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Growth seen for online photo services

Revenues are expected to hit $200 million by 2006, with the companies that survived last year's shakeout in the industry becoming stronger, according to a new research report.

Online photo services are expected to grow significantly during the next few years, despite a tough 2001 that saw several companies go out of business, according to a new research report.

Total revenue from online photo sites, which allow people to order prints and other items from digital photos, amounted to $23 million last year, a 180 percent increase from the $8 million recorded a year earlier, according to the report released this week by InfoTrends Research Group. The research firm expects revenue to continue growing at an annual rate of 30 percent to 40 percent, reaching $200 million by 2006.

Profits have been elusive, with several online photo companies going out of business, including Zing.com, Intel's GatherRound site and recent casualty PhotoPoint.

InfoTrends analyst Kristy Holch said the worst of the shakeout appears to be over. "There still might be a little bit of consolidation, but I think the major players in the space are going to get stronger," she said.

Continued success will become more complicated, however, as manufacturers of photofinishing equipment promote retail kiosks that allow customers to quickly print photos from various media. Holch said that instead of retail services displacing online counterparts, the outcome is likely to be a blending of services, where consumers can print photos as easily from a retail kiosk as from a Web site.

"We think this is all going to meld into a network where the kiosks and online sites and everything else are connected," she said.

That will require a more open approach from hardware and software makers, which have focused on signing exclusive partnerships with online photos services, such as Hewlett-Packard's deal with Shutterfly and Microsoft's promotion of "preferred" photo services through the digital photo tools in the Windows XP operating system.

"In the future, I think these relationships are going to have to become more agnostic," Holch said.