Interview with Dean Finnegan, Pandigital

The biggest player in the digital picture frame isn’t a household name like Kodak or Samsung. It’s a smaller company you may not have heard of that is targeting the space in unusual ways: Pandigital.

Pandigital, which started selling digital picture frames in August 2006, has taken a lead position in the industry by targeting female customers in non-traditional electronics outlets like JC Penney, Linens and Things, and Bed, Bath, and Beyond. And, according to Pandigital’s CEO, Dean Finnegan, they’re having great success doing it.

Pandigital will be releasing new frames, including models with WiFi and Bluetooth networking, this spring, so we thought it was a good time to chat with Finnegan.

NOTE: Because of technical difficulties, the first 10 minutes of our interview were not recorded. Here’s what you missed:

- Pandigital shipped 520,000 frames in the fourth quarter of 2006
- They had a virtual 100% sell-through by early December
- Pandigital products are available in 12,000 retail locations
- Home decor and houseware channels like JP Penney, Kohl’s, Macy’s, Bed, Bath, and Beyond, Linens ‘N Things have been very strong
- Consumer electronics channels like Best Buy and Office Depot have also been strong
- Pandigital is releasing new products this spring, starting with 10- and 15-inch frames in April
- May will see the release of a WiFi kit, Bluetooth options, and a battery that will allow customers to take their frames with them
- The frames will not yet support RSS, due to ease-of-use concerns

What’s the current profile of your typical customer?
The POS (Point of Sale) data we received for the fourth quarter was interesting: 78% of the buyers were female.

I think the assumption is that the digital frame customer is an early adopter, a technology customer, which is typically more male. What’s your thinking about why you see so many female purchasers?
We designed the product specifically for that (female) demographic.

The reason the digital photo frame business is a niche market was not price, it was because of the technological limitations of the product. What we did was solve the technology issues and still cover that opening price point. Then we designed the product to look like a traditional photo frame. Finally, we made the product easy to use and intuitive. The consumer can literally put a card in the frame, turn the product on, and it automatically plays. You don’t have to touch a remote, you don’t have to push play.

Is ease of use the biggest obstacle to more widespread adoption of digital photo frames?
I think ease of use and technology limitations.

For the one third of consumers who archive images on their PCs, they obviously want to get the images off the PC and onto the digital photo frame, so you needed to have a technology that made that easy. With the chipset we’re using, when you plug the product in to any PC or laptop, Windows just automatically recognizes it as an external drive and then you just drag and drop your photos and they transfer into the frame.

So it’s use of use combined with technology. You have to have both. It’s counterintuitive that you have to put a lot of technology into these products to make them easy to use.

What impact do you think increased connectivity like WiFi will have on frame adoption?
I think it will improve it drastically. It comes back to the ease of getting the images from the camera, or from wherever you have them stored, into the device. The easier you can do that, the more people will adopt the technology.

I think wireless is going to be extremely important. In the mass market, I think Bluetooth will be as important, if not more important, than wireless. I think a lot of the Bluetooth-enabled camera phones, with the ability to transfer directly from them into the frame, will possibly be more important than wireless initially.

For our consumer electronics customers, I expect the attachment rate for wireless to be much higher than in the mass market. And in retailers such as Target, Kohl’s, or JC Penney, I think Bluetooth will possibly be a more popular accessory.

What kind of applications do you envision springing up around this kind of increased connectivity? Do you see photo sharing being the big use or do you see other applications popping up?
I think photo sharing will probably be the most prevalent initially. Just being able to transfer images directly from a photo-sharing website into a friend’s frame and vice versa will probably be the most predominant application initially.

How long has Pandigital been offering digital picture frames?
The company has been in business 8 years. But I didn’t launch the Pandigital (photo frame) product line until August of last year because I wasn’t going to go to market with (an) old technology solution. It’s just not right for the mass market. It wasn’t until the middle of last year that I was able to find a chipset that was able to do everything we needed it to do and still cover that opening price point below $100.

So you introduced digital frames of in August 2006 and were able to sell through more than half a million of them by the end of the year?
Yes. And then we’ve shipped another 300,000 so far since mid January.

What’s your expectation for how many frames you’ll ship for all of 2007?
2.6 million is what we currently have projected. And those numbers come from our retail partners.

What are the retail partners saying to you? What kind of feedback are they giving you on the products?
They love them. They’re doing extremely, extremely well. When the consumer sees the product, they instantly understand it. Sell-through continues to be extremely strong. Even in the off months we’re selling thousands and thousand of units per week.

How did the sales that you achieved in the last half of 2006 compare to your expectations?
They exceeded my expectations. I could have sold through more than double that 520,000 units if I would have planned for it.

Most of the retailers were sold out. Literally, we could not keep the product in stock. It would be on the self for two days and then it would be out of stock. We’d get another shipment in to the retailers and they’d be out of stock in a couple days.

We don’t even know what the upside potential was. I think we easily could have sold through more than 1 million units in (the fourth quarter).

To what do you attribute being able to sell so much more than expected?
There were three key things:

• Technology.
• Price point.
• The look of the product.

We designed the product as a home-decor item. It looks like a traditional frame, with black wood and cherry wood, and photos mattes, and glass. It’s a product that people would put in their living or den or office or kitchen.

You said that you’re shipping a lot more frames than your closest competitor, Philips, which is a huge company. There are some other major players like Kodak and Samsung in the space. How is it that Pandigital is able to outperform these companies?
I think timing had a lot to do with it, (as did) recognizing a market and recognizing who the customer is. I’m not sure everyone does. There is a very technology-oriented consumer out there. Our products are made for them, too. (But) there’s also a much broader market our there that I don’t believe some of those first tier brands are addressing and we are.

Are you doing anything different than they are, or unusual, to keep costs lower?
We just run a very, very low-overhead operation. We use contract manufacturers over in China and we’re building in the two largest digital photo frame manufacturers in the world. They’re the largest in the world now because they’re building for us. We’re also using a factory over in Asia that’s an extremely large consumer electronics factory. We’re the first to build in a facility of that size. We have the economy of scale. We’re building more than anybody else at this stage, so we’re able to buy the components at very good pricing and we’re able to get them to market very cost effectively.

Is the LCD panel your single largest component cost?
Yes. LCD panel prices on the smaller panels are reasonably stable, but I expect some significant price reductions on the 8-inch and the 10.4-inch panels over the next 6 months.

Do you envision many people looking for content other than personal photos on digital frames, such as headlines, weather reports, etc.?
Oh, certainly, certainly. Streaming information is in our roadmap for 2007.

Would you envision that being achieved through a web tool that pushes content to the frame or a tool that exists on the frame itself?
It would be, in my vision, a web management tool that pushes content to the frame, once again because of ease of use. I want the consumer to not have to have a networking background to be able to set these frames up. I want it to be very seamless.

Do you personally have any frames in your home or office?
Of course!

Where do you have them?
Right now in my office, I have two on the credenza behind my desk, one with family pictures on it and the other with some vacation pictures that I run on a slideshow. My wife has one in our kitchen and we’ve got one in our den.

What have you learned from having those frames in your house?
We added some features like programmable on/off time so the frames don’t run all the time. We put in some very basic features like an alarm clock, calendar, a regular clock so it had other features than the ability to show digital photos. Once I had them in the home environment, I recognized that there were some key things that needed to be done immediately. We’ve already implemented those changes.

Another interesting piece of POS data that we got in the fourth quarter: we sold 1.8 units per consumer. Not on a single purchase, either. The consumers are buying one and then coming back and buying another. That was a surprising number for us.

Does that indicate to you that people are buying multiple frames for their homes or giving them as gifts?
Hard to tell at this stage. I think it will ultimately be multiple uses in the house. It just makes sense. It’s the missing component in digital imaging: that ability to view images somewhere except on the back of the camera.

Do you foresee digital picture frames overtaking traditional picture frames?
Nothing will replace traditional photo frames, but they will certainly take some of that business. Traditional frame sales have been in decline in the US for years, for obvious reasons: digital imaging. People aren’t printing as many images. Especially now, with digital photo frames, there’s less of a reason to print digital images. Now you have a way to look at a very high-quality image without needing to print it.

So, yes, it will definitely continue the decline of the sales of traditional photo frames. Completely replace it? No.

You don’t expect that that would ever happen?
No. I mean, never say never, right? Twenty years from now, thirty years from now certainly it’s possible. It will take a very large, huge percentage of the business as time goes on. This is not a consumer electronics flash-in-the-pan item. This is a long-term lifestyle product that will be around for years and years.

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