A startup launches a popular web-based service that goes up against a desktop-based rival, forcing the established player to counter with an online service of its own. But the startup’s service keeps on growing — and ultimately the long-time leader buys out its new competitor. It happened last month with Mint.com, which was purchased by Intuit, and there are strong parallels with four-year-old Picnik, the online photo-editing startup that some consumers say is already more than a suitable substitute for the most basic version of Adobe (NSDQ: ADBE) Photoshop, Elements. Adobe finally countered Picnik with an online-editing site of its own last March.
In an interview with paidContent at Picnik’s headquarters in Seattle, CEO Jonathan Sposato told us that the company’s traffic — and revenue — has only jumped since then; Picnik, he said, has been profitable since December.
It’s now plotting to become a full-fledged photo site, complete with photo storage, a plan that will have it competing with some of its current partners, including Flickr. The site is also doing well even though many of its users don’t know how to spell its name — efforts to purchase Picnic.com have been unsuccessful. As for the possibility of a sale, Sposato said he would not rule it out. Read on for edited excerpts from the conversation.
paidContent: What is Picnik going to be like in a year?
Jonathan Sposato: Over the next year or so you will see our product extend to encompass a lot of other areas that we are currently not wholly doing. If you think about where we are in the overall workflow of photos, the very first thing you do with a photo is you get it off your camera or your phone. We don’t own that. We’re not the camera. But really the next thing is you want to do is edit it — because before you share it, before you mail it to a friend, before you upload it to a community, before you print it, the very first thing you have to do is edit it. We have a good handle on that. Once you have somebody editing a photo and your experience is great then we can also shepherd the same user through. So at the moment, we tend to pass people off once they edit a photo. To print something we sort of have to hand them off to a print partner; to upload to some sort of photo community we may have to hand them off to some other photo community.
So maybe photo storage?
That would be an example of something that we would do in the future. Actually, it’s not a huge stretch. In fact, what we’re doing is storing the photos already. Whenever you Picnik a photo, we have a copy of it. (That’s why) you can always undo your edits all the way back to the original copy of the photo.
But is that a good business to be in?
No, storage alone is not. But the aggregate of storage plus a lot of other things is an attractive business to be in. I want to migrate Picnik from being photo editing to just photos period.
What happens to your relationship with partners like Flickr (where Picnik is the default photo-editing solution) if you start encroaching on their businesses?
I think we will always have a relationship with those folks. What happens is they still very much need a photo-editing component, number one. Number two, it’s really hard for (anyone) to spin up their own people to build a photo-editing program. The average Flickr user has normalized to having Picnik as (their) photo-editing experience.
How much traffic to the site do these partners drive?
It’s actually less than you think. Of the total traffic, almost half is direct traffic to http://www.picnik.com. Somebody is hearing about (it via) word of mouth or reading about us on a blog or thinking I’ll try that and goes to Picnik.com. The next big piece of (the) pie — another 25 to 27 percent — is what would classify typically as organic search engine traffic. That’s somebody typing in something in Google (NSDQ: GOOG) or Bing and the search result comes back Picnik. Of that 25 to 27 percent, if you look at the top 13 to 15 search terms that users are typing in they’re all misspelling Picnik. …The remaining 25 percent or so is what we call referral traffic.
What’s the story with Picnic.com?
It is a group of forest rangers in Oregon or Colorado [Editor's note: actually, Pennsylvania]. I call them and am really nice, but they’re like, ‘no sorry, the domain is not for sale.’ They have no idea. They run a farm or a park or something.
Do you need more money to fund the site’s expansion?
The short answer is not really. We have those expenses already and we can be smart about what we choose to save. We’ve done some modeling of this already. Of the vast majority of our users, only a certain subset of them will utilize storage. Of those, there are going to be people who will pay more for more storage. I’m not sure where we’ll draw the free-pay line. But it should be more than sufficiently subsidized by paying members.
Would you ever go out and raise money?
It’s completely bootstrapped. The three co-founders of the company — we basically put our own money in early on. Probably for the first three, three-and-a-half years the company was funded exclusively by the three of us. It was a relief to us when the revenue started coming. We could prove that the premium Picnik … was a viable business model. That was sustainable. Now we’re revenue positive. Other people might outright say profitable and that would not be incorrect. But right now we’re revenue-positive with margins of 40 percent plus and so that’s a really great place to be and our runway is infinite and we see no need to actually raise money.
What would we do right now with 5 million dollars? Would we just hire 20 engineers? Would we hire more designers? Would we hire a big marketing team or a big advertising team? And likely the answer (is) how we scale, how we don’t dilute what’s really good about what’s going on. I’m a big believer in small, agile teams. I will stand Picnik toe to toe with any other startup and say there’s a lot of value to running efficiently and agilely and keeping things small. Never say never. But I really don’t see a strong reason that we have to be 75 to 100 people.
How many people pay for the premium version of Picnik?
I want to keep that one confidential, but a sufficiently large number that we definitely believe in the business. As a percentage of our overall traffic I would still say that our conversion rate is very modest, which is again a glass half-full perspective. I feel like, man, if we really figured out how to make the conversion rate more comparable to, I don’t know, the conversion rate of Flickr with their Pro account, if we … were there we would be making a lot more money than we are now.
How have things changed since the launch of Photoshop.com?
Prior to Photoshop.com launching, we were very, very concerned. We felt that the ecosystem was big enough for more than one player and ultimately (that) it was great that users (could) pick, but we were … concerned about Adobe being such a big player, that we weren’t sure what they were going to do. But we sort of made an educated guess that their approach to an online photo editor is going to be totally, totally different from our approach… And that’s exactly what happened. They launched Photoshop.com, we took a look at it, and it’s a completely different approach. It’s a very handsome approach, a very attractive approach, but very different. I guess the net result is it hasn’t had a huge effect on us. Our traffic, I believe, is still 12x theirs. [Editor's note: Compete figures show a 3 to 1 margin]. It hasn’t been a detriment for our business.
Eventually, will Picnik will be able to do what Photoshop can do?
People have called me a little bit too widldy ambitous. I remember early on, I said things like, ‘Guys, we can compete with Photoshop Elements,’ and the team feeling like, ‘No, they got 2,000 features,’ and I was like, ‘It’s not about how many features. It’s about delivering on a great experience, giving people 90 percent of what they’re looking for — but not everything.’ And, sure enough, we’re at a point where in reviews people will compare us head to head with Photoshop Elements, iPhoto, Picasa.
So, with Photoshop proper they are another order of magnitude greater in terms of the number of features and the complexity. But I believe that Picnik, long-term, does have the opportunity to compete with something like Photoshop.
Would you sell the company?
We all started and sold companies in the past and understand what that entails and what that’s like. …We’ve had companies of all sorts walk through this conference room and talk substantively about, ‘Hey, could we talk about acquiring Picnik. We think that’s a great business and a great brand and we would love to be able to see what we can do with you guys.’ I believe that not every single one of those opportunities was necessarily the right one for Picnik.