Analysis

January 2011

2011 Road Map: Photo Publishing

Service Area Business Development Services

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ANALYSIS

2011 Road Map: Photo Publishing

Table of Contents
Introduction ................................................................................................................................ 3 Market Overview......................................................................................................................... 3 Business Development Strategies Trends for 2011 ................................................................... 4 1) A Knowledgeable Customer Base is Developing ............................................................... 4 2) Specialty Papers Support Niche Market Growth .............................................................. 4 3) Photo Merchandise with Professional and Licensed Content ......................................... 5 4) Niche Market Expansion ................................................................................................... 6 5) Facebook Meets Photo Book .............................................................................................. 7 6) More PSPs, MSPs, and Pro Labs Entering the Photo Market ......................................... 7 7) Mobile Photo Apps Create New Opportunities ................................................................ 7 8) Expanding Photo Creation Solutions ................................................................................ 8 9) Matching Production Capabilities to Product .................................................................. 8 10) Continuous Improvement for Operational Efficiency .................................................... 9 InfoTrends Opinion ................................................................................................................... 10 About the Author ........................................................................................................................ 11

List of Figures
Figure 1: Licensed Content Merchandise Example from SnapShotU.com ............................. 5 Figure 2: Screen captures of creative tools from PixyMe (Left) and Hipstamatic (Right) ..... 8 Figure 3: Commercially Avalible Albums Create Opportunites for Service Providers with Limited Finishing Equipment .................................................................................................... 9

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Introduction
InfoTrends kicks off the new year with a look at some key trends that will affect print service providers (PSPs), professional photography labs, and marketing service providers (MSPs) that are actively trying to capture a piece of the photo publishing and merchandising pie. The lines between photography and printing are beginning to cross. Photographers are looking at photo merchandise as a value add service, while print services providers, armed with digital presses capable of photo quality reproductions, are looking at the photo market as a new source of revenue. As we march into 2011, there are a number of key trends that will shape the photo publishing/merchandise industry in the years to come. This document highlights the top 10 trends that will influence the photo publishing & photo merchandise markets. It is presented in a brief, high-level summary form as a reference tool to assist our clients in making key marketing planning decisions. These trends will frame our coverage of the industry in 2011, and will be examined in greater detail in InfoTrends forecast, research, and analysis documents throughout the year. Some of these trends are conservative and evolutionary in nature, while others are more aggressive. Whether you agree or disagree, we welcome your reactions and feedback.

Market Overview
The photo publishing/merchandise market is experiencing strong growth. With the rise in capture devices, photo sharing through social media, declining photo merchandise retail costs, and a growing interest in niche photo verticals, we anticipate new photo applications and emerging markets that will promote growth through 2011 and beyond. While the number of end-consumers actively engaged in creating photo merchandising products is relatively low, this established core group of consumers will be shaping and redefining the products available in the marketplace. Similarly, with the barriers of entry into the manufacturing and reselling of photo merchandise eroding, we anticipate a rise in the number of boutique merchandise operations. As new service providers enter the market, matching production capabilities to product mix and identifying operational efficiencies will become an area of importance to them.

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Business Development Strategies Trends for 2011

1) A Knowledgeable Customer Base is Developing
The photo merchandising marketplace is forecast to grow into a $2.2. billion industry by 2014. While only 25% of U.S. consumers have purchased photo merchandise within the last year, the InfoTrends U.S. Consumer Photo Merchandise Forecast shows that over 90% of these consumers who purchased photo merchandise said that they would definitely or probably buy again. Product design, better interfacing software, and a commoditization of the marketplace are a number of components that will drive growth in this market. InfoTrends data shows that by and large most consumers are shopping for photo merchandise based on price. For beginners, the process of creating a photo product can be time consuming and largely experimental, with a level of uncertainty about the end product results. This uncertainty creates an inherent unwillingness to invest time and money. That said, the high number of repeat customers indicates that the manufacturers of photo merchandise as a whole are meeting or exceeding the customer expectations. As more consumers move from beginners to repeat customers, their knowledge of the creation process, expectations of quality, and desire for new products/designs will grow. An educated customer base presents opportunities for service providers to segment their target audience and offer new paper options, finishing options, creative designs, and boutique product lines designed to meet an increasingly sophisticated demographic of photo merchandise consumers.

2) Specialty Papers Support Niche Market Growth

Paper offers services providers an opportunity to differentiate their product mix and capture higher profit margins. The majority of paper based photo merchandise products (e.g., books, calendars, greeting cards) are produced on paper stocks that have broad appeal to a mass market. These paper stocks are readily available, well formed, grade 1 sheets that have an excellent manufacturing characteristic. While good paper stocks, they do not provide the diversity needed to attract emerging niche markets. When respondents to the InfoTrends U.S. Consumer Photo Merchandise Market Forecast were asked which features they would be willing to pay more for when ordering photo products, more than 50% indicated that they would be willing to pay 10%-20% more for higher quality paper. Even more encouraging is that another 15%-20% indicated that they be willing to pay 20%-50% more for higher quality paper and binding. Service providers have an opportunity to market specialty papers to a smaller niche audience and realize higher profit margins. As the photo publishing/merchandising market grows, so too does the population of consumers willing to spend upwards of 50% more for higher quality or specialty papers.

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Ben Zlotkin, founder of Edition One Books (a custom book publisher focused on producing high-quality premium books), described the paper selection for his products in this way, Our professional clients have a demand for accurate color and quality page feel that is higher than the average consumer client. As a result, we took the time to seek out and select paper stocks that would both run well through the press as well as help achieve a high-quality end product. The six to eight primary types of paper we stock were selected based on their ability to meet the needs of our professional clients, opposed to their selection being driven by cost factors.

3) Photo Merchandise with Professional and Licensed Content

One of the more exciting trends taking place within the photo publishing/merchandising market is the comingling of professional and licensed content into consumer photo products. In many cases, consumers on their own are not able to capture the type of photographs a professional photographer can capture. An example of this can be found at the photo creation site SnapShotU.com, which allows users to create collegiate-themed photo products that incorporate professional images from a select number of colleges and universities. Figure 1: Licensed Content Merchandise Example from SnapShotU.com

In addition to creating their own online photo album from which to pull images from, consumers can also pull images from a pre-populated album. In the screen capture above, along the bottom, the Connecticut School Album shows 22 professional images that the user could incorporate into their own photo album. On the left hand page is a professional photography of the Connecticut football team lining up for a play. On the right hand page is a user-uploaded image. Professional images, when combined with consumer-uploaded images, help add context to the consumers images while creating a more visually appealing final product. Close to 40% of respondents to the U.S. Consumer Photo Merchandise Market Forecast indicated

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that they would be willing to pay 10%-20% more per book for the use of professional, licensed, or stock images in addition to or instead of personal photos. Service providers should be partnering with organizations and companies that hold repositories of desirable content and who also have a base of consumers with an affinity for that content.

4) Niche Market Expansion

Photo publishing/merchandise from a mass market perspective is saturated with a number of major retail operations, such as Kodak Gallery, Shutterfly, SnapFish, Blurb, Lulu, MyPublisher, Apple, and Walmart. The chance of another retail operation entering this mass market space and becoming a major player is unlikely. Price and scalability are two of the main challenges a service provider faces when trying to command a sizeable share of the mass market. The mass market is becoming commoditized and the retail cost of photo merchandise is gradually declining. This is good news to the end-customer, but presents a challenge to new companies looking to enter the photo market that need to maintain high levels of profitability to succeed. Scalability in the retail marketplace is another major challenge as the bulk of photo merchandise is purchased in Q4 during the holidays. Seasonality leaves many established manufacturers looking to fill their presses with adequate volumes of work during the off season, while making it difficult for new manufacturers looking to enter the market to be able to meet the production demands of the peak season. InfoTrends sees opportunities within niche vertical markets to level out the extreme peaks and valleys of a largely seasonal marketplace. In InfoTrends 2009 study entitled Business Applications for Photo Publishing: Digital Printing Opportunities for Photo-Intensive Documents, over 90% of survey respondents that use photo-intensive materials in business reported that these materials were more effective at reaching customers. Another 89% said they were more effective at increasing revenues. Business applications allow service providers to generate a steadier flow of revenue throughout the year as these applications are not nearly as seasonal as the consumer market. Real estate, events, travel and leisure, special interest groups, and aligning with brand owners are examples of niche markets that have yet to be explored within the photo marketplace. With more digital images being taken than ever before, the market potential is obvious. By focusing on target markets, there is an opportunity to reach consumers who may not wish to make a purchase from a major retail site, but who would be perfectly willing to make a purchase from a site they have an affinity with, such as a college university or sports team.

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5) Facebook Meets Photo Book

Recent announcements indicate that the infrastructure for making prints and personalized photo products from images uploaded to social networks is ramping up. Facebook recently increased the size of photos uploaded to its site from 604 pixels to 720 pixels (longest dimension) as the default format, with an option to upload photos at 2,048 pixels (longest dimension). This is an eight-times improvement in quality and will cover the resolution of most consumer cameras. For Facebook users, the change will be most obvious in the form of larger images on computers, digital frames, and other connected screens, resulting in a more pleasant viewing experience. Service providers can also deliver significantly better print quality to users who choose to order prints and photo books from their collection of Facebook photos. The new picture formats will allow for high-quality 5 x 7 prints at 300 dpi. InfoTrends 2010 Social Network and Photo Sharing Survey found that roughly three quarters of regular social network users share photos other than a profile picture. On average, respondents who shared photos on social networking sties reported uploading a total of nearly 170 of their own photos on social networking sites. With companies like Mimeo and Shutterfly interfacing directly with Facebook to allow users the ability to pull their Facebook images into a third- party system, social networking will be a driving proponent for generating consumer awareness of the photo publishing/merchandise market.

6) More PSPs, MSPs, and Pro Labs Entering the Photo Market
In 2010, InfoTrends published a study titled Business Development and Professional Services that Work, in which 15% of the PSPs surveyed indicated that Photo Books and Photo Products were listed as one of their top five new business applications. The overall slowing of the print industry during the last few years along with rapid growth of the photo publishing/merchandise market has caused many services providers to look at incorporating photo into their portfolio of services. In addition, 30% of the pro photographers surveyed for a 2010 Professional Photographers and Personalized Photo Products study completed by InfoTrends indicated that expanding into new photo related products was a high priority of theirs. Of those pro photographers already producing photo merchandise, photo books/albums and greeting cards accounted for 62% of the products produced. Expect to see an influx of service providers offering photo publishing and photo merchandise products and services in 2011.

7) Mobile Photo Apps Create New Opportunities

A Nielsen survey released in March of 2010 estimates one in two Americans will have a smartphone by the end of 2011. The InfoTrends survey entitled 2010 U.S. Mobile Imaging End-User Survey showed that during a typical three month period, users on

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average are taking over 30 photographs with their camera phones. In addition, there are a growing number of smartphone apps like PixyMe, Instagram, Hipstamatic, Shootit, and Incredibooth that support the ordering of prints, photo merchandise, and photo sharing via social media. The convergence of these factors is going to open new doors in the photo merchandise market. Intuitive creative apps on increasingly capable smartphones help drive consumer awareness and engagement. We see an opportunity for PSPs, MSPs, and Pro Labs to work with developers to create white label photo apps that can be branded to target niche market verticals and B2B/B2C opportunities. Figure 2: Screen captures of creative tools from PixyMe (Left) and Hipstamatic (Right)

8) Expanding Photo Creation Solutions

With a slowing economy, many PSPs, MSPs, and pro labs are looking to further diversify their portfolio of services. The expanding number of software providers that are white labeling, licensing, and providing manufacturing services for the photo publishing/merchandise market offers service providers a cost effective way to take the first steps toward entering the field. Taopix, DigiLabs, Pixami, and RocketLife are four companies among many that are actively bringing photo creation tools to the market. The business models these companies offer vary from outright purchase of the code that drives the solution, to Software-as-a-Service subscriptions, to hosting back-end server and even manufacturing support. The variety of business models and services offered through these companies break down the barriers to entry and reduce the overall risk associated with entering the photo merchandise marketplace. We see solution companies growing in market share as more and more PSPs, MSPs, and pro labs incorporate their solutions to expand their product offering.

9) Matching Production Capabilities to Product

With the barriers of entry into the photo publishing market eroding, service providers will be matching photo publishing/merchandise products to their production capabilities. Perfect binders, wire-o machines, folding machines, and other finishing equipment open

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up the door for the creation of a wide range for photo merchandise from cards to calendars and book products. That said, a number of products can be produced by simply leveraging an image output device and commercially available albums. Figure 3: Commercially Avalible Albums Create Opportunites for Service Providers with Limited Finishing Equipment

The above image is an example of a 12 x 12 scrapbooking album that can be purchased at joann.com. Within the album are ten sheet protectors. Many image output devices will produce a 12 x 12 sheet that can easily be inserted into the album and delivered to a customer. Additionally, simple workflows can be set up where a customer could reorder refill pages and sheets via an online photo solution. Service providers will be reviewing their capabilities and finding photo publishing/merchandise products that can easily be offered to their customer base.

10) Continuous Improvement for Operational Efficiency

For new entrants, the first challenge in building a photo merchandise business is customer acquisition. The second challenge is introducing short-run or one-off production workflows that do not disrupt established workflow models. For many companies, the move to these print-on-demand workflows is a sharp turn away from traditional mass manufacturing models. Technology requirements, manufacturing hardware needs, staffing requirements, order flow, manufacturing workflow, shipping, and even customer service all need to be taken into consideration for those looking to optimize a photo production workflow. This process of identifying and defining processes within the workflow that are operating at optimal efficiency requires that an audit of production workflow is conducted. Identifying and defining the core production requisites for successfully producing ondemand products is going to be a starting point for many companies.

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InfoTrends Opinion
These ten trends will shape the photo publishing/merchandizing market as it continues to expand and grow through 2011 and the years to come. Savvy PSPs, MSPs, and Pro Labs looking to capitalize on the photo market have never been in a better position to do so. A growing customer base, developing niche markets, and declining entrance costs make this an attractive market to participate in.

This material is prepared specifically for clients of InfoTrends, Inc. The opinions expressed represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies. We believe that the sources of information on which our material is based are reliable and we have applied our best professional judgment to the data obtained

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About the Author

Matt Rees Senior Consultant matt_rees@infotrends.com +1 781 616 2100 ext. 145

Matt Rees is a Senior Consultant for InfoTrends Business Development Services. In this role, Matt will support service initiatives by assisting customers in growing and developing new market opportunities. Mr. Rees has a broad range of experience within the production printing/software space.

Barb Pellow Group Director barb_pellow@infotrends.com +1 781 616 2100 ext. 261

A digital printing and publishing pioneer as well as marketing expert, Barbara Pellow helps companies develop multi-media strategies. She assists companies in creating strategies to launch new products, building strategic marketing plans, and educating their sales force on delivering value.
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