Shutterfly 2014 Annual Report Download - page 17

Changes in our pricing strategies have had, and may continue to have, a significant impact on our net
revenues and net income. From time to time, we have made changes to our pricing structure, specifically
for 4x6 prints, in order to remain competitive. Most of our other products, including photo books,
calendars, cards and stationery and other photo merchandise are also offered by our competitors. Many of
our competitors discount those products at significant levels and as a result, we may be compelled to
change our discounting strategy, which could impact our acquisition of new customers, average order
value, net revenues, gross margin, and adjusted EBITDA and net income profitability measures. If in the
future, due to competitor discounting or other marketing strategies, we significantly reduce our prices on
our products without a corresponding increase in volume, it would negatively impact our net revenues and
could adversely affect our gross margins and overall profitability.
We generate a significant portion of our net revenues from the fees we collect from shipping our
products. For example, shipping revenue for the Shutterfly brand website represented approximately 16%
of our net revenues in each of 2014, 2013 and 2012. We offer discounted or free shipping, with a minimum
purchase requirement, during promotional periods to attract and retain customers. If free shipping offers
extend beyond a limited number of occasions, are not based upon a minimum purchase requirement or
become commonplace, our net revenues and results of operations would be negatively impacted. In
addition, we occasionally offer free or discounted products and services to attract and retain customers. In
the future, if we increase these offers to respond to actions taken by our competitors, our results of
operations may be harmed.
We face intense competition from a range of competitors and may be unsuccessful in competing against current and
future competitors.
The digital photography products and services industry is intensely competitive, and we expect
competition to increase in the future as current competitors improve their offerings, including developing,
acquiring and expanding mobile and cloud-based offerings, and as new participants enter the market or as
industry consolidation further develops. Competition may result in pricing pressures, reduced profit
margins or loss of market share, any of which could substantially harm our business and results of
operations. We face intense competition from a wide range of companies, including the following:
• Online digital photography services companies such as Snapfish, which is a service of Hewlett-
Packard, Webshots, Vistaprint, SmugMug, and many others;
• Social media companies that host and enable mobile access to and posting of images such as
Facebook, Instagram, Twitter, and Google+;
• Photo hosting websites that allow users to upload and share images at no cost such as Apple
iTunes, Picasa, Flickr, Imgur, and Photobucket;
• ‘‘Big Box’’ retailers such as Wal-Mart, Costco, Sam’s Club, Target, and others offer low cost
digital photography products and services. These competitors provide in-store fulfillment and
self-service kiosks for printing, and may, among other strategies, offer their customers heavily
discounted in-store products and services that compete directly with our offerings;
• Drug stores such as Walgreens, CVS/pharmacy, and others that offer low-cost photography
products and services as well as in-store pick-up from their photo website internet orders;
• Mobile digital photography services companies such as Instagram, Woven, and iPhoto;
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