After raising a total of $11.2 million since its founding in 2005, Tiny Pictures sold to Shutterfly on Friday for $1.3 million in cash and another $1.3 million in restricted stock to employees, which has some performance triggers. If you back out the earnout, investors only got back about a tenth of what they put in.

Those investors include Mohr Davidow, Draper Fisher Jurvetson, and angel investors Reid Hoffman, and Joi Ito. The company’s last venture round was $7 million led by Draper Fisher in February, 2008. But Mohr Davidow, which held preferred shares, might have been the only investor to see any of those proceeds at all. Shutterfly disclosed the acquisition in an SEC filing, which only mentions Mohr Davidow as a recipient of some of the $1.3 million in cash.

It also mentions that Nancy J. Schoendorf, a managing partner at Mohr Davidow, sits on the boards of both companies. Although she did not vote on the acquisition, the connection raises the question of whether or not Mohr played a role in bring the deal to Shutterfly in the first place.

Tiny Pictures operates Radar, a mobile photo sharing app which never got a lot of traction beyond a core following. The service is actually pretty slick, centered around a photo commenting stream. You snap photos with your mobile phone which instantly is shared with your friends who also have the app. They can then comment on the photos.

It sounds simple enough, but the app never achieved a critical mass of users. The service is focused more on sharing life moments through photos with people you actually know than creating a public photo stream. So if you don’t know anyone who uses it, there is little reason to join yourself. The friends-and-family aspect must have appealed to Shutterfly, however, which is based on exactly that type of picture sharing. It already has a rich database of people who like to share photos with one another. Radar helps them extend that to mobile phones in a social and fun way.

Update: Tiny Pictures CEO John Poisson confirms that he will remain with the company at Shutterfly as VP, Tiny Pictures. He says that Mohr did not broker the deal in any way and that other preferred shareholders, including Draper, Hoffman, Ito, and himself, also saw some of the proceeds of the sale. As to what he’ll be doing at Shutterfly, he is kind of vague, but it has something to do with mobile social media, sharing photos, and self-expression.

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Shutterfly, an online photo sharing and printing site, is adding video capability to its photo sharing sites. Shutterfly is using video hosting site Motionbox to power its video sharing service. So when you upload a video to your Shutterfly Share site, it will also be stored in your Motionbox account. If you upload to Motionbox directly, you will be given the option to post your video to your Shutterfly Share site.

Users can also share videos to social networking sites including Facebook, MySpace, Twitter and Blogger can upgrade for unlimited video storage and HD-quality playback. The free account is a little limiting for storage—you can only upload ten video clips. For $30 per year, you can have a premium subscription which allows higher file size limits, unlimited video downloads and HD-quality playback.

I’m assuming that Shutterfly will monetize the addition of videos by offering customized DVDs of clips. Currently, the company offers users a variety or printing services where users can not only print their photos, but also create cards, mugs, invitations, apparel and more with photos emblazoned on each item. But I’m not sure how else Shutterfly can make money off of the video component.

Shutterfly, which IPO’d in 2006, is playing catch up to other more popular photo sharing sites, like Flickr and Photobucket, which both host video as well as photos. Even Facebook is becoming the go-to destination to share photos and videos. But Shutterfly, a vestige of the dot-com boom and bust, has managed to survive, despite being in an ultra competitive space that’s chock full of similar offerings and products.

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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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Born in 1999, Shutterfly is a survivor of the last bubble and crash. Now it’s an interesting case for considering other possible valuations. It also gives us a chance to look at what a company with a successful IPO took to market. For comparison, Flickr is rumored to have been acquired by Yahoo! for $30 to $35 million.

After J.P. Morgan, Piper Jaffray and Jefferies sold 5.8 million of Shutterfly’s 23.6 million shares, the company ended the day with a market value of more than $350 million. With about 200 employees it had just under a 34% net profit margin on about $84 million in revenue last year. The company has taken $67 million in VC backing to date. NetScape co-founder Jim Clark, and Shutterfly board chair, bought about 30% of the stock sold today.

In a time when IPOs are among the least common liquidity events enjoyed by Web 2.0 startups, for a photosharing site to remain independent and go public is interesting relative to all the startups we profile here.

Shutterfly is a company that has lots of overhead, faces price cuts from competitors and has no shortage of small startups seeking to edge into its market. It makes much of its revenue from shipping and faces questions around scalability. There’s some interesting analysis over at MrWaveTheory.

While Shutterfly offers more than 150 print and DVD products, photo to print startups like OneTrueMedia, Tabblo and Scrapblog offer more sophisticated design capabilities, more viral online distribution and in some cases prominent media partners. Most photo sharing sites online now allow users to print or burn to DVD their archives, though few of them base their entire business model on printing as Shutterfly does.

What does Shutterfly offer in user experience? A product that clearly appeals to mainstream users.

• Unlimited free storage.
• Good bulk uploaders for both Windows and Mac (though not Intel Mac).
• Public and private albums.
• Group collaboration on shared collections.
• Clean URLs, comments on photos, basic crop, border, red eye removal and color change effects.
• They’ve also got business solutions for resellers.

Its primary competitor, HP’s SnapFish, offers much of the same feature set plus mobile upload by email.

I find everything but site navigation pleasing in Shutterfly. My one complaint as a user is that it doesn’t offer tagging. Album navigation means that one photo can’t be found in more than one group. There’s a reason tagging has caught on recently – it’s really useful and makes an group of pages much easier to move around in.

Will the company succeed now that it’s gone public? It’s hard to say, given even its own concerns about overhead, price competition and an increasingly diversified market. You can’t say that Shutterfly is standing still, though. This new infusion of cash, the contemporary features that it does offer and its already large user base certainly look good.

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