Kodak (News - Alert) has agreed to sell its online photo service business to Shutterfly for $23.8 million in an effort to slim down the company’s footprint in light of their filing for Chapter 11 Bankruptcy.

Kodak, the company that once was a near-monolopy in film and recognized the trend towards digital early on, announced a few weeks ago that it would be quitting the camera business due to lack of revenue and sell more than 1,000 digital patents, hoping to gain anywhere from $1 to $2 billion from the sale.

“We view this as a prudent use of capital to further consolidate share and potentially mitigate industry pricing pressures,” said Janney Capital Markets analyst Shawn Milne in response to the announcement of the sale. Milne said Kodak’s revenue would increase dramatically to around $75 million after the sale of Shutterfly.

Shutterfly shares rose 14.1 percent to $30.70 in extended trade following the news. Shutterfly plans on transferring all Kodak Gallery accounts and images to its website, giving customers the option of opting out if they are unwilling to make the move. Mitch Bartlett of Craig Hallum Capital said this sale says more about Shutterfly than it does Kodak.

“For Shutterfly to eliminate of one of the few scale players in the industry for the proposed price of only $24 million appears to underscore the company’s dominance within the industry and financial weakness of its competitors,” said Bartlett.

This move makes Shutterfly a direct competitor with companies that offer similar online storage and photo services like Snapfish, VistaPrint, American Greetings, and other major retailers such as Wal-Mart’s Photo Services and CVS.

Bartlett said this move removes “the threat of a new or larger competitor entering the space through the Kodak Gallery assets,” giving Shutterfly a new advantage over its rival companies.

Apple (News - Alert) is also going after Kodak, saying that the company infringed on patents. Through all of the financial trouble the company has been facing, it has remained adamant that it did nothing of the sort. “All of the patents at issue belong to Kodak, a fact that has been established in multiple prior court proceedings, including at the International Trade Commission,” said Kodak.

Regardless, Kodak is fighting to keep its business a float by selling enough assets to make it profitable, while limiting its services to offer printers only. The company will face Apple in court in a couple of days to defend the patents in question.