Shutterfly 2008 Annual Report Download - page 9

Share. We enable our customers to share images in several different ways. Customers can e-
mail friends, family and colleagues a link to an individual album that can be
viewed as a slideshow of images. In order to view those images, e-mail recipients simply click on the URL link in the e-
mail and view images immediately without the need to
register with Shutterfly. Recipients can then order prints or save them into their own album. Similarly, customers can share their photo books electronically by sending an e-
mail
to friends and family with a link to a photo book project, thereby improving the ease of photo book development and collaboration, and sharing of personalized content. Yet
another way to share photos is by creating a Shutterfly Collection, which is linked to a personal web address that is powered by Shutterfly. This allows customers to store and
share an unlimited number of photo albums. Customers can invite friends and family to view the photos, add additional photos and post comments to both albums and individual
photos via the Guestbook feature. To ensure the privacy of Collections, we offer users optional password protection. Shutterfly customers can create up to two free Collections.
We also sponsor seasonal and topical photo contests that promote sharing of photos by our customers. To save our customers time, we offer an easy way to copy names, e-
mail
addresses and mailing addresses from various software such as Outlook, Outlook Express, Entourage, Palm and Eudora into their Shutterfly address book.
In 2008, we announced the acquisition of Nexo Systems and the launch of Shutterfly Gallery. We believe the acquisition of the Nexo platform will accelerate our
innovations in online sharing and collaboration services, giving our viral customers more ways to connect with family and friends with the ability to create personalized, secure
websites for sports teams, school activities, clubs and other tight-
knit social networks. And with the launch of Shutterfly Gallery, we are expanding our community sharing
platform, allowing customers to post their photo books, share their thoughts and perspectives on storytelling, ad photo books to their “
favorites list, rate and comment on other
photo books, and share interesting Gallery projects with friends and family with the “email a friend” feature.
Order and ship.
We provide convenient ordering and flexible shipping options. To order a product after it is created, the customer adds it to his or her shopping cart and
completes the billing and shipping information. Shipping addresses can be typed in or easily added directly from a customer’
s Shutterfly address book. When a picture or product
is being ordered, we flag photos of poor quality, usually due to low resolution, to alert customers of potential quality issues. This helps ensure that a customer does not order an
out-of-focus or poor quality picture. Customers can ship single orders to multiple recipients. We also offer several different shipping options, such as next-day, two-
day or
regular service. Standard turn-
around times from the time an order is placed to the time it is shipped are one business day for most print orders and two business days for other
photo-based products manufactured by Shutterfly. For our photo-based merchandise manufactured on our behalf by third parties, turn-
around times vary, but generally range
from two to five days from the time we receive the order and transmit it to our manufacturer. We also offer premium services for addressing, stamping and mailing greeting cards
directly to recipients.
Archive.
We provide customers with unlimited storage of their photos, Collections and projects at no cost to the customer. Customers can also order a copy of their photos
on a DVD for an extra fee.
Marketing, Advertising and Promotion
We use a variety of integrated marketing programs, including advertising, direct marketing technologies, channels, methods and strategic alliances to attract and retain our
customers. These methods include direct marketing over the Internet, e-
mail marketing to prospects and existing customers, search engine marketing, and traditional direct marketing
mailings such as postcards and seasonal catalogs. In addition, because many of our products are either shared via the Internet or given as gifts, the appearance of our brand on the
products and packaging provides ongoing distribution as well as viral advertising.
We place advertisements that target women and families on websites and in publications, contract for targeted e-
mail marketing services and contract for advertising placement on
leading search engines. We also maintain an affiliate program under which we pay program participants for referral sales generated from hyperlinks to our website from the affiliate’
s
website and in promotional materials.
We maintain alliances with complementary companies. For example, we have co-marketing and promotion arrangements with companies such as Delta Airlines SkyMiles, David’
s
Bridal, and Proctor and Gamble. In addition, in 2007, we began a relationship with Target Corporation where we provided our customers the ability to order their 4x6 prints online and
pick them up at select local Target store in as little as an hour. During the holiday season, we also offered an in-
store a suite of prepaid products including photo books, adventure
books, photo gifts, and gift cards. Customers may purchase these products at select Target stores and redeem them online at Shutterfly.com.
In addition, from time to time we create co-
branded versions of our website. In general, these arrangements involve payment of a commission to or revenue sharing with these
companies for sales of our products and services generated through these websites.
Technology and Production Systems
We use a combination of proprietary and third-party technology, including the following:
Customer relationship management, or CRM, system. Our integrated CRM system is composed of various sophisticated tools designed to convert first-
time customers into
repeat buyers. We seek to increase average order sizes by expanding customer awareness, providing targeted, segmented offers to customers and encouraging cross- and up-
selling. The system uses a variety of data, including website usage patterns, order size, order frequency, products purchased, seasonality factors, image upload and share usage,
as well as customer satisfaction information. This data is continually updated and refreshed in a data warehouse, from which different customer segments are identified and
modified on a continuing basis for targeted marketing communications.
By using this deep customer intelligence and ongoing analysis, we are able to offer customers a more personalized website experience and to target them with specific
website promotions, discounts, specialized e-
mail and direct mail offers. Our promotion engine generates special offers that are account specific and applied automatically at
checkout. This enables us to run multiple offers at any given time that are targeted to specific customer profiles.
We are also able to dynamically assign visitors to test and control groups who are shown different versions of our service. This testing enables us to continuously optimize
products, pricing, promotions and user interaction with our website. We are able to run multiple tests at once, which enables us to rapidly launch new products and services and
enhances our financial results.
Website system. Our website powers our service and e-
commerce functionality. We have designed our user interface to be simple, uncluttered and inviting. There are only
five navigational “tabs” that correspond to the primary activities offered by the website —
Add Pictures, View & Enhance, Share Online, Order Prints and Shutterfly Store,
which includes personalized product creation.
We have designed our website system to be highly available, secure and cost-
effective. We can scale to increasing numbers of customers by adding relatively inexpensive
industry-
standard computers and servers. We have a strong commitment to our privacy policy, and we utilize technologies such as firewalls, encryption technology for secure
transmission of personal information between customers’ computers and our website system and intrusion detection systems to ensure compliance with that policy.
Image archive. We store our customers’
images in our image archive. Once a customer uploads a photo to our website, it is copied to multiple redundant systems, including
an off-
site copy. We continue to expand our storage capacity to meet increasing customer demand. Our innovative storage architecture provides low storage costs, facilitates the
safe, secure archiving of customers’ images and delivers the speed and performance required to enable customers to access, enhance and edit their images in real-time.
When we store and archive a customer’
s image, we do not alter or reduce resolution of the original image (for example, we do not reduce the data file size), which preserves
the quality and integrity of the image. This approach also lets customers enhance the image using a duplicate, while giving them the ability to recall the original at any time.
Render farm. Once a customer orders a photo or any photo-based product or photo-
based merchandise, our render farm technology performs fully automated image
processing on the image prior to production. The customer’
s original uploaded image is retrieved from the image archive, and automatic algorithms enhance the color, contrast
and sharpness of the image. The render farm also performs customer-requested edits such as crop, borders, customized back-printing and red-eye removal.
To ensure that output is of consistent quality, we apply our proprietary ColorSure technology during this render stage. ColorSure creates an automated mapping of
the