Shutterfly’s Strategy: A Conversation with CEO Jeff Housenbold (Part 11)

SM: Pretty much your customer base of 2.4M customers stick around. Do you see much churn?

JH: I have been here three years, so 12 quarters; 75-77% of our revenue in each of those quarters is from repeat customers. That is a really good testament to the loyalty of our customers. I get asked a lot about what we are doing to steal Kodak and SnapFish customers, but the reality is that I am not trying to steal their customers. We only have 6% market penetration as an industry, I am worried about the other 94%, and then the 40% to 60% of that 94% who are profitable, that care about quality, user experience and 100% satisfaction guarantee, ease of use and great design.

SM: Plus it is a big headache to transfer photos from one company to another. J

H: There is definitely a perceived switching cost. One of the benefits of Nexo is if someone chooses to use Nexo for the soccer team, and you might be a Shutterfly customer but another mom might be an Ofoto customer, Shutterfly is still going to get some revenue from that other mom because she is going to buy the book on Shutterfly and then will get introduced to the quality and see the difference with customer covers, print on spine, the quality of the printing, etc. We are then able to attract her into the Shutterfly family without spending hard dollars on trying to switch her. We don’t disclose churn because we are not a membership like Netflicks, but a way we try to give a sense of loyalty is what percentage of revenue comes from existing customers.

SM: Are you all US right now, or do you have any international operations?

JH: Primarily. We have 1% to 2% of our sales outside of the US, predominantly to US military bases, Canada, the UK and Australia. More than 20% of our electronic sharing is outside of the US; back to India, China and other places. When I went on the road show, I said 2008 was probably the year of international, but it more likely 2009 or maybe 2010 given the large domestic opportunity in front of us.

SM: The logistics are complicated.

JH: Not only that, but when I dug into it, our website was not ready for international. We have re-architected the whole site so it can take different languages and be localized from a platform standpoint. We are moving from Great Plains to Oracle financial so we can take multi language / multi-currency. The third thing is learning to go from a single manufacturing plant 12 miles from headquarters to being able to manufacture a far distance. Charlotte gave us that capability. We built the order routing systems which match the machine capacity, labor capacity, shipping rates, and it routes all of those things. We have put the building blocks in place to go international. The other nice thing is through my experience at AltaVista and EBay where we moved into other countries is that you never go as quickly as you want, but going quick is not always the best answer.

SM: Especially if the user experience turns out to be poor as a result of logistics failure.

JH: When we launched eBay UK, we first launched it in American English, not the Queen’s English, and it suffered. You have to not only do it, but do it right. What is nice about our space is what we are dealing with is human centric, not American centric. It’s people’s memories. The other benefit is international is trailing 24 months behind the US. The largest company outside of the US last year did roughly $40M last year against our $186M.

SM: Who is that?

JH: It is PhotoWays which was a combination of PhotoBox and PhotoWays in the UK, Italy, Germany and Spain. It is backed by Highland Capital out of Boston. They are the biggest by far, and they did about $40M, so it is not like the land grab is over. I think the opportunity is still there.

This segment is part 11 in the series : Shutterfly's Strategy: A Conversation with CEO Jeff Housenbold
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