Trying to focus

Hewlett-Packard has made an offer the hundreds of millions of Chinese shutterbugs can't refuse: free prints.

The US technology giant launched the online photo service Snapfish, or Kachayu in Chinese, in China last October. To entice registered customers, Kachayu offers the first 20 46-inch photos free of charge. Additional prints will be charged 0.6 yuan each.

The marketing ploy has apparently worked. Kachayu has registered 450,000 members as of this May since it went online in China last October. HP's own market studies show that China's consumers printed out 4 billion digital photos in 2006 alone, and the number is expected to reach a higher record in 2007.

"I was intrigued by its Internet ad banner giving away prints for free," says Shen Zhengbin, a 30-year-old IT manager and amateur photographer. Shen ordered 20 photos on Kachayu, and had anticipated their delivery via courier for three days when they arrived.

"The printing quality is not bad, but not as good as I expected," Shen sighs with a little disappointment, waving the color pictures he just received. "I will not strongly recommend this website to my friends, to be frank," he admits, although he suspects he will use Kachayu's service again if he needs more prints.

Others were attracted by the convenience. Zhang Yang, a 34-year-old web designer, says he printed out pictures of his 1-year-old son on HP's Kachayu website, for half price.

"I'm quite a click potato and not willing to go to photo stores twice just to have 40 pictures printed out. Kachayu saves me the trouble," Zhang says.

According to Dan Reardon, Greater China general manager of Snapfish, HP's Imaging and Printing Group (IPG), there are more than 40 million Snapfish subscribers across 20 countries worldwide, and about 3 billion photos are stored online. Through that website, customers are offered comprehensive choices for sharing, storing, printing their photos online.

"About 1 million new subscribers join our website every month," Reardon says in a statement to China Business Weekly.

Kachayu intends to aggressively expand its Chinese market share for the service. "We were fully prepared before entering into this country, and will explore this emerging market step by step," Reardon says, indicating that their confidence is mainly due to the rapidly increase of online users in China.

According to the latest figures released by the Ministry of Industry and Information (MII), China has surpassed the United States as the world's largest Internet market, entailing 221 million netizens by this February, up 5 percent since the end of 2007.

Kachayu is indeed doing well in terms of visitor volumes. Among the domestic top 4 online photo service providers monitored by online market researcher iResearch, HP's Kachayu was visited by 28 million non-repeated users in this March alone, outnumbering more than 250 million figures to its closest competitor Kodak Gallery.

As one of the most significant portions of HP's new Print 2.0 strategy stressing wireless printing in high-volume individual markets, Kachayu aims to "provide first-class digital printing experience for families and beyond", Reardon says.

The overall Print 2.0 strategy is designed to accelerate HP's ability to capture a more significant share of the 53 trillion pages expected to be printed by 2010, valued more than $296 billion, says HP's executive vice-president of IPG at the company's annual Imaging and Printing Conference held last May.

Yet, numbers don't tell everything, especially when playing in ever-changing Chinese market. Analysts posted their doubts on this premier digital photo provider. Different from its practices in China's neighboring India, where HP intends to establish 3,000 retail photo outlets by 2010, HP is unlikely to agree with largely scattered convenience stores and end-retailers to provide pick-up services in a short period, because of the overall poor Internet penetration rate in China.

In the same report announced by MII, China's 16 percent Internet penetration rate is still lower than the global average level of 19.1 percent, and 69.7 percent in the US.

Currently, the laggard "cash on delivery" is still the main payment mode for Kachayu, and mail express companies delivery charges start at 7.9 yuan.

If compared by price alone, Kachayu comes out on top, but the logistical fee is relatively high, and the delivery time is too long, Shen says of his own experience.

It takes three working days for Kachayu to deliver in Shanghai, by contrast, 51very.com, a Shanghai local online photo printing store offering almost the same service, takes only one working day within the city, and the postal service charges 5 yuan.

While in a physical store, say a Kodak photo outlet near Lian Hua Road in Shanghai, the same size 46-inch photo costs less than 1 yuan, a slightly higher charge than Kachayu.

But with the delivery fees, the two different outlets nearly charge the same, which could see Kachayu losing its customers to its non-Internet counterparts, says analyst Wang Fang from iResearch. "Online photo print is an innovative and new service model, price and delivery time are the core determinants for consumers' loyalty."

"I don't think online photo printing will be popular as people like my friends and I prefer to share photos through emails and blogs, rather than print them out," Shen says, and admits the most of his friends and colleagues have personal printers. "I can't figure out when I will print my photos online again, if Kachayu doesn't offer more free prints."

"The demand for photo printouts is limited in physical stores, let alone in online shops. And more importantly, the switching cost from one website to another is quite low if more players enter into this market. It's just several minutes spent on registering a new account," Wang says.

However, people are interested in personalized services to print photo gifts, from photo books, calendars, T-shirts and posters, to photo mugs, mouse pads, key chains, and jewelry.

"I ordered a mug from Kachayu for a couple of bucks for my little baby, " says Luo Binhua, a 30-year-old office worker who just gave birth of her first child. "The price is affordable. It's worth it for its uniqueness."

Analyst Wang agrees, and adds that this service is in particular perfectly fit for youngsters and people craving unique gifts or mementoes. "It's what we call 'emotional consumption,'" he says.

Maybe rather than it's free of charge promotion mode, customized photo service is where hope lies for Kachayu's future.

(China Daily 06/23/2008 page7)