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Yesterday’s Behemoth, Today’s Midget

“Once a new technology rolls over you, if you’re not a part of the steamroller, you’re a part of the road” – Stewart Brand.

One couldn’t find a more relevant quotation to elucidate the journey of Kodak, which was once the behemoth of the photo industry. Kodak was an American technology company that produced camera related products. It was founded by George Eastman and Henry Strong on September 4, 1888. Between 1888-1968, Kodak burgeoned in the photo industry seizing over 80% of the market share a but alas, “Nothing is permanent except change”. After a century of dominance, Kodak’s business crumbled and it filed for bankruptcy in 2012. So what happened that a company like Kodak fell from its apogee to nadir?

WHAT WAS KODAK’S BUSINESS?

In the late 19th century, Kodak was the 800 pound Gorilla in the photo industry. It became so dominant that by 1976, 85% of all film cameras and 90% of all films sold in the US were Kodak 1. It specialised in three products: Camera, films and photo paper. It followed the Razor & Blade model 2, a tactic in which one product is sold at a lower cost to increase the sales of a complementary product. Kodak sold its cameras at a very low profit margin whereby the films were sold at a high profit margin. The films were a major source of revenue for Kodak. This high profit margin was one of the reasons that blinded Kodak and led to its downfall. Kodak’s first slogan was, “You press the button, we do the rest” which may not sound impressive today. However in the late 1800s, it sounded like magic. You buy the camera, take a bunch of pictures, send the whole thing to Kodak and they send you the developed pictures. One can clearly see the exemplary business model of Kodak where it was creating huge demand for its films and photo paper just by selling its cameras at low costs.

THE COMMENCEMENT

The main reason for the downfall of Kodak was the introduction of digital cameras and Kodak’s blind optimism. Given that Kodak’s core business was selling films, it is not hard to see why the last few decades proved challenging. Cameras went digital, then disappearing into cell phones. People went from printing pictures to sharing them online.

DIGITAL CAMERA: THE FIRST TURNING POINT

An easy explanation for the decline of Kodak is myopia. Kodak was so blindsided by its success that it completely missed the rise of digital technologies. Do you know which company invented the digital camera? The astonishing fact is that Kodak itself invented the digital camera. Confused? Let me explain. In 1975, Steve Sasson, an engineer at Kodak invented the Digital Camera. The camera was as big as a toaster, took 20 seconds to take an image, and clicked low quality pictures. However, it clearly had the potential to disrupt the market. Kodak invented the technology but did not invest in it and missed the first mover advantage. The board of Kodak was in a dilemma whether a digital camera was the future or not. When Sasson presented his product before the management, their response was, “that’s cute but don’t tell anyone about it” 3. Kodak mismanaged its investments, trying to fight digital cameras by investing in its traditional technology. Digital photography offered the customers a better value but that wiped out a decent way for Kodak to earn money. Although Kodak was at the 2nd position in the US market for the sale of digital cameras, it suffered a loss of $60 on each camera it sold 4.

PHOTOGRAPHY ; DIGITAL TO SOCIAL – THE 2ND TURNING POINT

As it turned out, digital cameras were not the biggest fish in the pond. Smartphones took the world by storm and soon the sales of digital cameras started spiralling down. People went from printing pictures to storing them on digital devices or sharing them on social media platforms. Many years before Facebook came into existence, Kodak made an excellent move by acquiring a photo sharing platform called Ofoto in 2011 5. Unfortunately, as mentioned before, Kodak was blindsided by its high profit earning film business. So, instead of going the Instagram or Facebook way, Kodak used Ofoto to try to get more people to print digital images. Even after comprehending the proliferating digital era, Kodak used it as means of expanding its traditional business. Instead, it should have conceived it as a new business opportunity.

KODAK VS FUJIFILM

“Fighting against wrong competition can kill your actual business” – Dr Vivek Bindra In the 1980s, a Japanese company named Fujifilm came up with a better and low cost production technique and began producing films at a lower cost than Kodak. Fujifilm breached the barrier and entered into the American market, creating disruption with its low cost films. Instead of anticipating the future market and enhancing its products and technology, Kodak started competing with Fujifilm. Kodak was exhausting its resources and research on futile competition. Did Fujifilm also file for bankruptcy? No. Fujifilm anticipated that in the future the sales of films would experience a sharp decline and it took quick actions. Fujifilm shut down manufacturing plants and with the same chemicals and processes, it entered into the cosmetics industry by making chemicals that prevent skin from sagging and fading.

THE BLUNDER OF ACQUIRING STERLING DRUG

In January, 1988, Kodak made another blunder with the acquisition of Sterling Drug for $5.1 billion4. Kodak thought this was a wise investment for two reasons: Firstly, drugs had high margins and secondly, Kodak made chemicals. Unfortunately, those two facts were not sufficient to make this deal pay off for Kodak shareholders. To do that, Kodak would have needed capabilities that it fell short of such as the ability to come up with new, valuable, patented drugs or to make generic drugs at a rock bottom cost. It took Kodak only six years to realize that Sterling Drug was not a good pick and then sell it off in pieces. Kodak’s entry in the pharmaceuticals was a calamitous mistake. Kodak nearly tripled its long term debt when it paid too much for a company that had demonstrated its mediocrity by having very little in its own research pipeline.

CUMBERSOME MANAGEMENT

The roots of Kodak’s problems lie in its fundamental misreading of the future. Instead of approaching the problem deliberately, the company’s management panicked, jumping on its horse and galloping in all directions. Instead of focusing on the core business and devising new ways to cope with the future market, Kodak wasted its resources in fighting futile competitions and acquiring various businesses, overlooking its own potential. Kodak’s rigid corporate culture led it to miss enormous opportunities as well. In the late 1960s the company developed one of the first video-cassette recorders. But it refused to believe consumers would pay for such expensive products and left the market to the Japanese4. In chasing shadows, Kodak neglected substance. It was a leader in consumer and professional films, movie and graphic arts films. These businesses are still growing. If Kodak had paid more heed to its strengths, it would have been at a different position right now. It’s rightly said, “Make hay while the Sun shines”. Kodak failed to do so. In 1984, Fortune ran an article titled “Has the World Passed Kodak By?”4, Kodak’s response? Its management put out a seven paged single-spaced document providing detailed counterarguments to the concerns raised by the journalist about its poor management. The pity of this is, had Kodak acted in time, many problems could have been addressed.

CONCLUSION

Kodak revolutionized the photography industry. It made many remarkable contributions in the field of films, rolls and cameras. They invented the first digital camera in 1975. However, instead of marketing the new technology, the company held back for fear of hurting its lucrative film business, even after digital products were reshaping the market. Blind Optimism, inept management, disruptive technology and inability to anticipate the incoming wave of the digital era were the reasons behind the decline of the photo giant. There were several chances that Kodak had to regain its position in the market but its narcissism acted as a barrier to the opportunities. Kodak tried out new and innovative ventures. However, the trouble lied in its cumbersome management. To keep a company healthy, innovation needs to be a systematic process, not light amusement for those running the core business. Kodak came out of bankruptcy and still exists today, but now they deal in other technologies. Their revenues are much smaller and they still struggle.

Mahatma Gandhi said, “The future depends on what you do today.” Kodak did not take action when it had the opportunity and its future is in front of us. The lesson is subtle, embrace the change and strive to be a part of the revolution because the world is going to change, with or without you.

By Vedant Somani Senior Secondary Student, St. Xavier’s Collegiate School, Kolkata

References:

a – https://www.youtube.com/watch?v=cgOmaaiCIis1 – www.petapixel.com2 – www.investopedia.com3 – www.nytimes.com4 – www.forbes.com5 – www.medium..com
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