Shutterfly 2012 Annual Report Download - page 41

We are building four trusted lifestyle brands: Shutterfly, Tiny Prints, Wedding Paper Divas, and Treat.
We have operated the Shutterfly.com brand since inception in 1999. In 2011, we acquired Tiny Prints, Inc.
a privately-held company based in Sunnyvale, California that operated tinyprints.com and
weddingpaperdivas.com, two growing ecommerce brands primarily offering stylish cards, invitations and
personalized stationery. On April 16, 2012, we launched Treat.com, a destination that enables users to
easily personalize and send unique greeting cards. Our Treat launch signifies our focused expansion into
the one-to-one U.S. greeting card market, to complement our existing one-to-many card business. In May
2012, we acquired the customer accounts and images of Kodak Gallery’s online photo service through a
bankruptcy court supervised auction. In July 2012, we began the process to transfer the more than five
billion Kodak Gallery customer photos onto the Shutterfly technology platform, which was completed in
September 2012.
On May 25, 2012, we acquired Photoccino Ltd., a privately-held company based in Haifa, Israel, which
has developed innovative technologies for photo ranking, analysis and organization which will allow
customers to more efficiently organize and select the best photos from their ever-increasing archives so
they can quickly and easily create photo books, calendars, cards, and photo gifts. Photoccino’s technology
applies proprietary algorithms to analyze and evaluate the quality and content of photos, ranks them, and
automatically creates photo products using the customer’s best images. During the fourth quarter of 2012,
we began to integrate the Photoccino technology by offering smart product creation capabilities to a select
set of customers. We expect to further integrate the Photoccino technology into the products and services
that our brands offer.
On September 14, 2012, we acquired Penguin Digital, Inc., a mobile application development company
that has an iPhone application that allows users to access their photos from iPhones or their Facebook or
Instagram accounts and create customized products and gifts from their mobile devices. We subsequently
introduced our new Shutterfly iPhone Photo App which combines storage, viewing and photo gift creation
right from one’s phone.
On December 28, 2012, we acquired ThisLife.com, Inc. (‘‘ThisLife’’) a cloud-based service provider for
protecting, organizing, storing and sharing photos and videos which will strengthen our photo and video
storage and sharing capabilities, as well as the ability to intelligently organize across devices and mobile
platforms and enable the more efficient creation of products across the web and on mobile devices. In
2013, we expect to integrate this technology into the products and services that our Shutterfly brand offers.
We generate the majority of our revenues by producing and selling professionally-bound photo books,
greeting and stationery cards, personalized calendars, other photo-based merchandise and high-quality
prints ranging in size from wallet-sized to jumbo-sized 20x30 enlargements. We manufacture most of these
items in our Charlotte, North Carolina and Phoenix, Arizona production facilities. By controlling the
production process in our own production facilities, we are able to produce high-quality products, innovate
rapidly, maintain a favorable cost structure and ensure timely shipment to customers, even during peak
periods of demand. Additionally, we sell a variety of photo-based merchandise that is currently
manufactured for us by third parties, such as calendars, mugs, canvas prints, mouse pads, magnets, and
puzzles. We generate substantially all of our revenue from sales originating in the United States and our
sales cycle has historically been highly seasonal as we generate more than 50% of our total net revenues
during our fiscal fourth quarter.
Our high-quality products and services and the compelling online experience we create for our
customers, combined with our focus on continuous innovation, have allowed us to establish premium
brands. We realize the benefits of premium brands through high customer loyalty, low customer acquisition
costs and premium pricing.
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