Jim Clark's digital photo venture launches among a crowd

Rival PhotoAccess.com went live last week, planning to offer "the most convenient, cost-effective way to obtain film-quality prints via the Internet," with a service similar to Shutterfly. Six-month old start-up Ofoto too launched a site like Shutterfly, offering 100 free digital photo prints to each of its first million customers--a giveaway that could cost the company as much as $50 million.

Not to be outdone, Excite@Home and Cisco Systems today unveiled Snapfish.com--a project formerly code-named SkyTalk--in conjunction with a $7.5 million first-round venture placement from Mayfield Fund and @Ventures, the affiliated venture capital arm of CMGI. In addition, Excite@Home announced a partnership with Hewlett-Packard to create a Web site catering to digital photos, dubbed Excite Photo Center.

With decent-quality digital cameras poised to drop below $500, the density of start-ups looking to tap the $9 billion-a-year amateur photo market seems to be approaching the pixel count of a good digital print. Clark and his rivals are betting that consumers will abandon the local one-hour photo store without giving up on traditional prints or turning to high-quality desktop printers.

"Digital camera use is skyrocketing," Clark, co-founder of Silicon Graphics, Netscape Communications and Healtheon, said in a statement. "I anticipate that Shutterfly.com will revolutionize the digital photography market by combining the convenience and lower costs of digital imaging with the high quality and longevity of traditional film."

According to research firm IDC, digital camera use is set to take off, growing from sales of about 4.7 million units this year to 22 million units by 2003. Not surprisingly, the old guard doesn't quite believe the digital photo revolution will come into focus so quickly.

While Kodak has been a leader on the digital photography front, one of its executives last week said that digital technology isn't yet good enough to replace traditional photography. Carl Gustin, the company's chief marketing officer, told CNET News.com that today's digital imaging does not offer sufficient benefits to unseat photographic methods used for more than a century, whether achieved through digital cameras linked to PCs or traditional photographs processed and stored in a digital format.

"To make a new model work, the old model has to be broken," Gustin said last week. "Today, digital imaging doesn't offer anything [better] besides sharing."

Shutterfly thinks more highly of its technology. According to CEO Jayne Spiegelman, Shutterfly developed its own software to speed uploads of sizable photo files to its Web site for processing at the company's custom-designed digital printing facilities. Once on the site, customers can manipulate photos and order prints in various sizes for shipment to multiple addresses, either as regular photos or greeting cards.

Prior to the launch, the company unveiled samples of its proprietary digital printing technology, a process it says greatly enhances the quality of digital prints by, for example, removing red eye. The process was developed by Shutterfly co-founder Dan Baum, a former SGI employee who had worked with Clark in the past.

Spiegelman acknowledged some steep start-up costs but indicated the company's backers, which include Mohr Davidow Ventures, are committed to creating a company geared exclusively to the digital print market.

While Shutterfly is quick to emphasize its new technology, the company appears to have hedged its bets. Spiegelman's background is in marketing with experience at big consumer retail chains, including Circuit City and Macy's. And it can help to have someone like Clark at the helm, if just for the visibility.

Shutterfly's competition includes mature companies as well as start-ups.

Hewlett-Packard has an online photo album service, Cartogra, which allows friends and family to share pictures over the Web. And notwithstanding Gustin's comments, Kodak is working with America Online on a service called You've Got Pictures, which allows customers to post pictures on the Web when their film is processed at a photo lab. Kodak also has launched a service called PhotoNet Online through subsidiary PictureVision.