the first vendor covered in the report is already acquired. PhotoLynx, makers of volume photography cloud service PLIC, covered in the study, is acquired by ASG, a company that also acquired workflow management company ImageQuix in November of last year.
Meero. Hurrah – The world’s first gig photo unicorn! Meero, another company in the gig photo economy space and featured in the same report, said yesterday it has raised $230M in venture capital, pushing the company past a valuation of $1B. Meero has 31K clients in 100 countries, including Just Eat, Expedia and Uber.
Fujifilm. It’s time for in-store photo kiosks to look sleek – and be designed with smartphone users in mind. Fujifilm launches GetPix Quick photo kiosk with wireless phone printing.
UC Berkeley and Adobe. Deepfakes – the fight is on: Berkeley and Adobe researchers have created a tool that not only can tell when a face has been Photoshopped, but can suggest how to undo it. More on Deepfakes in our fireside chat with prof. Roman V. Yampolskiy at Visual 1st.
University of Washington and Facebook. The researchers call it Photo Wake-Up: AI turns a person in your photo into an animated character that can walk out of your picture. Hard to imagine what that looks like? Check out the link.
Fujifilm. Fujifilm announces the INSTAX MINI LIPLAY hybrid camera, which incorporates both instant print and digital technologies. It’s the smallest and most lightweight of its Instax produce line to date. One interesting and potentially new viral feature: it lets you embed a sound recording with the photo, which the recipient of the photo print can play back by scanning a QR code printed on the photo.
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