Here's an interesting article from AP on Kodak's new tie-up with HP to produce digital photo machines to be installed in retail stores, you simply drop off your memory cards (or other media one assumes) and get much higher quality prints than can be achieved at home. The catch? a 4"x6" will cost you 75 cents, considerably more expensive than online photo finishers.

Here's the full article:

Kodak Launches Digital Film Service

By DAVID E. KALISH AP Business Writer

NEW YORK (AP) - Eastman Kodak Corp., facing a growing Internet threat to its lucrative film business, plans a new service to encourage users of digital cameras to go to stores to process prints rather than doing it at home.

In a joint effort Thursday with Hewlett-Packard Co (NYSE:HWP - news)., Kodak will build new digital photo machines and install them in a range of retail stores. Picture takers can go to participating outlets, drop off memory cards from their digital cameras, and get higher quality prints than they can expect from home printers.

The venture, which won't be introduced until next year, helps address a main complaint about using digital cameras - that the quality of photos printed on typical home printers doesn't even come close to regular film.

``One of the advantages of digital photo finishing will be great pictures,'' said Robert Keegan, president of consumer imaging at Kodak.

Analysts say Kodak's move is an attempt to preserve its profitable film development business while also acknowledging the risk posed by new Web companies that offer convenient and cheap online services for processing digital photos.

The startups, launched in recent months with names like Shutterfly and Snapfish, let users simply zap their digital photos from a personal computer to the site, get them printed, and then mailed to them - without driving to the local store.

These Web sites answer the same complaint Kodak addresses - but also are more convenient and often cheaper than developing film at a retail photo processor.

``The ability to have higher quality photo finishing is far more convenient to do online than driving to a store and picking it up,'' said Rob Enderle, an analyst with the Giga Information Group research firm.

Kodak ``is trying to apply the old paradigm to the new model. But the new model favors electronic delivery,'' Enderle said.

Digital cameras still haven't reached mass market acceptance, with most users being photo professionals, hobbyists and technology aficionados. But the market is rapidly expanding as prices drop for high-quality digital cameras and printers, and as convenient Web services catch on.

About 4.7 million digital cameras were sold worldwide last year; unit sales should increase nearly fivefold to 22 million by 2003, said the International Data Corp. research firm.

Users are attracted to the ability to quickly download digital photos to the Internet and zap them to friends, families and co-workers. Images from traditional cameras must be scanned in before they can be sent to the Web.

Kodak has a piece of the growing digital camera market, but is hardly dominant. It ranked a distant second in U.S. sales of digital cameras last fall, with 20 percent of shipments, behind Sony with 35 percent, according to International Data.

Meanwhile, Kodak is trying to maintain the loyalty of the millions of consumers already accustomed to going to the store for photos. ``You have an installed habit that's out there,'' said Riley McNulty, an analyst with International Data.

Kodak is moving tentatively into the Internet arena. Last year, the Rochester, N.Y.-based company launched its own Web site, PhotoNet Online, where users also can get prints of digital photos mailed to them, but the feature was tough to locate Thursday when a reporter tried to click to it.

And the option is more expensive than some other Web services, with photos costing up to three-and-a-half times more than ones sold at Shutterfly.com.

On Kodak's site, a 4-by-6 photo costs 75 cents, but only 49 cents on Shutterfly. Kodak's 5-by-7 lists for $3.65 but only 99 cents on Shutterfly. Shutterfly also is offering a promotion for people where they can 200 prints for free.

Kodak stressed that the new equipment it will sell to retail outlets will cost less than the $80,000-$100,000 machines currently in use, encouraging more retail stores to install photo development machines and thus providing consumers more outlets for dropping off film. About 35,000 stores currently develop film, Kodak says.

Kodak and Hewlett-Packard said their joint venture will generate sales from $500 million to $1 billion by 2005, but declined to give specifics.

Stock prices of both companies rose 3 percent on the New York Stock Exchange Thursday amid a market rally in technology shares. Kodak rose $1.621/2 at $63.121/2, and Hewlett-Packard rose $2.933/4 at $113.50