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Shutterfly is revolutionizing an
entire new industry, social expression and personal publishing, the convergence of
multi-billion dollar markets that include digital photo processing, scrap booking,
greeting cards, stationery and calendars
Services
Consumer Services
(SFLY-NASDAQ)
Shutterfly, Inc.
2800 Bridge Parkway, Suite 101
Redwood City, CA 94065
Phone: 650-610-5200
Jeffrey T. Housenbold
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published – April 27, 2007
BIO:
As Shutterfly’s President & CEO, Jeffrey Housenbold leads the Company’s
strategic direction and growth. Jeffrey is a new-media visionary with a successful track
record of building online consumer franchises by artfully combining commerce and
community. His leadership and vision are the driving force behind Shutterfly’s
industry leading transformation of how people interact with their memories. Jeffrey has
assembled a talented executive team that oversees the rapid growth of Shutterfly’s
global customer base, strategic partnerships, technology platforms and innovative products
and services. In June 2006, Jeffrey received the Ernst & Young Entrepreneur of the
YearŽ Award in the Retail and Consumer Products category for the Northern California
region.
Previously, Jeffrey was Vice President of Business Development & Internet Marketing at
eBay, where he managed customer acquisition and retention. At eBay he also held positions
as Vice President & General Manager of its Business-to-Consumer Group and Vice
President of Mergers and Acquisitions. Formerly, Jeffrey held senior management positions
with AltaVista, including Vice President & General Manager, and was the Chief
Operating Officer of Raging Bull, the award-winning community finance portal. He also
served as Vice President of Corporate Development at WinStar Communications and as Manager
and Founder of Accenture’s Media & Entertainment Strategy Group.
Jeffrey earned his MBA from Harvard Business School where he was
a Dean’s Fellow; and his undergraduate degrees, with High Honors in Economics and
Business Administration, from Carnegie Mellon University where he was a Presidential
Scholar.
Jeffrey previously served on the Board of Directors of There, Inc. the award-winning next
generation 3-D online community; inQ, Inc. a leading provider of revenue enhancement
technology and services for ecommerce companies; and on the Board of Advisors of Teoma,
Inc. a leading web-based search engine acquired by Ask Jeeves.
Jeffrey is the co-author of The Shutterfly Guide to Great Digital
Photos, an instructional book published by McGraw-Hill on the essentials of digital
photography and managing images. He is an avid photographer with his Canon 30D, and spends
his weekends capturing the special moments created by his wife and their three sons.
Company Profile:
Founded in 1999, Shutterfly, Inc. is an Internet-based social expression and personal
publishing service. Shutterfly provides high quality products and world class services
that make it easy, convenient and fun for consumers to upload, edit, enhance, organize,
find, share, create, print and preserve their digital photos in a creative and thoughtful
manner. Shutterfly has between one and two billion images stored in its digital archive.
CEOCFO: Mr. Housenbold, what was your vision when you started with
Shutterfly and where are you today?
Mr. Housenbold: “I joined Shutterfly in
January of 2005, and at that time both the industry and the company were focused on photo
processing – essentially, helping people make prints from images captured with their
new digital cameras. Based upon my ten years of previous experience with community-based
e-commerce, I knew that Shutterfly’s potential was much bigger and more meaningful. I
left eBay to join Shutterfly, because I was so excited about the ability to build another
great Internet brand and leverage all of my experience in community and e-commerce. I
wanted to expand Shutterfly’s narrow vision of photofinishing into one that is about
helping people share life’s joy.”
CEOCFO: Tell
us more about “helping people share life’s joy.”
Mr. Housenbold:
:“One of the first things I
did when I became Shutterfly’s CEO was to establish a new vision for the company,
which today is: to ‘make the world a better place by helping people share life’s
joy.’ Photography is an incredibly powerful medium. If you think about it, our
pictures are becoming even more important to us because they not only help us stay
connected to our memories; they’ve become a new form of visual communication.
In today’s world where people are
time-compressed, with many households having two wage-earning parents and with geographic
dispersion of friends and family, sharing pictures – either online or in a Photo Book
– is a meaningful, albeit relatively simple way, to keep in touch.
Shutterfly’s mission is to build an unrivaled
service that enables deeper, more personal relationships between our customers and those
who matter most to them. This vision and mission are our guideposts in our strategy to use
the power of Shutterfly’s platform and the power of the Internet to bring people
closer together. The industry calls this social networking; we refer to it as social
expression and personal publishing.”
CEOCFO: Talk a little more about social expression and personal
publishing.
Mr. Housenbold: “A lot of people are using
the Internet to express themselves; they are putting videos on YouTube, they’re
blogging and pod-casting, and they’re self-publishing. What differentiates Shutterfly
is that we are helping permission-based networks of people stay connected. What do I mean
by that? Well, look at MySpace; it’s an open network: you put out your images and
content across the whole Internet in an instant. At Shutterfly, given that 84% of our
customers are women between the ages of 25 to 55 (many of whom are married with kids),
they do not want to post pictures of themselves, their kids and families to the world.
They just want to stay in contact with people with whom they are already associated –
their friends, family and colleagues.”
CEOCFO: What is the difference between using
Shutterfly and emailing out your own photos?
Mr. Housenbold: Social expression and personal
publishing goes way beyond electronic photo-sharing, but for a moment let’s stick
with emailing photos. Sending photos via email is difficult: you have to attach each photo
file separately to your email, the photo files are huge, which means they’re clogging
up email in-boxes, and all too often emails with photos get blocked by spam filters and
size limits.
Shutterfly makes it easy for people to share photos electronically. For example,
Shutterfly users can send friends and family a link to an entertaining slideshow of their
pictures. Because we host the photos on
Shutterfly servers, we eliminate the burden of file size. Because we integrate into your
Outlook or Palm or email contact software, we make it easy for you to manage your
picture-sharing community. Nearly two years ago, we further extended our photo-sharing
capability with Shutterfly Collections, a free service that lets you have two unique URL’s
for photo-sharing. What’s more, it’s password-protected, so that your friends
and family have a safe and trusted place to keep and share their pictures, as well as blog
and add comments. And it’s not just for families, we see organizations such as soccer
teams, church groups, and small businesses setting up Collections.
Another benefit of using Shutterfly is that your pictures are safe with us for generations
and generations to come. We have between one and two billion of our customers’
precious memories stored on three different mediums. Our competitors down-sample and
compress, and if you do not come back frequently enough or spend enough money, they will
delete your precious memories. Therefore, one of our key differentiators is our
customer-centric approach and how we make the site very easy and safe to use.
We also offer many creative options: we have over five hundred different photo-borders; we
have the most licensed and branded content to augment customers’ own content, such as
Thomas the Tank Engine, Sesame Street, Clifford
the Big Red Dog and Angelina Ballerina, to name a few. We also do not force visitors to
sign up to view their friends’ and family’s photos. Perhaps most important, we
are vertically integrated, which confers lots of business and consumer benefits. Our
state-of-the-art manufacturing allows us to build the highest quality products in the
industry, and to innovate more quickly than the competition because our manufacturing,
R&D and marketing teams all work in close proximity. It also allows us to maintain
healthier margins and be able to plow back those profits into more innovation. Lastly, it
allows us to reduce the shipping time and improve the overall customer satisfaction,
particularly in peak demand periods such as the fourth quarter.”
CEOCFO: What does the typical customer purchase
from you?
Mr. Housenbold: “Our average customer today
is transacting with us three times a year; each transaction is $24.00 so on average a
customer is spending about $72 a year with us. Those averages are increasing, as we
provide customers with more opportunities to shop more frequently at Shutterfly, and as we
add higher-priced products, such as greeting cards, calendars, licensed content and photo
books. When Shutterfly was launched in December of 1999, customers were interested in
simply making 4X6 prints. Today, Shutterfly’s product mix is very deep and broad
– in fact, more than 50% of 2006 revenues came from our personalized photo books,
calendars, greeting cards, picture frames, mugs, etc. – all different ways to adorn
your home and create one-of-a-kind gifts for friends and family.”
CEOCFO: Are their other services you would like
to offer that you are not yet offering?
Mr. Housenbold: “Yes – innovation is
part of our DNA! I’ve been involved in the Internet for more than 12 years –
running significant parts of eBay, AltaVista (a business of Overture Services, Inc. that
was acquired by Yahoo) and CMGI, Inc. (NASDAQ: CMGI), and much of my professional career
has been focused on leveraging the power of the Internet for consumer-facing innovation.
We can always count on our customers to give us great ideas, so we prioritize those ideas,
innovate, execute and deliver on them, first. At the core of our innovation is our
customer-centric approach. This means focusing on ways to engage our customers throughout
their key life events; it means listening closely to their ideas, wants and needs and
having them test and review our new offerings. Some quick examples of innovations are:
ˇ
Customers were asking us for a better, easier way to get
their pictures of their cameras, edit, and organize their photos, so we launched
Shutterfly Studio, our free downloadable photo-management software.
ˇ
They told us they love our photo books, but they wanted
even more creative choices, so we rolled out more than 70 new designs from 10 different
“life event” or solution categories (including baby, travel, recipe, yearbook,
portfolio and wedding) as well as a wide variety of sizes and cover choices, such as
leather, suede, cloth and customized covers.
ˇ
Customers wanted direct shipping of their greeting
cards, so we added a stamp-included option, along with their ability to upload their
address-book to our site, so they can send personal greeting-cards (including personal
messages) directly from Shutterfly to friends and family.
ˇ
They told us how much their children enjoy seeing family
photos, so we added licensed characters to the Shutterfly mix. For example, it’s just amazing to see the
“wow factor,” when kids first see themselves in our custom-designed Sesame
Street story books, with them as the “starring character.”
ˇ
Another frequent request was custom framing; customers
said, ‘Would you take this beautiful enlargement and make a frame because when I go
to the local store it costs me so much.’ So we just launched a custom framing
service.
CEOCFO: Do you see commercial or
large-organization use of your services continuing to grow, going forward?
Mr. Housenbold: “Yes, we are seeing organic
adoption by small businesses and institutions such as schools, sports teams and church
groups. Last quarter, we launched Picture Perfect Language Arts with Scholastic
Corporation (NASDAQ: SCHL), the world’s largest publisher and distributor of children’s
books. This is a seven-part teaching series for teachers to help them teach language arts
through the medium of photos and through the Shutterfly platform.
Going forward, we intend to follow the “eBay way”
regarding new segment growth. Here’s what I mean: at eBay, we noticed that people
were selling real cars in the die-cast
collectibles category and we thought, ‘Who would buy a car without kicking its tires?’
As that phenomenon grew, we went out, talked to customers, and built a solution for them.
At Shutterfly, we are at the earliest stages of this new phenomenon of social expression
and personal publishing and we are starting to see organic adoption by interior decorators
and cosmetic dentists making ‘before and after’ photo books, real estate agents
making photo books of homes for sale, and schools and sports teams making face books and
yearbooks. Our role is to stay close to customers, prioritize their needs and deliver
compelling solutions for them.”
CEOCFO: I know you have had strong
year-over-year and quarter-over-quarter growth; will you give us the highlights about the
financial picture?
Mr. Housenbold: “Compound annual revenue
growth over the last five years has been in excess of 100%. Our full year 2006 revenues
were $123.4 million. We have been profitable since 2003. In the most recent quarter
reported, the fourth quarter 2006, total customers grew by 47% and the number of orders
grew by 45% year-over-year. As the thought leader and ‘pure play’ in this
industry, in providing the highest quality and the best experience, we believe we are
resonating with our customers and the business model is working. We are winning against
Goliaths such as Hewlett-Packard (NYSE: HPQ), Yahoo (NASDAQ: YHOO) and Wal-Mart
(NYSE:WMT).”
CEOCFO: How do you reach new customers?
Mr. Housenbold: “Our customers are
passionat evangelists for Shutterfly, and generate an important stream of new customers;
77% of new customers are coming direct to Shutterfly from word-of-mouth referrals. To
attract the other 23%, we do a number of traditional online and offline advertising and
promotional initiatives. Regarding online, we do Internet search advertising, we have an
affiliate program, and we buy media on websites where our customers tend to be. We also have a robust online and offline direct mail
capability. Unique to Shutterfly is a sophisticated promotional engine tailored to each
customer’s transactional behavior that is manifested on both on the website and in
direct emails. Also, because we are vertically integrated and own our own manufacturing,
we are able to put promotional materials right in the product packaging itself; we did
that more than 5 million times in 2006. Since we have state-of-the-art digital printing
capabilities, we are making our own catalogues; we started that in the fourth quarter of
2005 and it was very successful. We then continued to do it for Mothers’ Day, Fathers’
Day and other key holidays in 2006. We now offer three different catalogues with varying
points of interest – one to our best customers, one to our good customers and one to
prospective customers.
We do offline marketing in two forms; we have a robust print campaign occurring in dozens
of magazines such as Real Simple, Parents and ‘O,’ The Oprah Magazine along with
many others. We also have an extensive array of interesting business development partners
such as the U.S. Postal Service, where if you buy a passport in one of the 5,300 post
offices, you get a free 8“x 11”-travel photo book from Shutterfly.”
CEOCFO: Why should potential investors be
interested and what do people miss about the company that should be more prominent?
Mr. Housenbold: “Our key investment themes
are as follows:
ˇ
First, we are at the early stages of an entirely new
industry in social expression and personal publishing and that is the convergence of
several large multi-billion dollar markets such as the digital photo processing industry,
the scrap booking industry, the greeting card industry, the stationery industry, the
calendar industry. In the past, each of those industries were served independently. Today,
because of technology advances in both the Internet and digital print-on-demand equipment,
Shutterfly addresses the needs of all of those markets simultaneously in ways that have
not been possible before. These markets are experiencing rapid growth. For example, IDC
(the premier global provider of market intelligence) estimates that digital photo
processing alone will be a $31 billion market in the US and a $108 billion market
worldwide in 2009.
ˇ
Second, Shutterfly is the only ‘pure play’ in
the space; we have a premium lifestyle brand and we have the best quality, so we’re
able to maintain premium pricing and we continue to expand our loyal, passionate customer
base. Our viral word-of-mouth acquisition model allows us to acquire customers below
$12.00 and these new customers are spending $72.00 in the first year. That is why it is a
great investment.
ˇ
Third, Shutterfly has demonstrated a strong record of
execution and a fantastic management team, despite significant competition since the
company launched in 1999. We have been profitable since 2003, have had 24 consecutive
quarters of year on year growth and are the market leader.
ˇ
When investors have questions, they center around our
in-house manufacturing strategy and around competition. Once they understand the
significant advantages we derive from manufacturing – including innovation, agility,
quality, and cost – they begin to appreciate the strategic importance of our
manufacturing expertise. When we walk investors through our long track record of competing
– and winning – against large and small players, based on our focus on the
customer, our attention to quality, our premium lifestyle brand, our diversification, and
our track record of execution, they also understand our competitive advantages.”
CEOCFO: In closing, you received the Ernst and
Young Entrepreneur Award; will you tell us what that means to you and in addition address
your management team?
Mr. Housenbold: "Let me talk about Shutterfly
first, because all of our awards – such as the Ernst and Young award, or the Webby
Awards, or the Fastest Growing Silicon Valley List, or the INC 500 – are validation
of our company and the incredible contributions of our passionate and hard-working
employees. As a motivator and recognition of our team’s hard work, we put many of our
awards on display in our company gallery, which also happens to serve as our lobby.
Our employees are 100% focused on delighting our customers, on working tirelessly, and
on continuously innovating for our customers’ and shareholders’ benefit. So,
equally important to external recognition from awards, is the simple ‘thank you’
we get everyday from customers that tell us how our products have touched their hearts and
lives, and those of their families. Customer satisfaction and delight means everything to
our employees, and to me.
I share a lot of those same psychic benefits from the awards, but I came from humble
beginnings in a poor neighborhood in Brooklyn, New York; my dad was illiterate and we
lived on welfare when I was growing up. The great thing about America is that through
education, hard work and a bit of luck, you can change your lot in life.”
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