Kodak's travails provide multiple lessons
Markets and technologies that once looked as though they would last forever sometimes do not.
Bill Schweber, Contributing Technical Editor -- EDN, February 2, 2012
You’ve undoubtedly seen the news that legendary company
Kodak is in serious trouble. On Jan 19, the iconic
brand filed for bankruptcy; it is down to just 20% of the
employee count that it had a few decades ago. The company
hopes to sell off a major part of its patent portfolio
to raise some cash.I neither lament the situation nor criticize past or current management. Plenty of commentators and pundits are already doing that. What bothers me is the number of after-the-fact geniuses who now say what a company like Kodak should have done. The most common refrain I see is along these lines: Kodak invented the digital camera but couldn’t make a business of it. I’m not sure what “invented” means in this case, but it is true that the company has many digital-camera patents.
Sorry, folks, this line of reasoning
just doesn’t make sense to me. First, just
because you invent something doesn’t
mean you are in a position to profit
from it. More important, Kodak based
its entire business model on repeat sales
of consumables, including film, processing,
and associated chemicals—in other
words: blades rather than razors.Even if Kodak had somehow designed a market-winning digital camera, what would the business model look like, and where would the profit lie? The cameras would have been made in a contract factory, and, although Kodak would have received a small cut, it would have been for a one-time purchase. Once you had a basic camera, you wouldn’t buy anything else from the company.
The lesson is that disruptive technologies truly are so, and most companies can’t—or shouldn’t—make that transition. In the electronics world, for example, only a few vendors of vacuum tubes made it into the transistor world, and only a few of the transistor companies made it into ICs. Such is change.
Not that long ago, the commentary-and-pundit class was worried—and fearful—that, as we entered the 21st century, IBM and its PCs running on Intel CPUs with Microsoft Windows operating systems would dominate. So where are we now, smart folks? IBM is out of the PC business, and both Intel and Microsoft, though still major players, face tough competition in both CPUs and operating systems for new smartphones, tablets, and embedded products.
Take heart, though; it’s not just technology companies that can’t face change. The latest numbers on movie-theater revenue for 2011 show that overall ticket sales were 5% down to flat compared with those of 2010. When you factor in the increase in ticket prices, however, theatergoer numbers were down 5 to 10%. Industry analysts say that the films may have been low-quality or that the weather was bad—always a convenient excuse.
I can’t discuss film quality because
it’s a subjective topic, but many average
people now have big, high-definition
screens with surround sound at home
and think it’s crazy to spend $10 or more
per ticket, plus those outrageous snack
prices, to sit at a specific time with a
bunch of noisy people chatting on their
phones. At home, you can take a break
at any time during a movie. Maybe the
movie industry—and especially the theater
folks—should stop believing that
people will always want to go out to
the theater and realize that things have
changed in so many ways.Markets and technologies that once looked as though they would last forever sometimes do not. The future is difficult to predict, and business has birth, life, and death cycles. So, before you put all your money into Facebook or Google, think carefully about the lessons of our industry and change.
Bill Schweber is the editor of Planet Analog and Power Management Designline, both on the Web site of EE Times, a sister publication of EDN. Contact him at bill.schweber@ubm.com.
Talkback
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Thank you for a thought-provoking article. It goes to the heart of a business' strategy and as to whether or not they can avail themselves of opportunities and innovate accordingly.
Frank Joel - 2012-12-2 11:23:26 PST -
Disagree with the fatalistic attitude. The entire article is don't even try, accept it because it can't be done.
For a small company like Apple, is very difficult to go from computer to entertainment and cell phone, but it can be done. For a giant like Kodak with infinite resource is just a matter of if you want to.
Reminder that in mid 90's Kodak was one of the first to sell digital camera. Remember the piggy back behind Canon SLR. They already have the digital technology. Could have easily bought Carl Zeiss. Then when they made consumer cameras, the were as ugly as you can possible make them. Pretty sure film division forced them to do it.
Don't forget, Nikon and Cannon could have been gone just as well if they didn't jump on the wagon. They have no digital experiance unlike Kodak. Sony with zero camera experiance made it to shore. They used Carl Zeiss lense. Their cameras are great.
As for film being a consumerable, camera are just as much disposable. People buy new cameras all the time and throw away the old ones.
With such an advantage and yet failing so bad, Kodak is will always be a classic example of incompetance.
Ben - 2012-6-2 12:07:18 PST -
My particular brand of advice on "what they should have done" runs like this: The instant they realized digital was poassible (not taking over, simply a working technology) they should have started working on the issues of image processing, image recognition, image compression, etc. They probably did some of this as participants in industry standards groups. However, they should have been a competitive actor in that space, which would have mushroomed as the technology evolved.
Meredith Poor - 2012-3-2 16:12:06 PST -
Most comments are about consumer applications of Kodak products. Kodak is a multi-faceted business that was dominant in the medical field also. Specifically in the areas of Radiology and Cardiology. Arriflex made the cameras in Europe and they were 35mm and 70mm.
Now the film they used started out being aerial photography films like one called "Shellburst". That was a Kodak product. As time passed the films became more advanced and became a complimentary product to the sheet film that you see on TV with the doctors flipping a patients X-Ray onto a wall mounted light box.
Now as film went to digital on the consumer side, also went the medical applications of film. Nowadays everything is captured digitally, routine chest X-Ray's, Cardiology dye injection sequences, etc..
With the lower cost of computers, and the Internet, these images are available instantaneously to any location worldwide.
So you see, this downward trend of Eastman Kodak started years ago. The digital consumer camera was not the only issue. It was just the final"Tip of the Iceberg" that is taking their business down. Your analogy of IBM's PC downfall says a lot. But, their core business remains intact which is the mainframe computers that power a lot of aspects of business. They had something to fall back on. Kodak has only their patents to fall back on.
John Paul Guckel - 2012-3-2 11:51:11 PST -
Bill Schweber said it right when he stated that Kodak’s business model was on selling the consumables, rather than the camera. Using that model successfully for over 100 years resulted in a culture that could not adapt to making their main income from selling only the camera – a one time purchase. Had they been the pioneer in photo quality ink jet printing – locking it up in patents or simply dominating by getting there first would have probably allowed them to make the transition to digital. But that would have been tough to do. Nobody envisioned ink jet technology being used for photo printing when it was originally developed – originally as method to proof press ready copy with the correct fonts before it was sent out for typeset. By the time someone thought that the same technology could produce high quality photos, it was developed too far for a new player to enter and dominate it.
Steve Sekel - 2012-3-2 09:13:55 PST
