July 7, 2009

DT Monday Mommy Mailbag Meets Tuesday Turf War: Our365

shutterfly_our365_logos.jpg

The publicists were off for the holiday, because I didn't get any seriously biased mommy marketing pitches until today. And the one I got bears looking into:

Shutterfly, Inc. (NASDAQ:SFLY), the leading Internet-based social expression and personal publishing service, today announced a partnership with the largest provider of in-hospital baby portraits, Our365, Inc. Through the partnership, new moms nationwide will have access to special Shutterfly offerings tailored to commemorate and share their babies' many memorable moments.

...

Through the Shutterfly/Our365 partnership, participating families who had professional Our365 Newborn Portraits taken will receive special discounts at Shutterfly.com in-hospital, via email and through direct mail. As with all Shutterfly customers, Our365 moms will have access to Shutterfly's safe, secure and free unlimited photo storage.

Our365 moms? Excuse me? If dads are only supposed to do one thing in a maternity ward [sic], it's baby photo management. And you're telling me there's a company I could outsource that to, and that company doesn't even acknowledge my existence? Who are these people?
About Our365 www.our365.com
Our365, Inc. is America's four leading hospital baby photo companies -- Baby Prints, Growing Family, Hospital Baby Portraits and That's My Baby -- combined to create the country's largest provider of high quality and unique in-hospital baby portraits. Our365 takes the first official portrait of over 2 million newborns every year in partnership with some 2,100 hospitals in the United States and offers a variety of baby photo products such as birth announcements, keepsakes and gifts...
So it's a roll-up of some regional companies which survive because of their exclusive contracts with hospitals; which is trying to make some money by wedging itself in between new parents moms and whoever they're "social expressing" with; and which apparently sees dads as nonentities, competitive threats, or hopelessly cheap and therefore unattractive.

Let's zoom in a little closer...

First up, some basics: Our365 negotiates with hospitals to be the exclusive on-site photography provider for newborns. It delivers its services, then to "hospital clients and to the consumers, which are new parents," according to one of the company's executives. Our365 was formed over the last three years by a private equity firm, Falconhead Capital, which acquired and integrated four existing in-hospital baby photo companies: two industry veterans, Growing Family [founded in 1947, 1955, or 1965, depending] and Hospital Baby Portraits [founded 1972] and two startups [Baby Prints and That's My Baby, both founded in 2002].


Triathlons, Baby Photos, Mom Jeans
Who is Falconhead? A $500 million, hands-on, lower-market, private equity guy shop. Most guys are from HBS, though there's a token Wharton guy. There's not a token girl from anywhere. They have a long history of working with the sports agency IMG, and they had a piece of ESPN Classic Europe. Now they own Competitor, which runs endurance sports events and publishes triathlon magazines. They also own Not Your Daughter's Jeans--all of which come with their exclusive "Tummy Tuck" design--and now, Our365.com.

Rolling Synergy
Our365 supposedly took shape last year, but there were still hospitals referring to one or the other subsidiaries on their websites as recently as May 2009. Falconhead bought Growing Family in 2006, and the other three firms in 2007. When they first announced the sale of local company, the St Louis Business Journal didn't mention revenues--estimated at $78 million for 2006--or that Growing Family was already owned by two other private equity firms, Sentinel Partners of NY and Nautic Capital of RI, which is run by FleetBank.

Yet a 2005 puff piece in Photo Marketing still has Growing Family founder Ray Harmon in charge, providing excellent service to his network of 2,500 hospitals [including 200 in Canada] and skilfully guiding his company into the new digital age that was just around the corner. So somewhere in 2005-6, Harmon sold his company to some bankers, who promptly flipped it to-- or dumped it on, depending--Falconhead.


In a 2002 tribute to great alumni of Washington University, we learn that Growing Family was thriving; the company had over 80% of the baby market, and $90 million in sales. Also, Growing Family's illustrious history is a series of rollups. First, Harmon bought ous some other Identi-Foto franchises, then he partnered with some fellow First Foto operators to become HASCO International in 1981.

In fact, by 1999, St Louis Commerce Magazine reported, HASCO and Harmon had completed 20 acquisitions and mergers, big and small, and the company was on track to break $100 million in revenues, $14 million of which was kicked back to that their 2,800 hospital clients.

Rollup? Rolldown
Anyone detecting a trend here? Shouldn't revenue be going up every year instead of down? I couldn't find any real info on the other old-timey baby photo company, but as recently as 2005, up to 40% of Growing Family's photographers were still shooting film, which took weeks to process and ship.

I suspect Falconhead's plan for Our365 to combine the all-digital offerings of the startups with the creaky install base of the established players. And to amp up the value capture for the demographic data Our365 provides to their marketing partners, thus ensuring the kid will have a steady stream of special offers waiting for him as soon as he comes home from the hospital.

Said David Solomon, MD at Goldsmith Agio Helms, a boutique M&A firm specializing in direct marketing, who advised Falconhead on the Growing Family acquisition:

Growing Family is unique within the direct marketing world, benefiting from a one-to-one selling relationship created with new parents in the hospital...This transaction provides Falconhead with an exciting platform focusing on this very attractive and hard-to reach demographic.
Indeed, whatever the threat the digital revolution poses to Our365's apparent core photo business, it also presents an even bigger opportunity to do what Growing Family has done all along: angle for a piece of the shopping frenzy that accompanies the birth of a baby.

Here's a quote that pretty much sums it all up, an announcement by Growing Family in 2000 of a partnership with BabyGear.com to add shopping to the company's then-new online baby photo gallery, WebNursery:

"Our representatives talk to more than 3 million moms each year in hospitals around the country, and 90% say they would like their baby's picture taken. In current participating hospitals, more than half of them are now signing up for our WebNursery service, which posts baby's photos online so their family and friends can come to see and enjoy the new bundle from anywhere in the world," said Deb Arpert, Vice President E-Commerce at Growing Family. She expects about 1.5 million baby pictures to be visited on the site within the next 12 months. On average, each photo attracts nine visitors who have compelling reasons to buy gifts. Growing Family's online Gift Center provides all of these visitors the convenience of gift giving right in their own homes or offices at the first moment they want to share in the celebration.

"That's more than 12 million potential users with compelling reasons to send gifts. And with new babies born every day, new consumers continually will be brought to the site," Epstein said. "In a short time, we expect consumer convenience, combined with increasing comfort with online purchases, to help propel sales to unprecedented levels."

The spokespersons for both companies agreed that they each benefited from the partnership.

"Growing Family brings laser-shot, permission-based access to the heart of the marketplace with multiple points of contact while Babygear.com provides unparalleled e-commerce resources and gifting infrastructure," added Arpert.

Can't you just feel the excitement, ladies?

On the one hand, this is obviously a business which is slated for extinction. Sales revenue and the number of hospital clients have been dropping steadily for years. On the other, it's a classic consolidation play, where the stodgy industry dinosaurs get a product, design, and innovation transplant from the feisty upstarts. It could be enough to keep them alive and cranking out high margin gift products for impressionable, hospital-trusting young families at a very overwhelming moment. Just because Our365 shouldn't exist doesn't mean they can't make a boatload of money before they go.

10 Comments

Man, and I just deleted that press release.

Look at all that info I could have unearthed had I been angered by it instead of merely disinterested.

If only they could figure out how to market directly to the newborns themselves. I'm sure they're working on it.

Will they make the baby a Facebook page as well? Then friend all the babies in the maternity ward.

I guess their best marketing effort would be "We'll be there when Dad's passed out on the delivery room floor."

Now if they could just work with the hospitals about that awful lighting!

At my wife's hospital, the "photographers" are the nurses. A baby is placed in a bassinet and photographed with a camera mounted on an overhead pole.

The old style used a film camera. The current method has a digital camera and a net-wired laptop provided by the company (First Foto?).

Because it's an optional service, you can imagine that some nurses don't mention it to families because it creates extra work for the nurse.

Oh, and if it's not obvious, the resulting photos are completely uninspired.

First Foto is/was Growing Family. They talked in 2005 about how they paid the hospitals extra when the nurse took the photo.

Right, the compensation angle made me unhappy because the whole process struck me as a way to collect the personal info of new parents, with the hospital not caring as long as it gets a cut of the revenue.

But, and I'm basing this only on one nurse's word, but apparently some nurses care even less. It's not like the nurses receive the money, and they don't want to spend their scarce free moments futzing with a camera.

How disappointing to learn that the photos are taken manually.

I pictured a camera mounted in a corner of the delivery suite with an automatic shutter - like the ones at amusement parks

"Oh no! my eyes are closed. let's do it again!"

"Completely uninspired" doesn't even begin to describe how bad these pics are. Ours have become a great source of comedic material. With hospitals offering free wi-fi in many spots, they're undercutting this business directly - we just brought a laptop and uploaded fresh digital pics daily when my daughter was born in 2007. Handy.

haha, somewhere between Big Brother and Flash Mountain. very funny.

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