Web Masters Episode #27: Raj Kapoor

On Web Masters, Raj Kapoor, founder of Snapfish, shares the story of how he started building a digital photography behemoth before most people owned digital cameras.


Snapfish logo and symbol, meaning, history, PNG

Raj Kapoor:

I oversee the long-term strategy of Lyft and really focus most of my time around self-driving. At Lyft, our goal is eventually to move to a primarily self-driving electric shared fleet, which is better for the environment, better for congestion, more affordable transportation. So I spent a lot of my time thinking about how we get there and putting in place the infrastructure and relationships and partnerships to get there.

Aaron Dinin:

Wait a minute, this is supposed to be a podcast about the entrepreneurs who built the Internet’s most important early websites and technologies. So why are we hearing about Lyft, a ride-sharing company launched in 2012? Well, the person you heard talking was Raj Kapoor. At the time of this recording he is the chief strategy officer at Lyft. But before that, long before that, he was the founder and CEO of Snapfish, one of the web’s earliest photo-sharing platforms. There’s a critical entrepreneurial lesson hidden in Raj’s two experiences, and that’s what we’re going to explore. Are you ready to hear the story? Let’s get dialed in.

[INTRO]

Aaron Dinin:

Welcome to Web Masters, the podcast where we unpack the intricacies of entrepreneurship by talking to some of the Internet’s earliest and most impactful innovators. I’m your host, Aaron Dinin. I’m a serial entrepreneur. I teach innovation and entrepreneurship at Duke University, and I study the history of the web in tech entrepreneurship. In this episode we’re going to explore the story of someone who demonstrates one of the most important entrepreneurial skills there is. I like to describe the skill as being able to see the future. No, I don’t mean you have to be psychic in order to be a great entrepreneur. Though, to be fair, I suppose that would come in handy. Instead, I mean there’s enormous value in being able to predict where technology trends are heading and how to position yourself to take advantage of them before anyone else can get there. To understand why you’re going to need to see about 60 seconds into the future, or you can let me use that minute to tell you about this podcast’s wonderful sponsor.

This podcast was made possible thanks to the support of our sponsor, Latona’s. Latona’s is a boutique mergers and acquisitions broker that helps people buy and sell cashflow positive internet businesses. That includes things like Shopify stores, Amazon FBAs, content websites, SaaS apps, domain portfolios, and any other types of online work-from-anywhere internet businesses. If you’re thinking of selling your profitable internet business, start by reaching out to the team at Latona’s. They’ve been brokering digital assets since all the way back in 2008, meaning they’ve got lots of experience and can help you get the best deal possible. If you’re hoping to buy an internet business, head on over to the Latona’s website, latonos.com, where they’ve got a regularly changing inventory of businesses available to purchase. That website, again, is latonas.com. L-A-T-O-N-A-S.com.

Let’s kick things off by having this episode’s guest, Raj Kapoor, explain the concept of seeing the future and why it’s important for entrepreneurs. To provide some context, I should mention that between running Snapfish and working at Lyft, Raj spent a number of years as a venture capitalist, which you’re about to hear him reference, and as a venture capitalist he actually invested in Lyft’s Series A, making him one of their first institutional investors.

Raj Kapoor:

I was a VC for seven years after Snapfish and before Lyft. That’s where I invested in Lyft. I remember trying to learn as much as I could about being a good investor and just being in the innovation industry, which entrepreneurship is all about. One of my, I would say, a mentor that I respected a lot was Bill Gurley, who’s been a general partner at Benchmark, ended up leading Uber also, which is interesting. But he said to me early on something very interesting, which was that being a good investor or a good entrepreneur is not about where the puck is. It’s about where you predict it’s going in the future. It’s skating to where the puck is going, not to where it is. That’s the simple way of looking at it.

Aaron Dinin:

I always love unpacking a good metaphor, and that’s what we’ve got here courtesy of Bill Gurley. Bull Gurley, as Raj eludes to, is a VC. He’s a partner at Benchmark, one of the more prominent Silicon Valley funds. His most notable investment is Uber, but he also led investments in companies like Grubhub, OpenTable, Stitch Fix, and Zillow, to name a few. Anyway, according to Raj, Bill’s advice was to skate where the puck is going to be, not where it is. Of course, Bill was by no means the first person to say that. It comes from hockey legend, Wayne Gretzky, who actually credits his father with it. The saying has been appropriated for business by everyone from Steve Jobs to Warren Buffet. So yeah, it’s a bit of a cliche at this point, but there’s a lot of truth in cliches. After all, they’re cliches for a reason.

In this case, Gretzky’s hockey advice applies to entrepreneurship as a reminder that the opportunity isn’t in the present. The proverbial puck is already somewhere you aren’t, and it’s presumably already surrounded by lots of other people, which will make it hard to reach. Instead, the opportunity is in the future. If you can predict where the puck is going to be, nobody else is there yet, you could get there first and be in the best position when the puck arrives. That’s the same strategy companies like Lyft and Uber are using. Even though the companies largely get viewed by consumers as replacement taxi services, that’s not how they see themselves.

Raj Kapoor:

Basically, it’s transportation as a service rather than purchasing your own, which is very inefficient.

Aaron Dinin:

So you see, Lyft doesn’t actually want to be your taxi when you need a ride to the airport, or maybe you’ve had a few too many cocktails with dinner. Lyft sees a future in which people don’t own their own cars. Instead, they purchase subscriptions to car-sharing services that pick you up whenever you need them just by the simple push of a button on your phone. That’s a wild change from the past, roughly 100 years or so, as car ownership has become one of the biggest expenditures in consumer households. Of course, we’re clearly not there yet, and the transition will be slow, but it seems to be where we’re headed. So companies like Lyft and Uber are making a bet. They’re betting that when we do move from car ownership to subscription car services, consumers will rely on the same tools they’ve already been using as their taxis. It’s a pretty good bet. It’s a type of bet Raj Kapoor was making well before he became one of Lyft’s earliest investors.

Raj Kapoor:

I thought when I was in high school I was going to be an astronaut, and that’s what I was focused on.

Aaron Dinin:

Okay. So let’s call you someone who wanted to be an early adopter of living in space, but I guess that didn’t work out so well for you, right?

Raj Kapoor:

No, it didn’t work out. But I ended up going for mechanical engineering. I ended up going to space camp in high school and had a good time. I think I forgot to put the landing gear down in our big simulation mission and we imploded. But that wasn’t the reason I didn’t become an astronaut. I thought I could do better than that. But then as it turns out, after I graduated from college I decided to get more in the business and technology side rather than being a mechanical engineer, which was what my degree was. I just happened upon information services and the beginning of network computing.

Aaron Dinin:

Around when was this? Can you give us a sense of timing?

Raj Kapoor:

That was ’92 when I graduated college. From ’92 to ’94 I worked at what is now considered a phone company, Bell Atlantic, and it was an executive development program, and they gave me two options. They said, you can go into capital budgeting, which sounds really boring. Or you can do this thing called information services, which was using devices like fax machines and modems to broadcast and exchange information for businesses and then consumers. One of the first things we did for consumers was video-on-demand over DSL lines. Back in the day DSL was the big thing. So I joined into that area. So this was just about when the web standards browsers were being created, HTTP standard. So ’92 to ’94 did that. Then I went to business school, and that’s when things started to commercially take off and more and more webpages were created. Hyperlinking was cool, which was there even into the Apple system with HyperCard. There, I started the internet club at Harvard Business School because I saw that coming. I remember we invited the founders of Yahoo, and HBS grad was employee number one there. So it was basically a three-person company, and they came and spoke to us in 1994. So that was exciting.

Aaron Dinin:

We’ve got Raj starting an internet club at Harvard Business School in the mid-90s. As silly as that sounds now a few decades later, at the time it was another example of Raj skating to where he believed the puck was going to be. As it often does, the strategy paid off.

Raj Kapoor:

There was a lot of political tension to make it the telecom club. I was like, no, no, no, this is not telecom, because I’ve worked in telecom. One of the best ways to self-proclaim yourself an expert, and for my job search is create a club around it that doesn’t exist. So I said, “Hi, I’m the president of the Internet Club,” and I got in the doors of Kleiner Perkins and all these different VC firms, and Netscape, hot companies, because it was all so new and everyone was trying to learn. They figured you knew something when I didn’t really know that much. I just started a club. So it was a good entree into Silicon Valley.

Aaron Dinin:

Here, Raj is alluding to one of the benefits of jumping ahead of a tech trend. When you’re working in a fledgling industry it’s easier to position yourself as an expert, even when you’ve only got a year or two of experience. Compare that with industries that have been around for longer, you’ll have to spend decades establishing your credentials. Raj didn’t have to do that, and as a result he was able to move into a leadership position at a fast-growing broadband delivery company called @Home. His work with @Home would lay the foundation for eventually being able to build Snapfish.

Raj Kapoor:

My job at @Home, we were basically started with a consortium of cable companies to bring broadband through cable. But we had ambitions not just to do that because that doesn’t really require much beyond the technical underpinnings using a network and managing the network well, which was important. But the second piece of it was there’s a big opportunity in content media. So let’s create a portal. We saw what Yahoo was doing, and it was early in the days of Google. We thought, why can’t we create our version on top of our network, and it’s going to be unique because it’s broadband. At the time everything was dial-up. So my job was to help create that and to go out and get the relationships and figure out the products, create a near CD quality music service. So I was very focused on media, music, and commerce.

When I was thinking about what business to start, which since I moved there I had been thinking every day about what to do, I looked at all the different media types and I found that, first of all, broadband wasn’t going that fast. So starting a business that was very broadband-intensive in 1999 would have been difficult. That includes movies and TV. Secondly, is that I had some experience that anything to do with rights, intellectual rights around TV, television, movies, music, was really a pain in the butt, and was very difficult to deal with. They were kicking and screaming going into the digital age. So by process of elimination the last thing was personal photos and photography.

Aaron Dinin:

This would have been the late-90’s, right? So at the time, how obvious was it that digital photography was going to disrupt traditional film-based photography?

Raj Kapoor:

In ’99 it was clear that one day there will be digital cameras, but there was no widespread adoption of digital cameras. There was certainly no widespread adoption of camera phones at that point.

Aaron Dinin:

Why did you decide to bet on digital photography?

Raj Kapoor:

We thought, hey, photos are a great medium. Everyone wants to share them, and therefore you can lower customer acquisition costs, which were a big problem in games and media and e-commerce. So we can create a viral photo sharing service. There was already photo-sharing happening at that point. How about something that bridges film users into the digital world? We don’t know when digital is going to take off. So let’s create a service that embraces film and then provides an on-ramp and a stickiness because we have all your photos when you convert to digital, whenever you do. So that was the general premise behind Snapfish was let’s create a film processing service, but really what we’re doing is creating an online repository for all your personal photos that you’re going to share out, and that you can create all sorts of interesting photo gifts with them, and of course you can create prints, because you need the prints for film, and you can look at them online.

Aaron Dinin:

So it sounds like you weren’t personally interested in photography, is that correct? I mean, it’s not like you were a photographer looking for a great way to manage your personal digital photos or anything like that.

Raj Kapoor:

No, I’ve always appreciated photography. I like taking photos. I wasn’t a photo geek, which was good, because we created our service for Emily. She lives in Iowa, she has two kids. She just got off of AOL and got onto some other ISP, and she just wants to do things really easily. She cares about her family’s photos. So we made big yellow buttons. We weren’t trying to be the professional photography site. We were trying to be the one for everyone. So that didn’t matter as much. What I also cared about was I knew the emotional response that people have when they first look at their photos, especially because they came back from film. So you don’t even look at them while you were taking them. So that piece was really exciting and building that emotional connection to me was important from a consumer perspective.

Aaron Dinin:

Is that why it’s called Snapfish instead of something like Photofish? It seems like it was never really intended to be solely focused on photography. It was more according to what you were saying about the shifting media landscape, right?

Raj Kapoor:

Sure. Snapfish, well, we wanted to catchy name. We wanted a URL that was available or cheap, and something that you could spell easily. Then there was a little bit of a vision that this could go into video. I didn’t necessarily think it could be YouTube. I thought YouTube was, when I initially saw it, I thought it was all home video, but it turned out to be a lot more. So we didn’t want to say the word photo in it. So snap had a photo connotation, also easy and simple, which is the target audience that we’re going after. The fish just gave it some personality that we could play with.

Aaron Dinin:

So here again, we’ve got Raj seeing the future through his experience building media partnerships with @Home. He recognizes that media is going to become digital, but he also notices the big companies in the industry are resisting the transition. So he takes a bold step. He launches a company designed for digital photography before digital photography is mainstream. He does it not because he’s personally passionate about digital photography, but because he recognizes all media will eventually shift to digital and he wants to get there before everyone else. Sure, at this point we could call Raj a visionary and consider the lesson finished. Every entrepreneur should just do what Raj did. Figure out where technology is moving and get there before other companies. But it’s not really that easy. There’s much more to the story. Specifically, when you launch a venture around an immature technology it means you won’t have any customers for it, and you might not even be able to build the thing that’s ultimately going to be your final product. For example, if a company like Lyft expects to transport everyone around in self-driving cars, that technology doesn’t exist yet, meaning they can’t even offer their final product. So how do you build a business without customers or a product? That’s precisely what Raj and his Snapfish team struggled with.

Raj Kapoor:

We also came up with a crazy idea because that was about the time that Bill Gross had started a company called Free-PC. Bill Gross is a famous entrepreneur. I interviewed with him and almost took a job with him after graduating business school. He’s very prolific and he believed he had a business model, such that he could give away a free PC if you looked at ads all day on it. Later he also started a search engine that was ad-based, which was Overture, goto.com, which became Overture, and ended up being a pretty big success for him. On the Free-PC side, that one didn’t quite work out. But when we saw the model we were excited, and we thought, hey, if you can give someone a free PC, why can’t I get free film developing? So we did the math on it, and there was a possibility that if you view the photos online first, you go through 30 or 40 page views. We can put ads against it. We can ask you questions to personalize those ads, so there’ll be higher value. Then you will purchase other gifts, and when you add all that together you can make a positive gross margin, and you can give away free film developing. When they go digital, you’re there. You own the customer.

Aaron Dinin:

Worth noting, Bill Gross, the person Raj mentioned as the man behind the Free-PC model, was also the first investor in a company called NetZero. NetZero was the internet service provider that gave people free internet access in exchange for being able to show them advertisements the entire time they were surfing the web. Raj and his team were trying to adopt a similar model to acquire early Snapfish users. They wanted to give people free film processing, something consumers were constantly paying for, in exchange for showing enough advertisements that it would offset the cost. Unfortunately for Raj, this innovative strategy didn’t work as well as he’d expected, ultimately failing for a couple of important reasons.

Raj Kapoor:

I would say the free part did not work, and we have to pivot. The other piece that didn’t work was that trying to change consumers habits from taking my film into the store and getting the prints back, whether it’s in an hour, or even the day after, that was really hard to change. Because we were free, people were asking us what’s the catch. That was funny, because it was called Snapfish. So they didn’t trust us. They were worried that if they put their film in the mail, what if the mail’s lost?

Aaron Dinin:

But you obviously solved the problem, right? Because Snapfish is still around today. So what happened?

Raj Kapoor:

Yeah, so what happened was we started Snapfish in ’99. Before even launching, the advice was in such a crazy period to raise as much money as you can. So we raised seven and a half million on a PowerPoint. Then we raised another 30 million right before launch. It was lucky, because it was the last time we’d raised money.

Aaron Dinin:

By the way, this was the height of the internet dot com boom. So if you want an idea of just how crazy things were, I’m pretty sure raising nearly $40 million without a launched product for a fairly straightforward e-commerce service is a pretty good indication of the environment back then.

Raj Kapoor:

Then we launched and it didn’t take off as expected. The value proposition was not strong enough, even free film developing. Then the internet bubble burst in 2000. We had spent too much money. In 2001, it was clear we couldn’t raise money. The company wasn’t doing as well. So we ended up selling at a fraction of a price to our supplier who did the photo processing, and we contracted out the photo processing, and they were private company. The key there was that I developed a strong relationship with the owner. So relationships do matter. He believed in us, and I gave him my promise that we will, myself and my CTO and our small team, will stick around and we will operate this and manage costs well as digital slowly takes off. So that was the premise that he bought it on, and we did do that.

Over the next year or two digital started to take off, and we rationalized the cost structure, learned how to do pay-for-performance marketing, did things like got rid of our $7 million EMC storage box. So we just right-sized a bunch of things. I learned how to run a real business and a real e-commerce business, and the demand started to happen. That’s when we took off.

Aaron Dinin:

It sounds like Snapfish basically had to become a traditional film photo processing company in order to lead the way into digital photography services. Is that pretty much the gist of it?

Raj Kapoor:

What happened is after we sold the business for a fraction of what we had raised, after we sold it is when the transition happened. We started to really reorient our service to being a great one for uploading your digital photos from your new digital camera so that you can get prints to you, and gifts, et cetera, and then share them more easily. But if you’re going to share one, you can do it yourself. If you’re going to share 20, it’s easier to use a website like ours. We offered free storage as part of that as well. So that was Snapfish 2.0, which really took off. We got the company profitable. We launched internationally. We also became the backend for Walgreens and Costco and Walmart. Then at that point we sold the company again to HP, and that was a more successful outcome. It was like a $300 million cash sale there. So it was reborn, and that gives you the full story.

Aaron Dinin:

That sale was to Hewlett Packard, HP, a computer company with a large printing services infrastructure attached to it, that was trying to gain a strategic foothold into the digital photo printing market. The sale ultimately proved Raj’s prediction correct. Digital photography was going to replace traditional photography. But it wasn’t a perfect prediction. What we see in Raj’s initial failure and ultimate success with Snapfish is the challenge of trying to predict a market. While it might be obvious where technology is going, it’s not entirely clear how long it’ll take to get there. If it takes too long it won’t matter if your prediction was right. Your company will have already run out of money and died. After learning this lesson the hard way, Raj has a more nuanced perspective on how entrepreneurs should take a predictive approach to launching new ventures.

Raj Kapoor:

The key issue, I think, when you think about the future as an entrepreneur is to make sure that whatever your plan is then is what I would call timing proof, meaning that if you’re wrong by a few years or a few months, or whatever the timeframe is, that you have the ability to survive, because that’s usually what causes first wave companies that are thinking great about the future to die, because they run out of money. So that was something that I carried with me too.

Aaron Dinin:

We can see this approach reflected in the strategy that ultimately led to Snapfish’s success. For Snapfish to survive Raj had the back off his original vision of being a digital photo-sharing service and focus first on being a print photo development service. This is what turned Snapfish into the thing Raj just described as a “timing proof company.” In other words, Snapfish was able to survive the unpredictable timeline of the transition to digital photography by establishing a baseline of income through a more traditional business model. For what it’s worth, we can also see this strategy playing out in Lyft, which shouldn’t surprise us considering Raj is their chief strategy officer. Yes, Lyft is predicting a world in which people trade in their personal automobiles for subscription transportation services via self-driving cars, but the technology to accomplish that doesn’t exist yet, and it’s not entirely clear when the transition will happen.

To mitigate that risk, in addition to self-driving transportation, Lyft is also being the quasi taxi service most of us consumers know and use. It’s a company where you press a button on your phone and a human driven car picks you up, not entirely different than the taxi and limousine services that have been around for decades. Sure, maybe it’s not as wildly innovative as chauffeuring people around in a fleet of autonomous vehicles, but it’s a business that can more easily continue surviving, and even thriving while the proverbial puck slowly makes its way to where it’s going to be. By the way, we also can’t forget that once the puck reaches you, if you’ve positioned yourself properly, it’ll also be your responsibility to figure out where it’s moving next.

Raj Kapoor:

I think from a Lyft perspective, I strongly believe in transportation as a service. I would say the thing that I care most deeply about that I’m focusing all my efforts, within Lyft and outside of Lyft, is around combating climate change. I’m really excited that over the next few years we can make a big dent. I think that entrepreneurship and innovation are going to be a very large part of this, and we just don’t have that much time. So I would love to see a call to arms of every entrepreneur to think about their talents and how they could apply it to taking on this crisis that we have. So for me, that’s what I’m most excited about the future is leveraging all this skill, talent, money, to really make a dent in climate change for many, many generations ahead.

Aaron Dinin:

I don’t know about you, but I’m certainly glad to hear that one of the people leading the charge toward autonomous vehicles is thinking about how this incredible new technology is going to do more than just impact his company’s bottom line. That’s incredibly important work he’s doing. So I want to thank Raj for taking time out of his busy schedule to speak with us. To follow along with him on his journey, or hey, maybe even see how you can be one of the entrepreneurs he’s calling on to help protect our climate, you can find him on Twitter. He’s @Rajil.

This podcast is on Twitter too. We’re @WebMastersPod. Send us any thoughts, comments, or questions you have about the episode. I’m on Twitter @AaronDinin. That’s A-A-R-O-N D-I-N-I-N. I also write lots of articles about startups and entrepreneurship. Find them all right now just by searching my name over on medium.com.

Another quick thanks to our sound engineer, Ryan Higgs, for helping pull this episode together, and a thanks to our sponsor Latona’s for supporting our efforts. You can support them too, particularly if you’re interested in buying or selling an internet business. Just head over to latonas.com. Remember, if you enjoyed this episode consider sharing it with a friend. If you want more just like it, be sure to subscribe to Web Masters on your podcasting app of choice so you get the newest episode when it’s released, which is going to happen in just a few days. But for now, unfortunately, it’s time for me to sign off.