When I was looking at traffic numbers for the top photo sites this weekend, another stat caught my eye. Online photo editing site Picnik is also quickly climbing the ranks of photo sites from seemingly nowhere.

In January, according to comScore, the site attracted 6.6 million unique visitors worldwide, a tenfold increase from the year before. On comScore’s list of the largest photo sites, Picnik ranks No. 14, above Shutterfly and AOL Pictures, and just below Snapfish. Unlike those services, however, Picnik is not really a place people store their photos. Rather, it is a place where they touch them up and manipulate them before they post them on MySpace, Facebook, Flickr, Smugmug, or somewhere else.

Picnik is a powerful, cloud-based photo editor that is integrated directly into Flickr, SmugMug and other photo repositories. Competing online photo editors such as Fotoflexer and Photoshop.com (formerly and Photoshop Express) attract only a fraction as many users (1.4 million uniques for Fotoflexer and 760,000 for Photoshop.com.

I asked CEO Jonathon Sposato for more details. He offered that 45 million photos were uploaded in January, and that 45 percent of Picnik’s traffic is direct, 28 percent comes from search engine, and that only 18 percent comes from partner sites such as Flickr and Smugmug. Picnik offers a base version of its photo editor for free, and then tries to convert power users into paying a subscription for more features. While Sposato won’t get into the conversion rate of free to paid members, he says that the percentage is increasing, renewals are increasing as a percentage, and he says that Picnik is now cashflow positive, a little more than two years after launch.

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Just go to MyInauguralPhoto.com, powered by online photo editing software provider FotoFlexer, and pretend you were there, right behind the new president of the United States as he was sworn in.

Can you spot Mike Arrington?

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As I alluded to in an earlier post, online photo-editing applications keep getting better as the competition heats up between startups like Picnik and FotoFlexer. Today, a very large competitor, Adobe, is entering the market by releasing a Web-based version of Photoshop for editing pictures called Photoshop Express. It is in public beta and anyone can sign up.

Photoshop Express is by no means just Photoshop ported onto the web. It would even be a stretch to say it’s a stripped down version of the desktop software, since it’s intended for mainstream consumers, not professionals.

This distinction shows in both what it lacks and what it offers. There are only 17 editing features in Photoshop Express: a tiny fraction of those available with the $650 desktop software. And all of these 17 features are filters intended for tuning and effects – you won’t find any tools for drawing lines, adding text, or creating shapes. What you can do is easily take out red eye, touch up undesirable areas, change saturation, pop color, and crop (among other things).

One of the most innovative features in Photoshop Express is the ability to revert any filter you apply to a photograph. You can do this to a particular filter regardless of whether you’ve made other changes to the photo since applying it. All you have to do is uncheck the particular filter and it will be subtracted from your changes, which are represented in a historical filmstrip with all versions of the photo you have gone through. This undo functionality for particular changes partly makes up for the unfortunate absence of layers, which are so vitally important in the desktop version of Photoshop.

Photoshop Express also differs from its desktop cousin by serving as an online storage and photo sharing service. You can upload up to 2GB of photos to the web app (or pull them in directly from Facebook, Photobucket, or Picassa). They are arranged in a collection that can be made available to others or kept private. Embedding and slideshow functionality is also available.

Adobe has other motivations behind this launch: Doug Mack, the vice president in charge of Photoshop Express, says:

It is a showcase of what is the best that can be done with Flex and Flash. Hopefully, it will inspire other developers. We are also setting up a hosted services platform that we can expand to other products.

So this is just the beginning for Adobe. Should smaller fry like Picnik be scared now that Adobe is, uh, flexing its muscles online? Picnik CEO Jonathan Sposato isn’t too worried. He gives me the classic Innovator’s Dilemma argument:

We don’t envy the challenge Adobe is facing—they have to deal with not cannibalizing a highly successful finished-goods business. Adobe has a business to protect, while Picnik has a business to build.

Okay, but what about Adobe’s massive distribution through its existing products (Flash, Photoshop, Illustrator, etc.). Sposato’s got an answer for that one as well:

Sure, I think their distribution is a great strength for them. And there’s definitely a Windows vs. Mac analogy here. But i think today’s internet is so incredibly efficient that traditional models of distribution may matter less and less. The cost of switching apps for most users is just so easy. They can find new things really fast and try them out.

Hopefully, I am not smoking crack but I do think the marketplace is so efficient that we can compete based ultimately on quality and ‘winsomeness’ of the product (to use a very old fashion word).

No Jonathan, you’re not smoking crack. May the most winsome product win.

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And the Webtop photo editors just keep getting better. Today, FotoFlexer released a completely revamped user interface, making it simpler and more intuitive. FotoFlexer also added a bunch of effects, such as the ability to type directly onto a photo, add animations, and choose from more frames. Once you finish tweaking your photos, they can be posted all over the Web (Photobucket, Facebook, Flickr, SmugMug, etc.)

I made the image above in about 30 seconds. (You can play with it here). The tabbed UI is really easy to use, and there seems to be a lot of effects and layers that you can add. I am not so crazy about the animations, but I think those are supposed to appeal more to young girls. All in all, though, the functionality that is available for a Webtop app is pretty impressive and the new features and functionality should make it much more competitive with Picnik. Which one you use now is really just a matter of personal preference. (FotoFlexer is more tightly integrated with Photobucket, Picnik is baked into Flickr). I like Picnik. Mike prefers FotoFlexer. But as the traffic graph below shows, more people agree with me.

The fact is that FotoFlexer is getting trounced by Picnik. According to comScore, FotoFlexer only had 396,000 unique visitors worldwide in February, compared to 966,000 for Picnik. This new UI could help it turn things around. And just in time too, because a big new entrant to the Webtop photo-editing game is debuting tomorrow (more on that later).

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Starting tomorrow Photobucket will be able to edit images on the service in-browser courtesy of technology provided by FotoFlexer.

The deal, which is highly reminiscent of the one recently struck between Flickr and Picnik, allows for things like resizing, rotating, coloring, decorating, beautifying, and distorting.

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Tools now available to all users include advanced edit tools, special effects, additional fonts and shapes. The service will be ad supported, but those wanting an ad free experience can sign up for Picnik Premium for $24.95 a year.

Why the change? This is how Picnik spins it:

We want to make everyone feel like a photo editing superstar. Picnik is already the world’s leading online photo editor, but there are still a lot of people living tragic, gloomy lives believing that powerful photo editing tools cost hundreds of dollars, come in unopenable boxes, and are impossible to use. By offering an ad-supported version of Picnik, we can make much richer, deeper, and ultimately better photo-editing functionality available to more people around the globe: Photo editing awesomeness for everyone.

The more likely reason: they can afford to do so due to the money they’re getting from Yahoo for the Flickr deal, and in the face of increased competition (both existing and future) Picnik needed to offer more. Still, Picnik was a good package before this announcement, and now it’s better again.

See our February 2007 review of online Photo editing sites here.

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Currently, you can rotate photos on Flickr, but the editing stops there. When the new tools launch, users will be able to edit photos more extensively using the Picnik Flash based tools (see our review here).

The deal has been signed and implementation will occur sometime in the next few months, Flickr told me yesterday. Users will be presented with an edit option on the photo page. Clicking it takes the user to a new Flickr photo edit page, with the Picnik tools integrated via an iframe. After editing, users can add the edited photo to their Flickr account or, if they are a Flickr pro user, overwrite the original.

Business terms around the deal are not being disclosed at this time. Picnik is self funded to date.

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Most of the tools are for creating fun changes to photos (see my previous post on them for an overview), and users can easily pull and push photos to social networks like Facebook, MySpace and Flickr. But it’s also a serious editing tool (it supports layers, for example).

Since their July launch, the company says over 5 million photos have been edited using their tool, from 150,000 registered users on their site and another 275,000 users of their Facebook application.

Today they will announce a few additional editing tools – one serious, one fun. The fun one is a morphing tool that lets you take two photos and morph them into a single image. See this YouTube video for an example.

The second tool takes advantage of some of the recent thinking around seam carving to allow people to intelligently resize photos, and/or remove things in photos without distortion. The video below shows it in action and, as always with seam carving demos, it’s stunning what can be done:

If you’re interested in more information on seam carving, see this working demo, and check out Rsizr (see Go2Web2 coverage).

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The site first launched in July with basic functionality and integration with Facebook. This last week they relaunched a new site with more tools, direct access to your desktop/laptop webcam, and they also now integrate with Flickr, Picasa and MySpace.

Upload a photo, or grab one from a supported service, and edit it by changing colors, adding effects, bulging or pinching areas (to make body parts look larger or smaller), etc. You can also turn any image into a sketch or cartoon. I spent about 10 minutes creating the different versions of the picture to the right (original is top left). The most fun is changing hair color, although the image third down on the left is my personal favorite.

Fotoflexer says they incorporate their own artificial intelligence algorithm to figure out the right way to alter images. And whatever it is they’re doing, it works. You simply point out a few areas of the site you want to remove or alter and it figures out the rest of the pixels pretty quickly. You can do all of this in Photoshop, but it takes a lot longer. And unlike most (but not all) of the online photo editing tools we’ve previously covered, FotoFlexer also supports layering for more complicated image editing.

FotoFlexer also now integrates directly to your webcam and to take a quick snapshot and edit it. Many of the effects are similar to the Photo Booth application that comes installed on all Macs.

The integration with third party services is a great feature as well. Pull down photos from Facebook or another service, alter them and re-upload in a few minutes.

The service runs in Flash and was built on the Flex platform with mostly custom tools. The company has not raised any capital and has 15 employees, all in the Silicon Valley/Bay area. About 50,000 people use their Facebook application and/or the website directly. I expect that number to grow as social networkers discover the joy of turning their pictures into cartoons, or turning their hair color to Fuchsia.

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