Hannah Jordan What’s the point of Startups?
Lawrence Merritt The remit of the incubator is to focus on growth by developing and launching new brands across new product verticals and on new platforms for Photobox. We see ourselves as growth hackers.
Is it a standalone division or do you share resources with Photobox?
Thirty people work across specifically the incubator. I have a self-contained team, which includes engineers, designers, developers and product people who work only on our remit. We share things, of course, such as the customer contact centre.
You spent £5m-£10m on Instagram’s personalised magnet product, Stickygram in May this year. Is that one of the things you’re cooking up in the incubator?
Yes. In fact there are three things at the moment. One is Stickygram, which we saw as a way to accelerate our own plans to dominate self-expression through personalised products via the Instagram platform. Then we have Paper Shaker, our new invitation and announcement card brand, which effectively launched earlier this year following quiet testing at the end of last year; and then there is the Photobox app segment.
But Photobox and Moonpig already have apps..?
That’s true and my role is to take ownership of the Photobox branded apps and make them the best in the world. We’re about to launch version 3 of the Photobox app and it will be the very best app for photo printing. Our intention is for the app to allow consumers to do everything on it that they can on a desktop. We’re not there yet but that’s the ambition. As we come into Christmas you’ll see more and more products on the website available via the app and it will simply be a better experience. Soon after we launch Photobox v3, we’ll announce a standalone photobook app just for the iPad that’s going to blow your socks off.
What was behind the decision to create the division?
We strive for growth; we are restless and we want to experiment all the time. By diversifying our portfolio, having more new brands in new product verticals in new platforms we can accelerate our levels of growth. In order to make that real, we decided as a management team to create a separate incubator unit for me to head up. It’s not here for research and development though, it’s about profit and loss. It’s here to drive top-line revenue and bottom-line contribution.
How much was ploughed into it from the main business?
It was considerable, but I can’t say how much exactly. Clearly we need to make a contribution that matters to the overall growth of the group so it’s proportionate to that. Effectively, Photobox is my venture capitalist and I aim to beat the return they’d achieve by spending that money on the core business.
What turnover do you expect to see from Paper Shaker and Stickygram in 12 months’ time?
I can’t say, but the offline invitations and announcements market is worth around €3bn (£2.5bn) in the UK, France and Germany alone and Instagram now has 150m members, so just a small share in each of these market spaces, initially, is interesting for us, with lots of potential to scale in the coming years.
When do you anticipate making ROI?
This fiscal year. The aim is to take Stickygram and Paper Shaker and make them multimillion-pound businesses within a year. We care about getting new customers and driving new revenues to help fuel the growth of the group. We expect to be contribution-positive quickly. And once they are scaling and have traction, I will lovingly hand the baton back to the Photobox team to run, and that creates space for Startups to find something new to develop.
That’s ambitious. How are you going to do that?
Sticking to our three guiding principles and leveraging social media in a way we simply haven’t before. Stickygram is all about monetising social media. Paper Shaker will also be a multinational brand. It’s already in France and we’re launching in Germany this month as well. We’ll be investing in mobile applications as well.
Three guiding principles…?
Absolutely. The first is to think of the business as being in a permanent state of startup. It was true when I joined in 2007, and it is still true today. It’s one of the things that is unique about us. The second is that we believe in putting customer experience first, meaning that everyone will spend a day in our customer contact centre listening and responding to customers. Senior management spends time there too – we obsess over the small details that the customers want. Customers don’t experience concepts, they experience details so you have to obsess around them. The third driver is experimenting. Fusing those principles together puts us in a fantastic place.
You were managing director of Photobox at the start of the web-to-print revolution; how has it changed as a business?
It has been a hell of a journey to get to where we are now. When I started the company only had 35 employees in the UK and we were doing £10m in sales. We’re now doing £140m in sales with 750 employees internationally.
How much have your products changed over the past seven years?
The products we had in 2007, compared to today, are like day and night. Over 70% of our sales today comes from things that didn’t exist seven years ago. Some of the stuff we’re doing now just wasn’t around then and we brought that to market. Photobooks is the biggest and best example of that, but now we’re doing things like mobile phone cases, wall art – that’s a huge category for us. Even though we’ve grown, we aren’t scared to sometimes get it wrong.
So have you ever got it wrong?
All the time! You know it’s wrong when it fails to scale. A good example of that was our first attempt to do a specialist card site. In 2008, we launched a dedicated card service called Greetings by Photobox as an attempt to get into that space.
What went wrong?
It failed badly because it never got the full attention that it should have, because it was always treated as just being part of the core Photobox business. So whenever there was a trade-off or choice to be made, the core business won: the business cases were bigger, the potential was bigger and as a result of that it never got the oxygen or development support. It was a huge lesson. We needed to separate it out from the core business and develop it on a standalone basis. So now we’re putting that into practice with Startups, and Paper Shaker has the benefit of that.
So did anything good come out of it?
The one thing that did work about it was that it was available to the customers through the Photobox website, as well as its own site, so we essentially had free traffic and free distribution. We are replicating that again. There is a lot of cross-over with the customer base. Essentially it’s the same segment.
Who is your customer?
We endearingly call our customer Amy, the soccer mum. She’s just as likely to buy a Photobook as she is to get a card from Paper Shaker. We are a global brand but with an intensely local feel and we work really hard to avoid that North American homogenised retail experience.
Let me ask you about the Valentine’s Day/Moonpig debacle this year when a lot of people didn’t receive their cards and flowers on time because of a logistics problem. What happened and how did you cope with the fall-out of that?
I can’t comment on that, my jurisdiction doesn’t cover Moonpig. But I can say how we collaborate. I come from Yahoo and the group chief executive comes from AOL – and sadly what is common with them is that they have a history of buying businesses and then killing them. They haven’t meant to, they just have. So we have first-hand knowledge of what not to do. What we have learned is that homogenising the business that you have just bought is a surefire way of killing it. We’ve worked really hard to have a common purpose – ‘making your memories real’ – it’s the glue that links us. It’s fine to have a homogenised purpose, but it’s also okay to be different as brands.
So you have no plans in the future to bring your products all under one brand name?
We specifically made the decision that instead of Photobox being a branded house, we wanted this to be a house of brands because where they each have their own vibe and feel and identity, they have a much better chance of resonating with consumers in a way that really means something to them. We’ve learned a lot from Moonpig and there’s a lot in their gene pool that’s different to ours. By bringing them on board we brought in skills that we didn’t have and vice versa. TV is a great example of that. One of the things that’s helped Photobox get it right in that area is by having Moonpig in the room.
That brings us nicely on to marketing. How do you approach it and how much do you rely on your products marketing themselves?
The three guiding principles don’t change; strategies, tactics and approaches change, but those principles don’t. The first pillar is the consumer – if you get that right then so much will come to you naturally through positive word of mouth. We obsess over how many customers we are getting for free: the ones that are simply going to Google and doing a search. It’s a really vital metric. If you’ve done really well, people will talk about it. When I arrived, Photobox was doing 45% of its business for free and today it is still the same. It’s encouraging. We’ve scaled like a weed in turnover but the relative share of the business we acquire for free has stayed stable. It means we can invest more in acquiring customers through different means.
What means?
From an acquisition point of view we’ve been really big on digital – we’ve really smoked that stuff. We view Google and other performance-type media as crack and we are addicted to it. The reason is that it’s been incredibly efficient. It’s given us huge success getting those platforms right. The biggest percentage of orders is from the existing customer base. We have 25m members now. Talking to them in an intelligent and personalised way is the biggest driver of sales for us. Of those that come from new customers, 40% are effectively free, from viral channels. I’d include things like Facebook there because we have a huge presence. We were a very early adopter and we have built followings in other arenas, obviously with Instagram being the most recent example, and we’ve had a YouTube channel for many years.
Photobox launched its first international TV campaign this year and there are lots of ads on the London Underground at the moment – so has your strategy changed?
Well, what has happened more recently is we’ve hit the buffers from the digital channel acquisition perspective, meaning that it has slowed down, so we’ve begun to diversify our acquisition channel. It’s getting more expansive because it’s an incredibly crowded and competitive space. As that begins to happen, given the level of growth we aspire to, it causes you to need to diversify your channels. That’s what led us to expand into offline media.
How risky was it to make the leap to offline marketing?
Data, like Google, is crack and we’re addicts. It’s efficient; facts make your decision-making simpler. The challenge with offline is finding data we are prepared to believe in. We’ve spent a lot of time on it and we now have something we think is credible and we are bullish about our prospects for TV. Last year we did our first television test and we have sustained that, it was successful and now we are adding to it with billboards and tube panels. It’s absolutely working for us.
Has the response to offline marketing surprised you?
We expected it to be a quicker journey to success than it has been, what surprised us is the level of optimisation that needs to go into making these things work. There is a huge parallel between off- and online. If you don’t obsess over every single impact, and its impact in turn, on an almost daily basis and reconfigure your plan accordingly, you will fail.
Is the photobook and print-on-demand market owned by a few or is there room for both the big and small to survive?
The market has begun to consolidate from an industry point of view, but to the consumer it is incredibly fragmented. Type in the key words ‘digital print’, ‘digital canvas’ or ‘photobook’ and you’ll get hundreds of results, that’s how vibrant the market is.
Is the list any shorter today than in 2007?
No. There are the usual suspects in our space: Snapfish, Tescophoto and to some extent Vistaprint. There hasn’t been a great deal of movement there. Smaller ones have come and gone, some have been acquired, but for every one of those there is another that appears. There has been huge movement in the number of start-ups that have appeared, and the biggest change, I suppose, has been on the high street, where the move to online has really taken its toll.
But surely there are only so many companies that can produce what are essentially variations on the same theme?
The fact that there is so much activity within the consumer print-on-demand genre, with entrepreneurs entering this space, is really positive. To some extent, I expect consolidation will continue at some point at our end of the market, but over 60% of the population in Europe has yet to buy a photobook or other photo product, so it’s not like we’re hitting saturation levels. It’s not about there being a photobook on every coffee table and the top players slugging it out for market dominance; we’re simply not there yet, there is still a lot of room for all of us. We think that by having these standalone products we have a much better chance of getting people to convert and enjoy print-on-demand for the very first time.
You have a huge product mix now under the Photobox umbrella. What else is in store?
Our products evolve a lot over time. Currently, we have more than 500 SKUs within the Photobox store and each one is made on demand, just for you and one at a time. Our main categories are photobooks, photo-cards and photo-calendars, but we also have a rapidly developing wall decorations business, alongside a variety of prints – the gallery framed ones being my personal favourite. The real emerging categories, which we are going to see some real growth in, are things like iPhone and iPad cases.
Is all of your work carried out in-house?
We have a vertically integrated model in that we own our own manufacturer. We have three huge facilities in Europe: one in Park Royal, one in Guernsey and one in Sartouville, outside Paris, which all specialise in different areas.
Do you share resources across the brands or are they all kept separate?
Guernsey, the original Moonpig plant, which came into the fold when we bought the brand, now manufactures all the cards across the group including Paper Shaker. Sharing resources behind the scenes really makes sense to maximise our efficiency. In the same way, Moonpig has diversified its offering. Its t-shirts, for example, are made at Park Royal where we also have a lot of mini labs for photo printing, mobile device cases and our wall decorations section. We are investing in new technology there for Stickygram printing.
Talking of equipment - what’s your dream bit of kit?
We are using the latest technology HP Indigos – the W7250 and W6600s – to print our photobooks, but we have also taken great care of our very first Indigo 3050. It still does a great job for us so it would have to be that one – because it reminds me of where we’ve come from.
Customers obviously don’t always just order one thing, so how do you marry up the one order for multiple items across the brands?
There is a real science to it and a it’s an important part of the service –obsessing over the details. We have a very short delivery promise because everyone wants everything straight away these days. The second aspect is meeting their demands. We tend to split orders now that they are coming from different locations, and we will message the customer so they know, and we’ve developed a system for them to track their order.
What sort of volumes of orders do you deal with daily in quiet and peak times?
The increase in order volumes from non-peak to peak is five-fold. On a peak day we might have 30,000 photobooks rolling off the presses. This fulfilment challenge is unique and something that keeps us up at night, literally. But the years have taught us a lot about how to cope.
