Can Amazon Prints Gain Market Share From Shutterfly?

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Amazon (NASDAQ:AMZN) recently launched a photo printing service for Amazon Prime and Amazon Drive members, offering affordable prints of digital photos which are shipped via Amazon’s free standard delivery. Amazon’s photo prints are much cheaper  (9 cents for a 6*4 print) compared to the existing players in this market – Shutterfly  (15 cents for a 6*4 print) and Snapfish (64 cents for a 6*4 print) – which has led to speculation that Amazon might be able to grab significant market share. Amazon’s Prime Members have access to unlimited photo backup, and this new service will allow them to print selected photos from this library or create photo books. We believe Amazon’s foray into photo printing is to offer convenience to its Prime Members and drive growth in these memberships, though this could lead to some users moving away from other  players such as Shutterfly for their photo printing needs and using Amazon exclusively. However, Amazon’s focus on quality and innovation in this service will determine whether the company can capture a larger share in this market, where currently Shutterfly has the advantage.

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Driving Prime Memberships Through Added Conveniences

Amazon’s Prime Members spend more than twice as much on Amazon than non-members, according to an analysis from Consumer Intelligence Research Partners. Given this favorable spending trend, Amazon is focused on retaining its existing Prime Members and growing this base. Offering conveniences such as free shipping and access to a large on-demand video and music library are ways in which Amazon is able to attract members. We believe that photo printing at a very low cost is another such perk which Amazon is looking to offer its Prime Members.  Since Prime Members already have access to free photo storage, it saves these members the hassle of transferring these photos on another service to print them or create photo books and cards. Whether Amazon will focus on the quality and offerings of this service to keep its users away from other players in this segment remains to be seen.

Focus On Photo Printing Segment Key For Market Share

Given that photo printing is not a core business for Amazon, players such as Shutterfly have an advantage in this space. Users are attracted to Shutterfly given its innovative products and high quality printing, and the company is witnessing strong growth in revenues in the last two years. Online photo printing is a growing market and, according to IBIS World Inc., consumers in the U.S. will spend $ 2 billion this year on photo printing. Amazon can compete effectively in this space if it is able to match the quality of other services and the innovative products they offer. Whether Amazon intends to do so, and create photo printing as a standalone service generating revenues, remains unclear.

We believe it is still too early to assess whether Amazon’s new photo printing service can make a dent in Shutterfly’s market share. While this service can certainly help boost Prime Memberships, effective competition with Shutterfly will require more focus and resources to match quality and innovation. It remains to be seen whether Amazon is willing to take these steps.

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