The potted history of Kodak is that they democratised photography for 100 years then ignored the importance of the digital camera, something they themselves invented in the 1970’s then abandoned less it cannibalised their lucrative film business. But this that a fair narrative and was the demise of Kodak the consequence of poor strategy? Authors have suggested that Kodak did not take the competition from Fujifilm seriously, inflexible, did not fully embrace digital, were complacent and avoided creativity. But how did these factors play out and would we have done things differently without the benefit of hindsight?
Imagine yourself in the Kodak boardroom. The year is 2000, and new CEO Daniel Carp has been appointed. you made $1.3b profit. His new strategy will focus on commercial printing, display and components, health imaging, digital and film imaging systems, and commercial imaging. Partnerships and acquisitions will be needed to refocus revenue away from imaging so the strategy will take time and energy.
The “Kodak moment” has been part of the language since 1961 and Kodak specialised in simplicity. The move to digital for Kodak started in 1990. You manufacture the Apple Quicktake camera, your subsidiary Eastman Chemicals is a Fortune 500 company in its own right and you have made an assessment of digital cameras. You are already the second-largest manufacturer behind Sony, but recognise that digital cameras are poor for taking snaps. The marketing of Kodak made it every mum’s duty to be the archivist of their children’s growth, making the 4″ x 6″ glossy photo key to sharing memories with the family.
Soon you will start work on the groundbreaking Kodak EasyShare LS633 which came with a bespoke print dock. This will suit the Kodak “razors and blades” model in which the profit would come from consumable sales not the hardware, analogous to film. That business model, known as the “Silver Halide” model within Kodak, had worked for 120 years.
The strategy in 2000 may have made perfect sense. Continue investing in the domestic digital image proposition (by which I mean cameras, printers, file sharing, ink and storage) and plan for a gradual wind-down of film. The move to digital is not cost-effective for most American households and will therefore take some time, Film sales are rising and Kodak is a leader – they account for 72% of revenue. Digital camera sales are rising too and Kodak have a strong play based on sound research and market presence. The cliff-edge seen in the graph below would have been unpredictable.
2000 is a pivotal year. By 2005 the company makes a $1.3b loss – it made a $1.4b profit in 2000 and the stock price was double. Five years of litigation, factory closures and job losses follow. In January 2012 Kodak filed for Chapter 11 bankruptcy protection, with the writing on the wall by 2010 when shares slumped to $5. Given the size, structure and investment life-cycle of Kodak, 2000 was really the last chance to transform the company. But why should the boardroom change strategy when it had committed to investing heavily in digital cameras and would go on to manufacture several world-first over the next decade? There are some missing facts.
Making colour camera film is a very complex process with a lucrative Fujifilm and Kodak quasi-duopoly. Making a digital camera is more like an assembly job, with low-cost entrants able to undercut US corporates. Kodak were manufacturing in the US and loosing $60 on every camera they sold. For the strategy to make sense, Kodak needed large cash reserves (which they had) and to make their profit from printing (which was likely if the world kept printing photos). It all fell apart through a combination of outside forces and a reluctance to revisit and change strategy.
The collapse of film sales reflected a change in the role of images and cameras in society. Before the internet became ubiquitous, home photography was about “preserving memories”. Most cameras were simply point and click. Then a combination of technological opportunities led to a sociological shift over just a few years.
Digital cameras are gadgets that need to be integrated with the PC and technologies which are ubiquitous today but were still emergent in the home market in 2000 like email, blogs and photo sharing (social media and camera phones were to follow later). Men were now the family photographers and the driving force was “sharing the moment”. The Kodak assumption that no one would want to look at a photo on a screen was proving wrong and the imperative to print was eroded faster than anyone could have imagined. By 2008, Nokia sold more camera phones than Kodak sold film-based simple cameras. The majority of images were never printed.
What are the takeaways? Kodak was a one product company, selling ways to preserve memories on paper, as it had been doing since the 1880’s. Fuji was far more diversified and then diversified more by making cosmetics (it knew a lot about gel technologies), LCD screens (it knew about thin film technology) and healthcare. Kodak may not have seen itself as a one product company, but financially it was and that contributed to an inability to absorb change. Today we might draw a parallel between Fuji and Google or Amazon.
Above all though the Kodak strategy was not reviewed frequently and did not react to rapidly changing customer demands. Instead it created a false synergy in thinking, quite understandably, that mass-market film photography and digital photography met the same customer need where printing is key.
Kodak tried hard to change but placed the wrong bets. It was a time of radical uncertainty, and Kodak management did not fully recognise that photo printing would change beyond all recognition. Today Kodak provides packaging, functional printing, graphic communications and professional services for businesses around the world and is trading profitably on NYSE. But is it a fraction of the size it was in 2000.