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Digital dividends

Digital photography is hot. Find out how retailers can cash in on the digital camera phenomenon through photo kiosks.

August 8, 2005

About a month ago, I dropped off a roll of film at a photo processing shop, a high-service place where the owners make an effort to get to know their repeat customers. The woman behind the counter noticed that I hadn't been in for some time.

"So we haven't seen you for a while," she said, "Are you taking your film somewhere else?"

No, I replied, we had just made the move to taking mostly digital photos. Since the purchase of a 6-megapixel camera, our trusty 35mm Canon had been languishing on the shelf.

She clearly had heard this before, and was prepared to lay out all of the shop's new offerings specifically tailored to the digital camera user - uploads from home, kiosks with automatic red-eye reduction, membership clubs that offer specific discounts on digital prints.

Then, a thought seemed to cross her mind and her level of alarm visibly jumped. "You're not printing them at home, are you?" she practically shrieked. "I can do them for you much cheaper than you can!"

Traditional film processing companies - the smart ones, at least - saw the writing on the wall some time ago: Digital cameras change everything, and the business model needs to be adjusted accordingly. The prevailing questions, though, are how to change it and in what direction.

If home printing of photos represents as much of a threat to photo kiosk operators as my friend at the film processing shop seems to think, the numbers don't bear out her fears. In Summit's newly released "Kiosk Industry Sector Report - Digital Photography," Mendelsohn points out that photo kiosk use increased 374 percent in 2004, while home printing increased only 37 percent. According to a report issued by the Photo Marketing Association International, the share of prints made at home dropped to 61 percent in 2004, down from 76 percent the year before (despite a higher total volume of home prints).

Genuine revolutions in consumer behavior don't happen that often - sure, there might be minor shifts here and there as new innovations are introduced, but by and large, human habits are very hard to change.

But there can be no mistake that the advent of the digital camera completely changed the way modern consumers take, develop and share photos.

And according to the PMA report, film camera sales plummeted from 19.7 to 6.7 million between 2000 and 2004. Meanwhile, in the same period of time, sales of digital cameras rose from 4.5 to 18.2 million - a virtual flip-flop in usage. The time-honored tradition of taking pictures, then taking a roll of film into a developing shop, is in the process of being replaced.

But replaced by what? The digital development pie is constantly being re-divvied by the three main options jockeying for the new business: home printing, online services and photo kiosks.

"The market to deliver hard-copy prints of photos, while significant, is a fixed number of prints," said Greg Swistak, executive director of kiosks.org association. "All of the producers compete for this market."

Swistak said that while home printers offer convenience, as well as built-in appeal for do-it-yourself personality types, they are much more expensive than other options, and the quality is not the best; results are not usually fade- or water-resistant. Online services can be inexpensive, but won't appeal to people who want their pictures right away.

"Kiosks provide immediate gratification," he said.

Genia Horn enjoys that gratification - the Texan works full-time in healthcare while raising two boys. She's a busy lady, so convenience and speed mean a lot to her. She's been using photo kiosks for about four years.

"They're very easy to use - the computer walks you through every step," she said. According to Horn, she might use photo kiosks two or three times a month, and maybe more if there are holidays or birthdays in that month.

"I love that you can take red-eye out, and that you can crop pictures," she added.

A booming market

As president of Summit Research Associates, a research firm devoted to the kiosk business, Francie Mendelsohn keeps her ear to the ground when it comes to new possibilities and rumblings off in the distance. She's still delighted by the success that photo kiosks have attained relatively early in their lifespan.

"Photo kiosks already comprise almost 25 percent of all kiosks installed," she said, "which is just incredible."

Swistak agrees. "It will be a while before we find another killer app like this one," he said.

One of the consequences of the massive adoption of digital cameras is the marked increase in the number of pictures people are taking.

In the days of film, exposures were counted and conserved; shutterbugs were careful not to waste stock. With the ability to delete bad pictures on the fly, the concept of a wasted shot has become obsolete, and more and more people are snapping more and more pictures, many pictures that they might never have taken with a film camera. The PMAI report states that 9.4 billion digital photos went unprinted in 2004.

Now, clearly, some (if not most) of those unprinted pictures were blurry, accidentally taken or worthless for some other reason. But the fact remains that people are taking more pictures than ever, and so it makes sense for retailers to give those people every convenient opportunity to get them developed.

"Many companies are gearing up to place small photo kiosks in new locations like resorts, hotels, c-stores, even apartments and colleges," Swistak said.

Early photo kiosks were often deployed in locations where customers were already accustomed to taking their film - drugstores, for instance. But opportunities for the machines appear to be growing wherever people are taking photos - in other words, everywhere.

Choosing wisely

When a retailer makes the decision to look at photo kiosks, they might find themselves intimidated by the wealth of choices. With so many dollars to be made in digital photo developing, it stands to reason that there would be a rash of models and solutions fighting for retail space.

In its recently published "Kiosk Industry Sector Report: Digital Photography," Summit tested 22 different photo kiosk models, comparing and contrasting a lengthy checklist of features, strengths and weaknesses.

Not surprisingly, simplicity is a recurring theme when it comes to photo kiosks - and it figures prominently in the report. In the section dubbed "Top Ten Tips for Successfully Deploying Photo Kiosks," ease-of-use ranks No. 1.

"Ease of use trumps feature glut any day," said Gary Pageau, group executive for content development with PMAI. "(That) includes simple methods of payment, clear instructions and having sufficient space for the busy shopper to lay out their prints and work."

"If you're trying to do photo kiosks, you need to make it as fast and easy to use as possible," Mendelsohn told me. "One of the ways to make it fast is to really minimize the editing that the customer can do. I've seen people spend as much as 15 minutes on one picture. And the interface is so complicated that they gave up after the 15 minutes."

Indeed, an amateur photographer sitting in the comfort of his home, playing with a picture in PhotoShop, might be willing to try a whole battery of picture tweaks and improvements. A mom or dad using a kiosk in a grocery store, with kids in tow and 10 things left on the "to-do" list, will want simply to get the photos as quickly as possible.

Upping the convenience

The idea of someone sitting at home, leisurely working with his or her photos, brings us to the next big challenge for the kiosk. If digital photography was a watershed, do-or-die moment for traditional film processors, a moment of similar intensity might be on the horizon for photo kiosk operators.

At Wal-Mart.com, shoppers can use a simple browser-based interface to upload photos, apply fixes and crop. The software tells the user exactly which size prints will look good at the provided resolution, offers speedy thumbnail previews, and makes it a snap to order multiple quantities of multiple sizes.

Once the session is finished, the user can either pick up the prints after a specified time at their nearest Wal-Mart store, or spend a few extra dollars and have them mailed to his home.

Kodak's Picture Center Web interface offers a similar solution for regional grocery stores like Kroger, Dillon's, Jay-C and Smith's. And services like Hewlett-Packard's Snapfish.com heap on value-added features like shareable online galleries and the ability to put customer photos on t-shirts, tote bags, coffee mugs and even boxer shorts.

Online photo-printing services have not taken off with the same momentum that kiosks have enjoyed - according to the PMA report, photo kiosk use has increased five-fold since 2000, while online use has merely doubled. Online prints represented 8 percent of the market in 2004, versus 31 percent for kiosks.

But with online prices consistently lower than at the kiosk, it's not hard to imagine a heated battle on the horizon - especially as prices continue to drop in a market where every penny counts.

One of the biggest challenges for the photo kiosk designer is meeting the needs of the end-user - especially since the end user might be a professional photographer, or might be a mom or dad who just wants some pictures of the kids to send to the grandparents. According to Laura Oles, vice president of strategic communications for Pixel Magic Imaging, it is important to get to know your user base before planning features.

"The right photo kiosk can appeal to both categories of consumer," she said. "Advanced users can take advantage of cropping and enhancement tools while casual users benefit from the auto-enhancement features. Â… If a user is really hardcore, it's very possible he's made all his edits prior to bringing the image to the kiosk anyway."

Tools like red-eye reduction seem like no-brainers. "It's hard to imagine when red-eye would be desired," Pageau said.

Yet while 83 percent of the kiosks profiled in the Summit report offer red-eye reduction, only 48 percent offer auto-enhancement or correction.

"I've seen some of these where you manually move the crosshairs over each of the pupils to remove red eye," Mendelsohn said. "That just takes too long. There are certainly technologies that let you do that automatically. Auto-correction is another nice feature - and again, why wouldn't you want it?"

Rob Howard, manager of marketing communications for Signifi Solutions, said that automation is key, but only if the feature being automated is a good one. For instance, auto-reduction of red-eye or auto-correction of brightness and contrast levels could have a negative effect on some images, if the algorithms used aren't accurate.

"The balance lies between the power of the feature and how easy it is for the customer to use it to achieve the desired result," he said. "Yes, features like red-eye reduction should be automated, but only based on the accuracy of the feature to deliver the expected outcome."

Customers want choice when it comes to the finished product, too: According to Horn, she's been frustrated in the past when using machines that didn't offer a choice between matte and glossy finish. "I love matte finish, and would love to have this option," she said.

Manufacturers and designers have grappled with the challenge of making a machine that works for both pro and amateur. How many features are too many? At what point does the number of options stop being a benefit and start being a burden? How can an interface appeal to two such different demographics?

According to Mendelsohn, such a perfect balance can be achieved, but it requires a synergy of both excellent design and excellent components.

"Costco is a great example," she said. "Professional photographers come in there all the time to get their 8x10 and 11x14 prints produced because the Noritsu minilab produces prints of exceptional quality at very low cost. Lots of soccer moms come in to get prints of the latest batch of pictures they've shot. Everybody's happy."

What's next

The next great innovation in digital photography will likely come from a device that most of us already have in our pockets - the cell phone.

Early camera phones, with their low resolutions, were little more than novelties. But according to Mendelsohn, as the quality continues to improve, we're likely to see the camera phone become the primary camera.

"Just watch out," Mendelsohn said. "In Japan, historically they snap pictures like crazy. They've moved over to camera phones with a vengeance. The camera phones in Asia are now 4- and 5-megapixel, and Samsung introduced a 7-megapixel camera phone. You can start taking some pretty good stuff."

It looks like many photo kiosks are ready for this particular revolution: according to the Summit report, 87 percent of the machines are equipped with Bluetooth, and 48 percent can receive infrared communication from a camera phone.