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Graphita launched their Live Studio product just about a year ago. The idea behind Live Studio is to make photos more fun by adding a variety of options to them.
I’ve posted an image below using the very popular Sanjaya from American Idol. The tool is easy to use, and there are a variety of options. Basically you "paint" on the selections. There are doodles, captions and objects.
The Graphita team is working on importing from many of the popular photo sharing services. This should help with the ability to grow the service quicker than with individual uploads. The key is to make it seamless: import photo, edit photo, upload photo with new name, go to new photo page and share.
The tool works well but I wonder if it’s too serious looking. When you load the site and the Live Studio application, it should scream fun and enjoyment not serious and "Photoshop replacement". I would love to see them test a more fun version of the Live Studio and see if it improves the user interaction. Also, with the site completely built in Flash, they lose the ability to capture any search engine optimization along with any social media networking. For example, there is a gallery but there’s no way to share the images or create "best of" lists that could be duggalicious.
Check out Frank’s review of the tool when it originally launched.