Can Shutterfly Be Threatened By Google‘s Foray Into Photo Books?

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Competition for Shutterfly (NASDAQ:SFLY) is intensifying. In September last year, Amazon launched a photo printing service called “Amazon Prints” aimed toward its Prime customers who already get free photo storage on its site. Recently, the photo printing feature was added to Google Photos wherein users can create a photo book at competitive prices, using their photos uploaded on the app. While Shutterfly has had a decent Q1 2017 with a 3% year on year growth in revenues, we believe the competition from Google Photos can impact its user growth. Shutterfly is betting big on its restructuring initiatives to improve the customer experience. However, the convenience offered by Google Photos might be a huge incentive for users to use the same platform for their printing requirements and not use any other service at all. Shutterfly might become the go to option for users who prefer interesting designs and exquisite stationery for their photo books, thus restricting its user growth.

Convenience, Better Features Likely To Be Key Driving Factors

Google Photos automatically backs up photos of a user from a camera, smartphone, or any other device where the photos are saved and consolidates them in the app (on a cloud storage). Further intelligent features such as facial recognition technology allows the app to give suggestions around people who are photographed the most and users can sort pictures based on the person being photographed. The app also creates stylized photos and users can filter and edit photos for special effects. With 500 million users this is a popular and convenient app which can encourage users to automatically use its printing features, without going through the effort of uploading the pictures to another platform such as Shutterfly. Simpler photo book options ensure that the process is faster and convenient. We believe this platform will appeal to users who want to print photo books but do not want to spend a lot of time in selecting layouts or designing the books.

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Shutterfly, on the other hand, offers several layout options and various designs, backgrounds, and stationary to make a photo book stand out. While this will appeal to users who are creating these books for special occasions, the time consuming process can put off others.  Shutterfly’s user base is much smaller compared to Google Photos. As per our estimates, the company will have around 10 million users in 2017 and this number will increase to around 15 million by the end of our forecast period.

However, increasing competition and poor brand recognition can impact this growth. Consumers use Google and Amazon for several of their online requirements and an extension of these platforms for printing photos is likely to entice customers. Once these services meet the quality and pricing requirements of users they are less likely to search for other printing options. We believe Shutterfly’s competitive edge lies in interesting designs and innovative products which can be customized using photos. However, with players such as Google entering this segment, customers looking for convenient, simple, and quick photo printing services are less likely to opt for Shutterfly. Competition in this space is intensifying and Shutterfly’s ability to simplify its services will be critical for its long term growth.

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