The Unseen Pattern in Kodak’s Decisions
The story of Kodak’s rise and fall has been well documented globally by Business Magazines, and MBA students alike. While a lot has been said, debated and argued upon by the experts of Innovation Management, there are some interesting patterns that I noticed in its timeline that hasn’t been documented before, hence, I decided to blog about it.
However, given that a good number of people reading this blog will probably not know about Kodak’s fascinating story, I will present some summary data that most other people already know.
A Brief History
Eastman Kodak Company started its operations in 1888, after George Eastman (yes, of the Eastman Color Legacy) acquired the patent for coated film for photography in 1885. Kodak was also the first company to introduce the commercially successful color film, and at one point in time held 90% market share of photography consumables business. Unfortunately, however, Kodak had a spectacular fall in the late 90’s and early 2000’s for failing to quickly adapt to the changing landscape of consumer photography with the introduction of digital technologies.
The story of Kodak’s spectacular failure is not spectacular because a company with more than a 100 years of history failed. The story of Kodak’s failure is spectacular because of why and how it failed, and that its failure was decades in the making.
But before we get into the story of Kodak’s timelines and its decisions, there are a couple of important things we need to understand. One, how film photography is different from digital photography. Two, how the business model is different between the two.
Love Should Be Easy, for Consumers
A typical film photographer would usually purchase a camera that would last for a very long time. More often than not, the camera was almost always relatively cheap. But the journey of that photographer involved 3 prolonged steps.
One, purchase a film roll from a store, load it on to the camera, and click pictures. Two, have the film roll taken back to the store to have it developed. And three, once you reject the obviously bad negatives from the collection, you order for prints and hope that most of them are good pictures. And order for more prints if you want multiple copies. All this, an alarmingly expensive affair.
In case of Digital Photography, however, things are relatively simple. The only prolonged step involved for a typical Digital Photographer is deciding which multi-feature camera to purchase. Taking a picture and storing is as easy as clicking a button. And sharing with multiple people incurs ZERO additional cost.
From a product point-of-view, it is exactly this ease of use that drove consumer as well as professional photographers to quickly fall in love with digital photography.
Razor Blades Vs Consumer Delight
Given these differences in the consumer journery for film and digital photography, the business models sustaining each of these businesses was/is, obviously, different.
Film Photography business was driven by the Razor Blade Business Model. Meaning, the primary instrument didnt really add a lot of margins to the income statement, but the consumables that went along with the primary instrument generated the largest margins. Like the old razor blade sets. This is also how the printer & cartridge market works.
Digitial Photography business on the other hand was driven by maximizing Consumer Delight. Because there were no consumables and the customers purchased the digital camera just once every few years, Digital Camera companies worked hard to make sure their products are worth the customers investment. Which meant more features, better images, frequently new products for the customers. This allowed for faster adoption of Digital Photography among the masses.
Kodak’s Unseen Timelines (The Interesting Part)
While Kodak’s failure for the most part is interesting to its inability to adapt to the changing market forces, and its inability let go of their beloved Razor Blade business model, the most interesting part, however, is that Kodak’s biggest mistakes were made in the exact same year as Kodak’s proudest milestones.
To illustrate, here’s the timeline of Kodak’s last few decades and its most important milestones:
- In 1976, Kodak had a market share of 85% of the Film Camera market and 90% of the Film market.
- In 1981, Kodak reported more than $10 Billion in annual revenue for the first time, a major milestone for a 95 years oldcompany.
- In 1991, Kodak launched its first digital camera, paired with the Photo CD, to stay close to its Razor Blade business model.
- In 1993, George M. C. Fisher was appointed as the CEO of Kodak to bring in fresh ideas and set new strategy in place to handle the changing market dynamics. As part of which he divested from Non-Core Business and refocused on Digital Imaging Research
- Around the end of the decade, Kodak expanded its product line with new digital cameras and other associated products. In 2003, Kodak introduced the Kodak EasyShare Digital Camera, the world’s first printer-and-camera
But in those very same years, Kodak made these spectacular mistakes:
- Kodak, in fact, invented the first Digital Camera in 1976 under a research project, but didn’t pursue to productize it as it threatened the cannibalization of its (flagship) Film Photography business.
- In 1981, Sony introduces its first Digital Camera in the market. However, Kodak simply chose to ignore this and blissfully finds joy that it just crossed the $ 10 Billion revenue. Incidentally, that same year FUJI makes aggressive inroads into US markets and emerges as a serious competitor by winning the Olympics Sponsorship. Kodak is caught unaware.
- In 1991, Kodak was advised by its invention team that they should target their products towards commercial users rather than consumers. And Kodak management chose to ignore this advice. This mistake proved too expensive for Kodak, resulting in sweeping failures of its product lines due to low adoption in the consumer market.
- In 1993, while Kodak did take the wise step of hiring a new CEO to lead the company, however, the strategic mistake made by George M. C. Fisher was excessively diverse persuasion of all aspects of photography. Instead of viewing digital photgraphy as a simple process for the end consumer, or viewing digital camera as the most crucial part of digital photography, the new strategy still pursued the printing, display and other areas that meant very little to the end consumer. It was almost as of George Fisher tried to marry the business of digital photography with the business model of film photography.
- By 1997, Kodak manifested itself as a high-cost manufacturer with a growing portfolio of digital products but earnings quickly plateaued, and then started to decline. Kodak tried its best to embrace digital photography and at one point did have the highest market share even in this space. Yet, it was unable to master the profiteering in this business, because it was too late into the game.
While the culmination of these mistakes resulted in Kodak filing for bankruptcy in 2012, the beginning of its fall was way back in 1975. Almost 37 years earlier. Because that was the year, Kodak’s Steve Sasson, a 24 year old engineer then, invented the digital camera and presented a prototype to his superiors. But the management didn’t believe that anyone would want to watch images on television screens. Nevertheless, Kodak did acquire a patent for the technology in 1978, and didn’t attempt to develop it any further.
One can’t help but look at the timelines and wonder if Kodak’s series of terrible decisions were taken in the shadow of their milestones, driven by a collective sense of infalliability. Bad decision after bad decision, within the recency of good news. Whether or not that was the case, it does make an interesting pattern.