Narendra speaks about growing Webshots into one of the largest media properties on the web, as well as the entrepreneurial experience and key lessons learned.
Interview conducted by Nathan C. Kaiser on Monday, March 1, 2004 in Redwood City, CA.
Webshots was founded in 1995 as a screensaver company with the intent to sell a floppy disk of skiing and white water screen savers in retail stores. It was a miserable failure. Fortunately the Internet was emerging at that time, and we were able to try out some of these screensaver collections online. They immediately started selling. It was at that point that we realized that the first consumer impulse was to express themselves with digital images. They would make it either their screensaver or wallpaper. That really was the core vision of Webshots, which is being able to communicate and express yourself through images, whether personal or professional in all the different ways that you can interact with images.
Initially, we sold the shareware with a 7-day trial period. If you liked the software you could purchase it after the 7-day trial period had expired. We moved to a mass media model in 1998 where we were giving away new photos each day in order to grow our audience. There were certain tiers where you had to pay for the software. We grew very quickly, and were acquired by Excite@Home in October of 1999. For a period of two years after that the product was entirely free, and supported by advertising. Unfortunately, Excite@Home did not have a solid business model and filed for bankruptcy two years after they had purchased us. As a product, we had continued to grow despite the issues faced by our parent company, Excite@Home. A few of the founders decided that Webshots was something too valuable to let be a casualty of Excite@Home’s demise and we decided to purchase the assets from the Bankruptcy Court at a healthy discount and started a new company in January of 2002.
Webshots is one of the great viral success stories of the Internet. Because of that we spent next to nothing on marketing costs. Almost all of our new users come to us because they see WebShots running on another PC. It is now running on tens of millions of computers and that free marketing has enabled our success. The popularity of this simple program has allowed us to diversify and explore personal photo storage. A number of companies had issues making the financials work out, we had very low overhead for acquiring new users and we were able to develop a model around that. Excite@Home was developing a photo strategy and thought our software would play well into that.
How did you and the other co-founders go about purchasing the company from Excite@Home and what were your first priorities?
Our first 90 days were critical. You can imagine how difficult it was moving over 100 servers from the old Excite@Home data center to the new facility, finding a new office, and starting fresh. When a company goes bankrupt it is a very depressing atmosphere and there is little motivation. We were on our own again and money was a very real issue. We set out to recreate a real and viable business. We immediately set up three new revenue streams; an advertising supported model, premium level subscription services (which launched about 90 days later), and we brought back the ability to order prints and gifts and other physical merchandise. After a lot of hard work we turned cash-flow positive in 90 days and haven’t looked back. We just completed our second year of Net Income and EBITDA positive, so the company is healthy, profitable, and we set a new internal record daily.
What are your key lessons learned from the Excite@Home merger, and eventual independence of the company?
Strong management is very important. Acquisitions are very tough, and in our case many of the people involved had a clear vision of what they wanted to do. Unfortunately they were no longer around six months into the acquisition. Management is vital to motivating and guiding people. Taking those lessons into our new incarnation, we are very focused on having clear goals, limiting our objectives, and executing in a timely way.
About 50 percent of our new users found out about us by seeing us on another computer. There are other things that we have done that have worked very well for us; tell a friend, users sharing their picture collections with friends and families, etc. You may not think of Webshots as an e-card site, but are consistently within the top five or six e-card sites. One Valentine’s day we did 250,000 e-cards. It is that users-to-user communication that is very important for helping to build a brand.
We think of the download as an excellent marketing tool, and really any download is a good thing. Ultimately, that is what begins spreading the message. Once you have people coming back to the site then you have to decide how you are going to monetize them. About 50 percent of our revenue is derived from advertising so that we can offer a compelling free service. Beyond that, we have decided to tier off certain things like high quality wallpaper downloads from professional section or additional photo storage. Our free service allows you to store 240 images online while our premium service allows for 3,000. It is a continual tweaking to find the balance between the different models.
Alexa (http://www.alexa.com) ranks us about 30 for English language sites and Media Metrix (http://www.jmm.com) has us in the top 50-70 sites online. We have the advantage in that we are a very large media site and that we draw an incredible audience. We have a history of over 30 million people registering for the site. Webshots is rather difficult to pinpoint, because we bridge the world of user generated content and photo storage to professional quality images. We are really a blend of things but at our core we are about images for entertainment with all types of extra features. It is the range of features available that is our competitive advantage.
It has been 7-8 years of developing relationships with stock agencies, individual photographers, and finding content that our users want. One new exciting area has been cell phones because wallpaper and screensavers are back in vogue for these devices. We have a long history of finding what people like and then delivering that. We have a partnership with AT&T mMode (http://www.www.attwireless.com/mmode/) which is called ‘The Daily Photo’ where we deliver a new photo to people?s phones each day. It is developing professional content for consumers and that is something that is our core expertise.
That service is marketed almost exclusively through AT&T and is a new market segment that we have not really started to up sell to our own users. It is an emerging market and the penetration increases we will evaluate how we market it internally.
One example is EZ Prints, which is an excellent partner for the physical side of the business. We were looking for someone who was responsive to our needs and was able to set up a commerce system that worked right out of the box. The wireless space is very strategic, because it is a huge and emerging market. We had the benefit of being involved with the personal and professional side of the digital market, which was very attractive to AT&T, Motorola, etc. Part depends on being in the right place and being ahead in the game. With our other partnerships we are very deliberate. The biggest one of note is contextual advertising deal with Google, which we are currently analyzing.
It certainly keeps our operations people busy. We store 55 million personal photos and are unique because we put the emphasis on sharing, about 40 million of those are publicly available. While storage costs have gone down, if you combine storage with being able display lots of different sizes, formats, and pages it is definitely a technological challenge. It is a very exciting time for us, and as our community to grow, it becomes a greater strength. Webshots has incorporated features that social networking currently provide, such as networking between friends, etc. You are seeing many different things coming together between search, social networking, and photo sharing, etc. It is all new and exciting, which I really love about WebShots, we are about having an image and understanding the infinite ways of expressing yourself using that image.
We are profitable, and our users all share one common behavior that will facilitate that long-term relationship. For us it is the way that users generate, and share their photos. That is where the power of our network builds on itself and reinforces that sticky behavior.
Two years ago a number of people were moving towards a subscription model because the advertising market had suffered so badly. We followed suit as well. One of the initial fears was how consumers would react to suddenly paying for what they had received for free. Happily that was not the case for Webshots, and we have been able to sustain that balance. We continue to enjoy incredible growth in spite of having services that people have to pay for. In addition we have seen the public begin to change. Ultimately, our size as a media property dictates that advertising can be a significant contributor. We also offer ways that advertisers can get involved with sponsoring daily photos, etc. Also, people will pay for the security of knowing that their photos are safe and accessible. Prints are a natural offering that people like and is easy to market. Moving forward there are three solid revenue streams to support our business model. We will always have our eyes open for the next opportunity as well.
With the advent of spyware and bundle-ware, how has Webshots communicated the features associated with its downloadable software?
Our download page is very clear about our position on spyware and adware, which we do not bundle. There are no third party programs associated with Webshots, nor do we track user behavior. Our software does check in with us to ensure that it is still out there, but there is no usable information about our users that it provides. It is a delicate balance. There are a number of companies in that market who are doing quite well and they are servicing Fortune 500 companies. We have always been very sensitive to the desktop. When you are on someone’s desktop, you have to tread lightly because you want to be known as a brand that delivers joy each day.
There are times when you will always feel as if you are out-matched, that you don’t have the resources to go up against the bigger players, and one of the things that I love about Webshots is that we compete directly with the Kodak?s, and Yahoo’s of the world. Yet we are still a small and lean shop. The Internet really did level the playing field. You still need to know how to run a business, how to operate efficiently, intelligently, and with a solid strategy. There is certainly opportunity available that would have been impossible 20 years ago.
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