It was 2002, not an auspicious year for starting a Web business. But for lifelong shutterbug Chris MacAskill, 54, it was time to leave his job, which had become more administrative hassle than adventure, and have some fun. Along with one of his three sons, 30-year-old Don, MacAskill decided to start a subscription-based business that would give photo enthusiasts a place to store and exhibit shots online. They'd call it SmugMug, reflecting MacAskill's belief that great brands should have catchy names—easy to say, easy to type, easy to spell. At first blush the idea seemed preposterous: Competitors such as Ofoto, Snapfish, and Shutterfly (SFLY) were well-established, and free. The business that wasn't already taken by them was split among the likes of Canon (CAN), Nikon, and Sony (SNE), which offered photo sharing as a service to camera buyers. But today, SmugMug is the destination of choice for professionals and serious amateurs, with more than 450,000 customers, including nearly 120,000 subscribers who pay $40 to $150 a year for the service. Revenues doubled in 2007, as they have for the past three years, to $12 million. With only 29 employees (including seven MacAskills), it's profitable.
MacAskill's fascination with photography goes way back. When his kids were young, he spent hours obsessively turning the living room into a photo studio, complete with huge seamless-paper backdrops and professional lights. His home movies from the '80s aren't clips of random events but, well, movies—meticulously edited, with characters and story lines.
Until 2002, photography had been purely a sideline while MacAskill raced to make his fortune on the Internet. The plan was to build a company, take it public, and cash out. So in the '90s, he started an online bookstore, FatBrain, in his garage in Mountain View, Calif. Within four years, FatBrain had grown into a $100 million enterprise, the third-largest online bookseller after Amazon.com (AMZN) and Barnes & Noble (BKS). In 2000, Barnes & Noble bought FatBrain, by then a public company, for $62 million in stock and cash. MacAskill's take—he owned 6% of FatBrain before the sale—came largely in Barnes & Noble stock, most of which he eventually sold.
That left MacAskill with a hefty nest egg and an electronic vanity press, MightyWords, that had been spun out of FatBrain. But consumers never bought into the concept of e-books, where authors publish and sell works in electronic form, and MightyWords ran out of money. MacAskill was forced to lay off the whole staff, and he shut down the company in early 2002.
In the wake of the MightyWords failure, and mindful of how inventory snafus and other hassles turned low-margin FatBrain into "just another job," MacAskill wanted something more inspiring. "I was facing the question of what to do with the rest of my life," he says. This time, he wouldn't be focused on cashing out. And he'd fund the venture himself (he and Don each own 40% of SmugMug; 20% is set aside for employees).
After selling off FatBrain, MacAskill had launched a Web site about motorcycling. Adventure Rider (advrider.com) was a message forum where bikers exchanged tips and trip reports. "I realized we all just wanted to show off our photos—of ourselves, our bikes, places we visited." Meanwhile, Don was trying to start a site for video gaming, his passion. It would include forums and photo galleries. "Don found that what people loved was showing off screen shots," says MacAskill.
The duo decided to get rid of the gaming component and focus Don's venture solely on photo-sharing. Even with competitors offering such service free of charge, the MacAskills saw an opening for a subscription-based offering.
Existing sites' business models depend on getting customers to buy prints—and mugs, albums, even cookies with photos on them. For them, sharing—providing a way for family and friends to see your photos—is a means to an end. So sites insist friends sign up in order to see your photos; they surround albums with advertising; they delete images if you don't buy something at least once a year. "We don't care whether you buy prints or not; we just want your subscription fee," MacAskill says.
Why would shutterbugs pay a fee when they could get the same basic service free? It's mostly because pictures look a lot better on SmugMug, says Don. If a consumer has a large monitor, images display at 1,280 x 1,024 pixels, compared with about 400 x 300 for a typical free site. Pictures fill up the entire browser window rather than being flanked by ads. Photographers get to show off high-resolution images in Web albums free of clutter. Says Don: "I'd be hard-pressed to name an industry that doesn't have a premium offering that costs more, whether it's first class over coach, Apple (AAPL) over Dell (DELL), BMW over Toyota. (TM) We're the premium offering in photo-sharing."
SmugMug's biggest challenge came in 2006, when the site began to run out of space to store copies of subscribers' pictures. It was burning through capital, buying disk drives. Help came from Amazon.com, MacAskill's former archrival in the book business. "We got a call out of the blue from Amazon saying they were coming up with an online-storage service," says MacAskill. SmugMug first used Amazon to store backup copies but eventually moved most of the originals to the service.
The smartest move the company made, says Don, was recruiting employees from customer ranks. The 22 workers who aren't family all started out taking part in a message forum, Digital Grin (dgrin.com), that SmugMug set up in 2003. Hiring anyone "who hadn't already gotten the vision" was tough for a tiny company with big rivals, says Don.
What the entrepreneurs recognized, of course, was that there were people like themselves itching to turn a hobby into a career. Now, says MacAskill, his job doesn't feel like a job: "It's not like getting up and going to work every day."