Shutterfly Poised to Increase Market Lead with Kodak Gallery Acquisition

Alan Bullock
Apr 27, 2012

This week, Shutterflys $23.8 million offer for “certain assets” of competing online photo service Kodak Gallery was selected as the winning (and only) bid in the court-supervised auction that is part of Kodak’s Chapter 11 bankruptcy proceedings The agreement, announced on March 1, is for the sale of “certain assets” including customer accounts and images in the U.S. and Canada, and is expected to receive final court approval early next week.

The transition process, expected to begin soon thereafter, is a familiar one for Shutterfly. In recent years, the service has scooped up customers from several competitors that have assumed room temperature, including Sony Image Station and American Greetings’ PhotoWorks. Unless they choose to opt out, Kodak Gallery users’ photos will be automatically transferred to a new or existing Shutterfly account and they will probably be welcomed to Shutterfly with some free prints and maybe a discounted photo book or two. According to a notice at Kodak Gallery, users who choose to not have their photos moved to Shutterfly will be able to download them for free or to purchase copies on DVD for a limited time. (Incidentally, this may be the last chance for Kodak Gallery users to retrieve their high-resolution image files — Shutterfly does not allow users to download their photos.)

So what does $23.8 million buy these days (other than 2.4% of Instagram)? Hypothetically, if 80% of a reported 75 million worldwide registered users are in the U.S. and Canada, 20% of those are active customers, and about 35% of those are also already Shutterfly customers (according to InfoTrends’ 2011 U.S. Online Photo Services Survey), that’s a new active customer acquisition cost of just over $3 each — about the price of 20 free 4” x 6” prints.

The Kodak Gallery acquisition is good news for Shutterfly, and will strengthen its position as the market leader among full-service online photo sites in the U.S. The inclusion of Canadian customer accounts is significant, as Shutterfly has not yet had a presence there. HP’s Snapfish, Shutterfly’s last major U.S. competitor, does have a Canadian site, and it is reasonable to expect that Shutterfly will use this opportunity to enter that market soon.

It is interesting to note that in recent months, even since Kodak’s January 11 bankruptcy filing, Kodak Gallery has continued to introduce innovative features, particularly with its mobile applications. On March 13, the service announced that its Android app would support photo and album sharing to Pinterest. Its iPhone app was updated earlier this month to offer photo printing with same-day pickup at Target and CVS stores and just this week, photo magnets, as part of a make*(stuff) campaign to drive output sales from mobile devices. These are features that neither Shutterfly nor Snapfish offer on their mobile apps. Is it possible that after shedding storage costs for billions of customer photos, Kodak is planning to continue Gallery as a mobile-focused print service provider without traditional photo sharing features?

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