Kodak snaps up online photo site

The photo giant said Ofoto will operate as a wholly owned subsidiary of Kodak. The financial terms of the deal were not disclosed.

The move represents Kodak's efforts to find revenues in the online market, which has been flooded with a handful of online photo-sharing sites--including Snapfish, PhotoWorks and Netscape founder Jim Clark's Shutterfly--that are all competing for customer attention and funding to survive the dot-com shakeout. Two weeks ago, Dell Computer struck a deal with online photo company Shutterfly and Conexant Systems to offer consumers photo software with the purchase of a new Dell computer.

Analysts have said that in order to avoid getting swept away by the dot-com downdraft, online photo companies need to form partnerships with other photo companies and provide unique services to keep ahead of the pack.

"This is a big partnership," said Suzzana Ellyn, a research analyst for La Jolla, Calif.-based ARS. "It?s combining the new mantra of digital photography with the old-school, traditional photography...I know that Kodak's had a hard time really breaking into the digital frontier and really kind of changing its image to be more of a digital player and by taking on this role with Ofoto, I think it definitely helps reinforce that it's proceeding along the digital forefront and going full-speed forward with it."

Founded in 1999, Emeryville, Calif.-based Ofoto specializes in digital photo finishing. The company, which has its own digital print lab, offers consumers digital processing of digital images and traditional film, prints, private online image storage, sharing, editing and creative tools, frames, cards and other merchandise. In January, Ofoto received $41 million in its second round of funding from Apple Computer, Hewlett-Packard, Benchmark Capital and The Barksdale Group, among others.

Kodak said while the completion of the deal is subject to regulatory approval and customary closing conditions, it hopes to combine Ofoto's services with Kodak's film-scanning services.

Willy Shih, president of Kodak's Digital and Applied Imaging unit, said the companies will have multiple brand identities and both will maintain their own Web sites, but with Kodak.com as a corporate site and Ofoto.com as the provider of the services on all of Kodak's online properties.

Both companies said they do not plan any layoffs at Ofoto.

"For us, this is all about driving growth in an emerging category, which is the online photo finishing service," Shih said. "We think this provides Ofoto and Kodak the opportunity to really go after awareness in the category and the shaping of consumer habits."