NEW YORK (Reuters) - Web sites that let consumers e-mail and print
digital pictures have become a new battleground for companies like
Kodak and Hewlett-Packard, which hope to use the growth of these sites
as a conduit for selling highly profitable products like paper and
printers.
Eastman Kodak Co. may see its lead in the burgeoning market for
online picture development -- which lets travelers, for example, share
vacation pictures before they've even returned home -- pinched by
recent moves at Hewlett-Packard Co.
The threat comes even from retailers like Wal-Mart Stores Inc.
More than 1.3 billion pictures were transmitted, or "uploaded," to
online systems from personal computers in 2004, as digital cameras and
camera phones went mainstream. The lion's share of those images went
to Kodak's Ofoto service, which was recently renamed Kodak EasyShare
Gallery.
But last month H-P, the leading maker of computer printers, purchased
Snapfish, which was ranked third behind Ofoto and privately held
Shutterfly in a market that includes sites like Photango, dotPhoto and
Google Inc.
Snapfish gives H-P a heartier online component, says Infotrends
analyst Jill Aldort.
H-P may woo photo enthusiasts, particularly those with H-P printers,
to store their pictures, she said. It's possible that H-P may offer
discounts on replacement ink cartridges.
"H-P is certainly going to put more marketing muscle behind Snapfish,
which already had a strong brand name," she said. "I think Kodak
should be concerned, but I don't think they need to stay awake at
night. It makes the market more competitive."
KODAK SEES BIG GROWTH POTENTIAL
Kodak, which is almost 18 months into a tough transition away from its
flagging traditional film business, says it is not losing sleep over
the consolidation, such as H-P's move and Yahoo Inc.'s recent purchase
of online site Flikr.
"There is a huge upside in the market, as evidenced by the deals,"
said David Rich, vice president of marketing at Ofoto, now known as
Kodak EasyShare Gallery. "We have over 1 billion images under
management and we will double that over the next year."
That big number belies the online photofinishing market's relatively
small size, which reached only $160 million in revenue in 2004 and
is seen growing to $630 million in 2008, according to
Infotrends. That's a drop in the bucket for H-P and Kodak.
CATERING TO 'ONE-HOUR PHOTO' FANS
Still, analysts say it is essential that these companies solidify an
online strategy, since consumers adore taking pictures, even as
methods change.
Digital cameras will outsell film cameras this year. And young people
are more apt to e-mail pictures than print and store them in albums.
But it is printing where the money is made: high-quality paper and
high margin ink and toner are profit drivers for Kodak, H-P, Canon
Inc. and others. What's more, users and friends make repeat trips to
the sites, giving each company another chance to showcase its brand,
and sell other products.
"They are set to face off against each other, whereas before this, H-P
was undiversified. They had these home (systems) and that was about
it," IDC analyst Chris Chute said. "Kodak has been pushing into H-P's
space, so now H-P is saying 'We need to get into this."'
In all, about 25.9 billion total prints are expected to be made in the
United States in 2005, with digital prints growing 50 percent to about
7.7 billion from 2004, industry group Photo Marketing Association
projects.
But some habits die hard. More and more, consumers are coming back to
retail stores for digital prints. PMA says the number of pictures
printed at retail will nearly double to 3.1 billion in 2005.
IDC's Chute said that the so-called Internet-to-retail market is going
to double to about $1 billion in 2008 revenue. In Internet-to-retail,
users upload pictures to, for example, Wal-Mart's or Ritz Cameras' Web
sites, which are both powered by Kodak rival Fuji Photo Film
Co. Ltd. They then go to local stores and pick up the pictures, days
faster than a Web-only store could deliver.
"The problem online is that I have to wait for my pictures, and this
constituency is used to 'One-Hour-Photo.' This combines the best of
both worlds," Chute said.
Copyright 2005 Reuters, Limited.
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Lisa Minter (lisa_minter2001@yahoo.com)