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Shutterfly gains financing, loses CEO

The online photo start-up says its chief executive has resigned, a move that follows staff reductions and new financing, including $10 million from investors.

    Online photo start-up Shutterfly on Thursday said its chief executive has resigned, a move that follows staff reductions and new financing, including $10 million from investors such as company co-founder Jim Clark.

    Shutterfly said CEO Jayne Spiegelman has stepped aside and will become a board member, effective immediately. Dave Bagshaw, a former executive at Silicon Graphics, will act as interim CEO for Shutterfly. The company said it is currently in the process of searching for a new CEO and has it narrowed down to two candidates and expects it will be wrapped up in 4 to 6 weeks.

    The Redwood Shores, Calif.-based company also said it reduced its headcount from 120 employees to 90 as part of its efforts to restructure the company and cut expenses. In January, Shutterfly also shed 25 employees out of 145.

    Shutterfly launched with great fanfare in late 1999 with the backing of Netscape co-founder Clark, whose track record for creating successful tech companies sparked immediate interest in the digital photo market.

    The company joined a crowd of rivals hoping to use the Internet to attack traditional photo companies, in many cases with free ad-supported business models that quickly proved untenable.

    In Shutterfly's case, the company planned to provide high-quality print services for digital camera users, gambling that consumers would not be happy with homemade hard copies produced on desktop printers.

    While Shutterfly undergoes major restructuring, other photo companies are changing their own plans or models. Early this month, Snapfish altered its pricing for film developing as a result of the advertising climate.

    Seattle-based PhotoWorks reduced its headcount from 750 employees to 527 through layoffs and attrition, including a round of layoffs early this month of 113 positions, or 18 percent of its workforce. In January, Ofoto cut 11 out of 130 employees, but since then has hired eight new employees in a variety of positions and levels.

    Suzzana Ellyn, research analyst for La Jolla, Calif.-based ARS, said that while many online photo sharing companies are restructuring their company and changing their businesses, more well-established ones--such as Shutterfly, Snapfish and Ofoto--will probably survive.

    "In the past year-and-a-half through this whole online photo space boom, I think they've made a great deal of effort to have a user-friendly site, to promote their brand, to give their users a variety of options to do," Ellyn said. "They really haven't gone out to left field with it. They don't seem to be offering quirky products for people to put their photos on."

    Shutterfly said that with the $10 million it received from Jim Clark and Mohr Davidow Ventures, it hopes to reach profitability within the next four or five quarters. The company said it now has a total of $67.6 million in funding, part of which it received last month by securing $23 million in its third round of financing.

    Eva Manolis, a co-founder and vice president of product and services for Shutterfly, said the company hopes to use the funds to continue to grow its business.

    "In light of the current market conditions we wanted to put a plan and sufficient funding in place so that we wouldn't be distracted over the next year with everything going on in the market," Manolis said. "The plan that we built and the plan that we founded the company on is one that's based on generating revenue from selling products and that's how we've weathered the storm. We're just building our business in a very traditional old-world model."