Shutterfly 2007 Annual Report Download - page 11

Table of Contents
promotions and customer service interactions. We believe a coordinated focus on understanding the customer
allows us take measures to increase customer loyalty, consumer awareness of Shutterfly, customer satisfaction
and repeat purchases.
Vertical integration and superior technology. We derived approximately 90% of our net revenues in 2006
from products we manufactured in our Hayward, California facility. Our vertically integrated and highly
technical manufacturing approach is essential to our quality control, agility in rolling out new products and
ability to secure capacity at critical peak demand periods. We believe that vertical integration provides us with
quality, cost, flexibility and innovation advantages, including:
We have devoted more than six years to developing our proprietary software, technology and production
systems that we believe give us an advantage over our competitors. It is our intention to continue investing in and
protecting our proprietary technology, platforms and processes that help us differentiate ourselves from the
competition and control costs.
Our Growth Strategy
Our goal is to grow our business, build a premium lifestyle brand and become the leading online provider of
products and services dedicated to improving the sharing and preservation of personal memories via social
expression and personal publishing. We believe the combination of our focus, our dedication to customers and the
benefits we derive from our vertically integrated production facilities will allow us to profitably capture a significant
share of our addressable markets. In addition to strong consumer trends supporting our business — such as the
proliferation of digital cameras, higher broadband penetration and greater adoption of Internet related
e-commerce and communication services — we believe our growth will be supported by the following initiatives:
Expand customer base. We intend to expand our customer base and continue to promote the Shutterfly
brand. We will leverage existing channels, which include word-of-mouth
referrals from existing customers, print
advertising, catalogs, online advertising, search engine marketing and complementary strategic alliances with
other e-commerce companies such as Amazon.com, Scholastic, David’s Bridal and HSN.
Expand product and service offerings. We will continue to innovate in order to increase the breadth and
depth of our products and services, including prints, photo-based products, photo-based merchandise and
ancillary products. For example, in the past 18 months, we have launched numerous new products, including
canvas prints, keepsake boxes, desk organizers, multi-media DVD slideshows, magnets, coasters,
year-at-a-glance calendars, tiled mugs, playing cards, puzzles, scrapbooking supplies and frames. We have also
made numerous enhancements to our photo books, including new covers, layouts, page designs, and licensed
content for children’s character-themed photobooks including Sesame Street
®
, Clifford the Big Red Dog
®
,
Angelina Ballerina
®
, and Thomas the Tank Engine
®
. In addition to new products, we have created new
services, including: the ability to search, tag and organize photos; the launch of Shutterfly Studio, our consumer
software application that allows for uploading, organizing, printing, sharing and editing from the desktop; a
redesigned and easier to use website; a new store that makes shopping easier and more accessible; and dozens of
new borders that customers can use to enhance their pictures, cards and photo books.
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•
greater consistency and quality of output;
•
increased ability to control and optimize costs for raw materials and production;
•
fully automated image processing and print scheduling;
•
more flexibility to provide rapid, responsive order fulfillment and processing;
•
assured high
-
quality capacity, even during peak demand such as the fourth quarter holiday season;
•
additional insights into new and existing photo products and production processes;
•
rapid prototyping, testing and refinement of new products and services; and
•
the ability to address customer inquiries quickly.