Archive for the ‘Entrepreneurship’ Category
The Road to Phanfare
Carbonite acquired Phanfare in 2011 and at the time, I could not talk too much about the acquisition. But some time has passed now and the details are not nearly as sensitive. In this post, I don’t want to focus so much on what has happened since the acquisition (not much) but instead, what led me to start the company with my friend Mark Heinrich.
My love for photography started at Stuyvesant High School in the early 1980s. Back then, a friend who had a Canon AE1 taught me the basics of SLR photography. I bought a Pentax K1000 and eventually a Nikon FG. I still remember trading my K1000 for the FG, taking the modest credit that Willoughby’s offered me. I wish I had kept that first camera.
I became photo editor of the Stuyvesant Spectator newspaper during my senior year, 1985. By that point I had a darkroom in our laundry room at my childhood home on Staten Island. I developed all the Tri-X pan for the staff photographers, creating proof sheets. I had modest equipment and a lot of patience.
I never considered photography to be art. Maybe some photos are art, but most simply document life, communicate a moment. For me, photography satisfied my desire to leave something behind, to be more than dust in the wind. I also loved the technical aspects of photography and the gear. The Japanese cameras are beautifully made, finely engineered instruments. They are almost like jewelry.
I took a lot of photos – as many as I could afford to develop. I always had basic equipment. In college at Dartmouth I had only a 50mm lens and one terrible Vivitar zoom that was so poor I could never get myself to mount it. I joined a company at college, Picture This, that took photos at sorority and fraternity formals. I learned how to shoot portraits and groups, use a flash properly and avoid red eye. I learned that at sorority formals, photos without men sell better than those with the men. The men were transitory.
When digital photography started to first take off in grad school at Stanford, I played with a Apple QuickTake 100 we had in our research group. In the late 90s I watched the founding of Ofoto and Shutterfly with great interest. These were ultimately transitional digital photo services – they focused on creating physical prints and objects from digital images, something with little long term appeal.
Many of us in grad school had simple web sites that we maintained on our workstations with our personal digital photos. These websites were the equivalent of the personal photo album of our childhood, the album that was in the living room cabinet. Most of the images that we published to these sites we got from CDs that Kodak gave us when they developed our film. digital cameras were poor quality in the mid 90s and expensive, way outside the budget of a graduate student. Our websites were often static HTML pages generated by Perl scripts. They were protected from prying eyes via an .htaccess file that popped up a password prompt.
After Stanford, in 1999, I founded my first company with my friend Mark Heinrich: Flashbase. I will talk about Flashbase another time, but it had little to do with photography. DoubleClick acquired Flashbase in 2000 and Mark and I finally had some financial security for the first time in our lives. We started buying a lot more digital cameras. I owned one of the first Nikon CoolPix cameras and the Canon D30, D60, and so on. Our digital images were piling up and we were not sure what to do with them.
Keep in mind, this was before facebook, before YouTube. By 2004, Mark and I were interested in doing something in digital photography. We both loved it, and we both had no idea where we should be keeping the long tail of our digital photos. We were certain that keeping them on our local hard drive was the wrong answer, that your hard drive was where photos go to die. Unseen by anybody, the disk would eventually fail. We hypothesized that folks would pay for a high quality archive of their digital photos. And we thought that the internet should be your master copy of your digital photos, not your computer.
The idea of the cloud being the master copy of your digital photos was not popular yet in 2004. Networks were not fast enough and disk was way too expensive. Steve Jobs was pushing the idea of your Mac being your digital hub, centered around iTunes. To make the whole thing workable, we designed a fat network client that would run on your PC and sync your photos to internet, moving small versions fast and fullsize versions in the background. The idea was that you could work with your photos on the local app while the app moved the photos to and from the net in the background.
We were fixated, perhaps wrongly, on preserving fullsize originals. And at that time, there was simply no way to store fullsize originals and have the service be ad-supported and free. Plus, we did not want ads on our personal photo albums. And so we decided that Phanfare needed to be a subscription service.
I will tell the Phanfare story in another post, but in retrospect, we were not wrong about where photography was going but we were way too early. It would take another ten years before Apple would release their Photos app that synchronizes your iPhone roll with the cloud and shows it across your devices. Google Photos is the same idea (but better). These ideas are right in my opinion. You should be able to shoot and the photos should magically get mirrored to all your devices and stored reliably in the cloud. There should be no upload step.
What we were wrong about is that websites of photos at unique URLs would be the way people share photos. People share photos through social media when they want to share with more than a few people and by direct message (email, SMS, google hangouts, etc) when they want to share with a single person.
I learned a lot from the Phanfare experience and I will share some of those things in coming posts.
Phanfare Reaches Profitability
To our customers,
I am delighted to announce that Phanfare has reached profitability. We had our first profitable month ever in June 2010 and will continue to be profitable going forward on both a cash and accrual basis. This is a significant accomplishment for the company and I am incredibly proud of our team for making it happen.
Mark Heinrich and I founded the company in June 2004, six years ago. Our goal was to enable you to preserve your photos in original quality for generations to come. Like all startups, we have had our ups and downs. But we have never wavered in our commitment to you and preserving your photographic assets.
We raised prices in June to $99/year for Premium and $199/year for Pro to fix the economic model of the company and make the company sustainable.
We bet the company on that price increase. If significant numbers of you had quit, we would have had very few alternatives.
It took me a long time to get to the point of being willing to raise prices. I knew that raising prices would slow customer growth (it has), but I also knew that we were quickly running out of cash. My logic went like this: I will raise prices to a level where we will be profitable at our current size and let you choose whether we get to exist or not.
You have chosen to pay more for Phanfare and enable us to continue to serve you. Profit is not the purpose of business, but it is certainly a requirement. Peter Drucker believed the purpose of business is to create a customer, and I agree with that.
We have wonderful plans for Phanfare and we plan to be around a long time. We have visions of connected cameras and ubiquitous access to your photos and videos, all backed by a ultra-reliable service that preserves the fidelity of your images.
Thank you for taking this journey with us. It has hardly begun.
Andrew Erlichson
CEO
HD Video for All
We are pleased to announce that we have changed our pricing plans to now offer HD video to all customers, a feature previously offered only to Phanfare Pro customers.
Here is a full summary of the additional features now being offered to our Phanfare Premium customers:
- HD Video. Display your videos on the web in 720p HD. HD videos look gorgeous, especially fullscreen.
- CNAME Support. You can use your own domain name with Phanfare and display your albums at http://www.you.com.
- More Customization. Add your own custom header or footer. Change our colors to match yours.
- RAW Files. Store your RAW files along with your JPEG files at Phanfare. Our Lightroom and Aperture plugins support RAW+JPEG export. RAW files require purchase of RAW blocks, which are sold separately.
- No Phanfare Branding on Your Albums. This feature takes me back since it’s the way Phanfare was launched in 2004. 😉
- Subsites. (announced last week). You can have an unlimited number of Phanfare subsites at you.phanfare.com/subsitename, each with optional password protection and its own title and description.
We are making these changes because we want Phanfare Premium to provide everything a photographer needs to organize, archive and publish his photos and videos.
This amounts to a re-segmentation of the Phanfare product offerings. Phanfare Premium is for enthusisasts and Prosumers. Phanfare Pro is intended for working Pros. The Phanfare Pro plan allows working photographers to monetize their work through the sale of photo merchandise. We pay 85% of the markup to the photographer.
Ring one up for Porter and his theory on competitive strategy
Turns out that RIM and Apple collect 35% of the profits in the cell phone industry with only 3% of the cell phone unit volume according to a research report by Deutsche Bank analyst Brian Modoff, reported today in the Wall Street Journal (pay wall). The other big winner is Nokia with 55% of the revenue and 46% of the profits.
To understand what is going on, read Competetive Strategy by Michael Porter. He makes the argument that there are two generic strategies for making money in an industry: to be the differentiated provider (Apple & RIM) and to be the low cost provider (Nokia). The differentiated provider has pricing control because their product is unique in the market place. The low-cost provider can sell for less than any competitor through its low cost position, which often comes with scale.
Usually the differentiated provider has a small fraction of the overall market but is highly profitable. The low-cost guy has the majority market share and is also profitable. Everyone else is stuck in the middle, unable to lower prices enough to compete on price or effectively compete against the player at the high end who is perceived as having a higher quality product.
It’s not hard to find good examples of differentiated providers out there: Apple, Lexus, Whole Foods. Nor is it hard to think of players that protect their position by being cheaper: Walmart, McDonalds.
RIM was the differentiated provider in the smart phone market before Apple entered. In the corporate world, RIM still dominates. With consumers, Apple is quickly displacing RIM. RIM should know how crucially important it is to retain their strategic position. If Apple phones are universally considered to be better, RIM will lose all pricing power and start to watch their margins erode.
You can get taken out on the low end as well. Microsoft was the low cost provider of operating system and application software compared to main frame manufacturers and work station manufacturers. Then free software showed up, ad-supported and based on open source projects, and Microsoft found that suddenly they didn’t own the low cost position. Ouch.
But back to my own world. Most of the photo and video sharing companies out there are going to fail. They are completely stuck in the middle, providing neither the best, most highly differentiated product with the best ingredients, nor the cheapest alternative. The low cost position is probably held by facebook, which throws away 90% of the image through compression.
The industry players most guaranteed to fail long term are the companies that take unlimited fullsize images from consumers for free and don’t compress them. That puts them in the unique position of having both the lowest price and the highest cost position all at the same time. I won’t name names. You know who you are.
Phanfare is completely focused on the high end of the market, people who care about archiving fullsize original images and high def videos and are willing to pay more for it. That doesn’t mean we don’t deliver value. For the suite of features and the service we offer, we are competitively priced.
Like Apple and RIM, we are not going to get a majority of the market share, but by providing a differentiated product, we can earn money in the industry and protect our position by offering features and functionality that the guys who are stuck in the middle can’t afford to offer and the low cost guys would never dream of offering.
Twitter and Facebook status messages have diverged
Twitter started as a way to keep in touch with your friends using SMS. You can see the vestigial signs of that because twitter has features that allow you to authorize each person who requests to follow you. Twitter’s main page when you login says “what are you doing?” reinforcing that orientation.
But at this point, twitter has clearly crossed over to be microblogging. The most interesting people to follow are not those who tweet that they just got on an airplane or are sitting down to lunch, but those who point you to interesting articles on the web or make a quick observation about the world.
Blogging has the same dichotomy. There are many personal blogs out there that talk about stuff only interesting to their friends, but the vast majority of blog readership goes to blogs that write about non-personal topics in much the same way as a newspaper columnist does.
Facebook too has a status update system, and it asks “what are you doing right now?” And for facebook, this has remained pure and true, because the people connected to you on facebook are your actual friends, or at least people with whom you have some personal connection.
This divergence makes things like the twitter app for facebook feel all wrong (it makes your tweets your facebook status). If you are using twitter to point people to news articles, talk about the world, inform about your business, etc, it feels way too commercial to have every tweet become your facebook status!
Twitter works well with search. It is interesting to search the whole twitter network on topics and to gauge sentiment, just as it is interesting and useful to search the blogosphere. Searching the facebook status update messages would be a gross invasion of privacy and frankly not all that interesting.
Personally, I find twitter a lot more interesting than facebook status messages, but they serve vastly different purposes.
It is interesting that both YouTube and twitter were started with the expectation that they would be primarily for personal permanent communication, and both emerged as outlets for citizen journalism. Following along the same lines, the next logical step for twitter is to promote the most interesting tweeters right to the home page (most followed? most highly rated?) so that the rest of the world, that may have no interest in participating as content creators, can enjoy the content more easily.
Underdogs drive innovation
The innovator’s dilemma is that when you are an established player, listening to your best customers results in dismissing the disruptive technology that will eventually lead to your undoing.
When I worked at SGI, our best customers were not asking for low-end cheap PC card graphics. But every year those Nvidia and ATI cards got better and better, and eventually, our customers bought those.
Kodak’s best customers in the early 90s were not asking for digital cameras; they were inadequate in terms of quality. And Kodak had a huge chemistry, paper and film business to protect. They were scared that if they offered digital solutions, their traditional businesses would suffer.
When Craig’s list got started, the advertisers of the NY Times classifieds had no interest in the relatively small online audience. As a result, the NY times and other mainstream media outlets missed the opportunity for online classifieds, losing the business to Monster, Hotjobs and Craig’s list, none of whom had been in the classifieds business previously.
The leaders in auctions before the Internet were Sotherby’s and Christie’s. Ebay had no experience in auctions.
Zagats owned populist restaurant reviews but they did not want to cannibalize the sale of their books so refused to do a completely free version on the internet. That opened up an opportunity for Yelp, and the rest is history. Now their book sales are going to zero and they lost the online business too.
In technology and in life, underdogs often drive innovation. This makes sense. People with less to lose take greater risks, and are hungrier. Sequoia capital, the VC behind successful companies like Apple, Google and Cisco, says they prefer first time entrepreneurs because they are hungrier. Many of their most successful founders have been first-generation Americans, with very little to lose.
Steve jobs, in his address at Stanford’s commencement in 2005 talked about lightness of being a beginner after being thrown out of Apple. “Stay hungry, stay foolish” he advised. This is all the same effect, at a personal level versus a corporate level.
I love that entrenched, successful players continue to miss disruptive opportunities. Entrenched players have so many advantages in terms of capital and brand. Disruptive technology levels the playing field, giving promise to the words in the Declaration of Indepence that “all men are created equal.”
In Digital Photography, we are seeing the power of disruptive technologies play out right now.
Panasonic is leading the pack in introducing micro four-thirds cameras that take photos approaching that of an SLR, while dispensing with the mirror, pentaprism and mechanical shutter. Makes sense. Panasonic is an also-ran in digital cameras. You don’t see Canon and Nikon racing to remove the mirrors and put electronic viewfinders in their SLRs. Why would they?
Shutterfly, Snapfish and Kodak all but owned mainstream consumer consumer photo and video sharing with their print-oriented offerings. Then one day they woke up and realized that facebook, something they had not considered photo sharing at all, was the largest photo sharing network in the world. Oops. Did it hurt them they they did not innovate their core sharing capabilities for 5+ years? You bet it did.
And finally, the one nearest and dearest to my heart: smart phones are attacking point and shoot cameras from the low-end. And of course, Canon, Nikon and the other traditional camera companies are mostly ignoring the opportunity because their best customers are not asking for these types of devices.
You can see where this is going. Put a slightly better camera on an iPhone, add video and an LTE or Wimax network connection and smart phones will be better consumers cameras, with more convenience and lower cost (since consumers are all going to carry smart phones) than traditional point and shoot cameras.
The camera companies did not miss the transition from film to digital (well, most did not miss it, Leica and Hasselblad did). It was a fairly straight forward transition for them. Film cameras were becoming increasingly electronic anyway, and digital photography just brought a few more components over from analog to digital.
But the movement to smartphones is a completely different animal. Because these are sold differently. The smartphone is a subscription-based device that runs on the public networks and has a significant service component. The traditional camera companies have no experience providing high quality software and services. It would require a tremendous amount of learning on their part to make the transition, and a hunger to do it.
What does it take to not have disruptive technology put you out of business? It requires vision and the willingness to cannibalize your own business with what will likely be a lower margin product competitor.
Who does it well? The first example that comes to my mind is Amazon. They are ruthless. Knowing that electronic books will someday replace paper books, they entered the electronic book market and had the lower-priced Kindle versions of the books compete with the paper-based books on Amazon’s site. They invested significant money in doing the Kindle development, entering a field they knew nothing about: the design and manufacturer of portable mobile devices with wireless connectivity.
Seeing the possibility that Google could effectively compete with Amazon by selling links to Amazon’s competitors, Amazon sold links to their own competitors right on their pages! Amazon market place sellers who offer a lower price are ranked ahead of Amazon’s own offerings in search results. I bow down before them. They get it.
Everyone likes to bash Microsoft for missing the internet and paid search. True enough, they were protecting their business model of shrink-wrapped software and failed to embrace ad-supported software as service quickly enough.
But Microsoft did see the potential for game consoles to replace personal computers and invested heavily there, building the class-leading Xbox system into a profitable business.
Just happened to be that their vision was wrong there. Turns out that game consoles don’t replace PCs. They are additive to the consumer’s home. It is smart phones like the iPhone, probably in larger form factor, that replace PCs, and that opportunity they did miss. Or more accurately, they invested but could not see beyond the windows paradigm when developing windows CE.
Apple is no underdog, but in smart phones, they were the underdog. They had no business in mobile phones, nothing to protect, and certainly no mobile customers to lead them the wrong way.
I wonder what will get disrupted next? Exxon by solar energy?
An Engineer 