Shutterfly is a well-funded, well-run, well-executed company in the online photo printing space. Why then is it just barely breaking even?

This post in the Tabblo blog got me thinking. Tabblo’s saying that Shutterfly is competing against nonconsumption … i.e., not printing your photos. And they’re right.

The other reason Shutterfly having a tough time is they’re in the bloody printing industry, which traditionally has margins of around 6% when things are good, and massive capital costs in the form of printing presses.

What a depressing industry to be in. Sure, there’s a ton of printing going on right now, and will be for the foreseeable future. But, printing is a commodity business, there are lots of printers, and printers compete on price and turnaround speed. Quality is assumed - you ante up quality to get in the game.

Shutterfly probably looked like a great technology start-up at the beginning. It must have seemed that way to the founders and investors. However, Wall Street seems to know better and is valuing it as a manufacturing company.

Shutterfly’s shares had a brief run-up after their market debut on Sept. 29, but since then they have dropped to $13.35, or 11 percent below the offering price of $15.

Realistically, the only technology piece to Shutterfly is how the photos come in, and how the products are created by clients online. Everything else is traditional manufacturing/printing/shipping … even if they are using the most modern PDF-x1A to paper printing workflow.

What’s worse, its competitors are similar companies who are owned by major, well-heeled giants.

Shutterfly’s two main competitors in online photo printing, Ofoto and Snapfish, have been acquired by Kodak and Hewlett-Packard, respectively.

But even that’s not the worst part. The worst part is that those parent companies, HP and Kodak, both build digital presses that are used by all three companies, Shutterfly, Ofoto, and Snapfish to print photos and assorted photo products.

HP builds Indigo presses - which Shutterfly has 20-30 of - and Kodak builds several lines of digital presses. In other words, Shutterfly’s competitors own the very machines that Shutterfly runs on.

Who do you think can buy them cheaper? Don’t answer, it’s a rhetorical question. And it explains this:

Early last year, the standard price of a 4-by-6 print was around 29 cents. Today, they cost 19 cents at Shutterfly, 15 cents at Kodak and 12 cents at Snapfish, though volume discounts are available.

Sucks to be in a commodity industry. ‘Specially when you’re competing against the people who built the playing field.

Tags: shutterfly, ofoto, snapfish, photo, printing, commoditization, john koetsier