Shutterfly Acquires Photo Book Application GroveBook In Another Strategic Tuck-In

Shutterfly (NASDAQ:SFLY), the Internet-based image publishing company, acquired GrooveBook, a mobile photo book application subscription service, on November 17th. Valued at $14.5 million, the deal includes an upfront purchase amount and a future performance-based earn-out. Grovebook prints up to 100 photos stored in the mobile phone, in a 4.5″ x 6.5″ GrooveBook format. It then mails the keepsake book to customers, for a monthly charge of $2.99. ^[1] GrooveBook has more than 1 million downloads, 200 million photo uploads and a subscriber base of around 7 million. ^[2]

Shutterfly has a history of acquiring start-ups related to the photography domain. It has earlier acquired companies including ThisLife (photos and videos organizer), Tiny Prints (premium cards and stationery for all occasions), Treat (allows users to create personalized greeting cards), Wedding Paper Divas (wedding related stationery), BorrowLenses (online photo and video equipment rental service), and others. According to Brian Whiteman, GrooveBook’s founder, GrooveBooks’s acquisition by Shutterfly will enable the former to leverage the latter’s technological and manufacturing platform to scale up operations, which will allow it to increase its profitability and brand value.

Earlier in October, private equity firm, Silver Lake Partners put their plan of acquiring and combining Shutterfly and Hewlett-Packard’s Snapfish on hold. However, Silver Lake is still open to talks with Shutterfly. The merger of Shutterfly and Snapfish—both companies operating in the photo storage and printing space—would create a bigger entity, expand the customer base, and pose a  substantial threat in this market space witnessing continuous influx of players.

Our $45.16 price estimate for Shutterfly is at a slight premium to the current market price.

See our complete analysis for Shutterfly

How Is The GroveBook Acquisition Strategically Relevant for Shutterfly?

Shutterfly leads the post-photo products and services category, with more than 50% market share. According to a study by BCC Research the global “complementary products and accessories” segment of the $68 billion digital-photography industry generated more than $5.7 billion in sales in 2011 and will increase to approximately $7.9 billion by 2016. ^[3].

In 2013, Shutterfly reported yet another year of double-digit growth in revenues to reach $784 million as the number of orders processed by the company grew 13.7%, to reach 18.6 million. In Q3 2014 it reported net revenue of $142 million, which marked the 55th consecutive quarter of year-on-year increases.

This raises the question about Shutterfly’s recipe for success in the digital domain, where established names like Kodak and Fujifilm have perished. Shutterfly’s main strategies include strategic acquisitions, vertical integration of the company, cross selling its products, continuously upgrading itself according to changing demands, and integrating acquired technologies into its core products.

Shutterfly has always been strategic in its acquisitions. When it bought Kodak Gallery for $24 million, it also acquired the 75 million customer accounts, which made a noteworthy addition to Shutterfly’s client database.  The acquisition of Penguin Digital aided Shutterfly in adding mobile to its portfolio and ThisLife added cloud-based photo-and-video skill set to its offerings. ^[3] With GroveBook, it will not only expand its customer base but will also add another new feature to its offering, that is, monthly photo book printing from photos captured through mobile cameras.

Another important strategy, according to John Borris, Chief Marketing Officer of Shutterfly, has been vertical integration. Shutterfly tries to control its business chain from end-to-end. They even have their own manufacturing facilities. Hence, the acquisition of Grovebook seems strategically relevant as the company prints photo books from photos saved in mobile phones, which is the next logical step for Shutterfly, after offering customers photo-printed cards, mementos, and accessories. The company specifically targets families with young kids, in particular mothers, as they are the ones who make most of the decisions regarding holiday cards, stationery, photo books, and other photo gifts- products sold by Shutterfly.

Shutterfly had transformed from a single brand market leader to a family of brands, which in turn helps it “cross pollinate”, that is, sell products from one brand to a customer in a different brand. The four main brands (Shutterfly, Tiny Prints, Wedding Paper Divas and Treat), besides having their individual customer base, continuously aim at cross-selling to customers from the other brands. For instance, its Wedding Paper Divas brand sells wedding related stationery such as invitation, thank you cards etc. The Wedding Paper Divas customer is given a further push through triggered mails, to purchase from the other brands such as Tiny Prints or the Shutterfly main brand for photo cards or children’s photo albums. ^[4] These cross-selling activities should lead to further expansion in the company’s average order value (AOV). Additionally, good cross-selling activities should improve customer retention and increase overall customer base in the long term.

Shutterfly continuously broadens its offerings based on technological advances and changing demands, for example, its launch of photobook app for iPad in mid-2013. It integrated technology with one of its most popular products. ^[4] Hence, we expect the acquisition of Grovebook to be another strategic advance on Shutterfly’s part, in order to cater to a clientele with ever increasing demands and constant changes in requirements.

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1. Shutterfly Inc. Acquires GrooveBook, Shutterfly, Nov 2014 [↩]
2. Shark Tank-Backed GrooveBook Acquired By Shutterfly For $14.5 Million, Tech Crunch, Nov 2013 [↩]
3. How Shutterfly Is Proving Americans Still Want Prints of Their Photos, Advertising Age, March 2013 [↩] [↩]
4. The CMO.com Interview: Shutterfly CMO John Boris, CMO.com, October 2013 [↩] [↩]