Earlier this week, Shutterfly Inc. (SFLY) bought Tiny Pictures for $1.3 million in cash and another $1.3 million in restricted stock with some performance triggers to employees. The acquisition will help Shutterfly to expand its mobile offerings by using Tiny Pictures’ mobile expertise.

Tiny Pictures has been facing tough competition from the flurry of photo sharing sites on the Web in recent years. Investors Draper Fisher Jurvetson, Reid Hoffman, Joi Ito and Mohr Davidow Ventures expect the company to produce very low returns going forward. Since its inception in 2005, Tiny Pictures has raised $11.2 million in two installments.

Tiny Pictures runs a site called Radar.net, which allows mobile sharing and is integrated with Twitter, Facebook, Flickr and other social networks. Shutterfly wants to apply some of these social media features to its own service.

After buying publishing service Nexo Systems for less than $15 million last year, Shutterfly reported a 10% rise in second-quarter sales this July. Earlier this year, it also partnered with Adobe Systems Inc. (ADBE).

Tiny Pictures CEO John Poisson will join Shutterfly as Vice President, Tiny Pictures.

Shutterfly is a leading provider of Internet-based social expression and personal publishing service. With its broad range of leveraged technology, manufacturing, web design and merchandising capabilities, Shutterfly enables its customers to share, print and preserve their digital photographs.

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