It is often said that failures are more instructive than successes. In this spirit, I’ve done a lot of reflection on what went wrong at Fotiva, my previous startup that we sold to Adobe at the end of 2001.

In many respects, Fotiva was a success. We succeeded in building a great team, funding the product development, creating a breakthrough photo-management experience, selling the company to Adobe, and delivering this experience in the context of the Adobe product line. So there’s a lot to feel good about.

From the perspective of building a sustainable company, however, or delivering the returns venture investors look for, it must be admitted that Fotiva failed.

Our focus on was on providing a complete solution that would enable consumers to move from film to digital photography without adding lots of complexity. There were several environmental factors that were in our favor:

• We believed that consumers were about to make a massive transition from film to digital cameras. This indeed happened. A transition of this magnitude seemed like a great opportunity to build a new business.

• People already were accustomed to spending time and money on their photos, and the transition to digital, which was driven by the appeal of the cameras themselves, required consumers to adopt new tools and methods. So we didn’t have to convince people to take on an entirely new activity, and we didn’t have to be the driving force in causing them to make a change.

• Existing imaging software was largely focused on editing, whereas the major need of consumers was to collect, find, and share their photos, which is where we focused.

Sounds like a great setup, right?

The immediate problem, which led to the sale of the company at a modest price, was that completing a second round of financing in the fall of 2001 was impossible, despite having a nearly completed product and a great executive and engineering team. In a less hunkered-down investment climate, I believe we would have been able to complete this financing round. The venture community was licking its wounds and trying to salvage companies in which it had large investments, which made it almost impossible for young ventures to raise money.

There were, however, deeper and more enduring challenges that would likely have limited the company’s potential even if it had been funded. These issues also constrained the future of Fotiva’s software within Adobe.

The most fundamental issue was this: given an even marginally usable solution for free, most consumers will never look for a better one.

When Fotiva’s software was released, in evolved form, as Photoshop Album, Adobe was able to make only a moderate success of it, despite the huge draw of the Adobe name. There’s a lot that I think Adobe could have done to make it more successful, but the biggest problem was inherent in the market.

Once someone reached the point of considering purchase of a piece of photo software, many (if not most) would purchase Photoshop Album. The product won the category, such as it was. But the overwhelming winner in the category was nothing—at least nothing that wasn’t free. The vast majority of people simply used the capabilities built in to Windows XP (or iPhoto on the Mac), or the software that came with their camera, or other free solutions (most notably Picasa). While annual sales of digital cameras skyrocketed, sales of digital imaging software remained relatively stagnant.

In addition, we found that convincing people of the superiority of our approach was tough. Changing entrenched habits is very hard. Once users became accustomed to working with their photos as native elements in the file system, it was challenging to convince people of the merits of the database-oriented approach. To be sure, there are downsides as well, and there were some problems in execution, but nevertheless I believe far more people would benefit from this approach than were willing to adopt it.

I took from this experience these lessons, among others:

• Providing a superior solution to a real problem at an affordable price isn’t enough to capture a market, even with a great brand on your side. If there are adequate free solutions, it is very hard to sell a superior solution in large quantity.

• Even if users have a real problem, if they don’t perceive that it is a problem that better software could solve for them, there isn’t much of a market. Having the best user interface means nothing to people who never give it a try.

• A great piece of software doesn’t necessarily create a great business. In most cases, consumers simply don’t consider buying software. And service revenues, while attractive in theory, can take a long time to develop to substantial levels.