Online photo companies have a high level of customer loyalty, said Harry Wang, a research analyst with Parks Associates. After a customer uploads and accumulates a lot of pictures on an online photography site, it is hard to switch to another online site, Wang said. Switches usually happen in the first year or two, he said, making the hunt for new customers a key area of competition.

New customers are looking for two things: low prices and the ability to pick up pictures at a retail store, according to Alan Bullock, associate director at InfoTrends, a market research company focused on the digital imaging market.

Wang said that because of customers' desire for quick service, he doesn't see mail orders as the key to Shutterfly's growth. He projects that the segment of the industry that mails prints to customers will fall to $1.2 billion in sales by 2010 from $1.4 billion in 2006.

On the other hand, he predicts that the portion of the digital imaging industry that enables customers to pick up pictures at retail stores will double to $11.5 billion by 2010 from $5.4 billion this year.

From the article "Shutterfly frames IPO to meet challenges," by Kristina Doss. 

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