Reasons Behind the Demise of Kodak

pbahra tips a story that goes into the reasons behind Kodak's decline and fall. Quoting: "With digital, a significant shift in mind-set occurred in the meanings associated with cameras. Rather than being identified as a piece of purely photographic equipment, digital cameras came to be seen as electronic gadgets. The implications of this shift were enormous. With digital devices, newcomers such as Sony were able to bypass one of Kodak’s massive strengths: its distribution network. Instead, digital cameras became available in electronic retail outlets next to other gadgets. Kodak was now playing on Sony’s and other entrants’ turf rather than its own. Similarly, Kodak’s brand came to be associated with traditional photography rather than digital."

Comments

So, let them die.

[Geoffrey.landis]

I'm not sure why people think that it wasn't a right and proper thing for Kodak to die.

Kodak's strenght was film photography. There turned out to be plenty of other companies with strengths in digital, why should Kodak have colonized that market? Let them produce the stuff they're good at as long as people want it, then quietly go away. There's no reason corporations need to be immortal.

Re:So, let them die.

[Tharsman]

I am not sure if anyone is arguing to "bail them out" or anything like that, but it is an interesting experiment to try to figure out what exactly went wrong and what way would had it been possible to save the company.

I think in the future, during economy or enterprise management studies; Kodak's history will be deeply dissected and studied.

Re:So, let them die.

[cshirky]

But this assumes that the natural lifespan of a company is infinite. What I think Geoffrey is saying is that when Kodak went out of business, the answer to "what exactly went wrong?" is that nothing went wrong.

Here's an analogy: Imagine I offered you one of two things: 200 millions tons of granite rubble, or a cathedral. Which would you pick?

The cathedral is the obvious choice -- the stone in its raw state is fairly dull, while a cathedral is a spectacular work of architecture, the fruit of countless hours of skilled human effort. The cathedral has value right now, while the rubble isn't good for much without an enormous amount of additional labor.

What if labor was part of the equation, though? What if I gave you a choice between the beautiful cathedral and the chaotic rubble, with the stipulation that, after you chose, it was your job to build a bridge.

Now you want the rubble. Though the cathedral and the rubble are made up of about the same amount of stone, building the bridge out of the rubble will consume all the energy required to build a bridge, but building the bridge out of the cathedral will require all the energy needed to build a bridge plus all the energy required to dismantle the cathedral. For some tasks, it's simpler to start with raw material than with a beautiful structure that has to be dramatically altered to serve your purpose.

Now imagine I offered you one of two things: You have to build a digital photography business, and you can start with Sony, or Kodak. Which would you choose?

The problem Kodak faced wasn't that they couldn't have become a digital photography business. The problem Kodak faced was that the digital business was so different from what they are good at that the restructuring costs were crippling, *precisely because they were perfectly adapted to the previous era.*

Re:So, let them die.

[Tharsman]

I think there is plenty wrong to find in Kodak's history, but not as obvious as many think.

I went deep into another post in this article here: http://tech.slashdot.org/comments.pl?sid=2695641&cid=39177755

There is one common trait that Kodak shares with every single other company out there (and most American households, ironically) and it's that they lived nearly month to month. Unlike households (that tend to just want to enjoy the moment so they don’t save for a year of potential unemployment) most companies don’t like having too much money "burning a hole in their pockets" since they feel every unspent penny is missed opportunity.

They live with barely enough money to pay operational costs for a month or two. If profits go down, they are forced to fire people left and right (why we see investors go crazy for small 2% profit drops.) Some drastic thing happens that changes your market within a year and you will go bankrupt quickly, even if you are willing to adapt or even if you are yourself the first to start such a market trend.

Re:So, let them die.

[Rob the Bold]

I'm not sure why people think that it wasn't a right and proper thing for Kodak to die.

Kodak's strenght was film photography. There turned out to be plenty of other companies with strengths in digital, why should Kodak have colonized that market? Let them produce the stuff they're good at as long as people want it, then quietly go away. There's no reason corporations need to be immortal.

I don't see "people thinking" Kodak should or shouldn't die in TFA . . . more of a postmortem analysis.

Anyway, I understand that there's no reason for corps to be immortal, but most people working at a given firm would just as soon it didn't go belly up right now while they're working there. Even if you're looking to quit a place, you'd rather do it on your schedule than the liquidator's.

A sibling of this comment mentions Xerox missing the boat with the GUI, but they seem to have re-invented themselves nowadays doing OCR and image recognition and document and photo management and analysis. Probably too soon to know if this will work, but they did hang on when their market changed.

Likewise with Kodak, you'd think they could have found other things to do in the photography arena. You've got websites like Flickr that store and share photos, Shutterfly and Snapfish that provide hard copies in formats that an ordinary home or office printer can't produce. Kodak probably should have gotten into those areas, among others. But as TFA mentions, they had such an emotional and physical investment in film they didn't want to let go of it.

And what about Fuji? They do plenty of digital stuff, but you can still buy their film. TFA doesn't mention what they did differently.

Re:So, let them die.

[nightfell]

But this assumes that the natural lifespan of a company is infinite.

No, it doesn't. It assumes the lifetime is indefinite, which is different.

Unlike, for example, humans who live to around 60-125 tops, companies don't have a built-in expiration date (they used to in the US, but haven't for over a century).

What I think Geoffrey is saying is that when Kodak went out of business, the answer to "what exactly went wrong?" is that nothing went wrong.

Nothing went wrong with the market. It did what it's "supposed" to do. The question is what went wrong with Kodak. They didn't do what they are supposed to do.

What if labor was part of the equation, though? What if I gave you a choice between the beautiful cathedral and the chaotic rubble, with the stipulation that, after you chose, it was your job to build a bridge.

With business, labor is always part of the equation. Digital photography and film photography aren't like a building and a bridge. It's like a building and a building. Would you rather have a pile of rubble to turn into a restaurant, or a cathedral to turn into a restaurant?

And stone is much more difficult to rearrange than a company, in terms of labor. It's only harder, potentially, in the mental task of coming up with a solution.

Now imagine I offered you one of two things: You have to build a digital photography business, and you can start with Sony, or Kodak. Which would you choose?

Or Nikon or Canon?

The problem Kodak faced wasn't that they couldn't have become a digital photography business. The problem Kodak faced was that the digital business was so different from what they are good at that the restructuring costs were crippling, *precisely because they were perfectly adapted to the previous era.*

Nonsense. The problem wasn't that they couldn't change, but that they didn't change. Nikon and Canon (and Olympus and Fuji and countless other film-era companies) made the switch just fine.

Just because Kodak failed (or, "is failing" might be more appropriate) doesn't mean failure was the only possible outcome for Kodak. The *film* side of Kodak must fail, but the *camera* side of Kodak was under no such restriction.

Canon

[El Lobo]

That didn't prevent other giants of traditional photography like Canon and Nikon to evolve and adapt to the new era, successfully competing again the new kinds.

Re:Canon

[fahrbot-bot]

I think the difference is, as someone else pointed out, that Kodak was primarily a photochemical (and film) company, whereas Canon and Nikon are primarily camera companies. With the decline of film, came the decline in photochemical usage. As for other photochemical uses, like printers, companies like HP, Brother, etc... have long-standing reputation. As for film itself, I have friends that have preferred Fugi film for many years.

Re:Canon

[Artagel]

Kodak was in the black and white picture printing business since the 1880s. It was in the color printing business by 1835. Hewlett-Packard was not founded until 1939, and it did not start in printers. Brother made its splash in dox-matrix printers in 1971. Kodak could have been far, far ahead of these companies with what we now consider printers. It would have moved in the direction of Xerox and gotten into the printer business. It just did not. It did not ask itself: who is going to cannibalize me, and how do I get in front? Change hit the accelerator pedal, and Kodak was left in the dust.

Another perspective from a pro photographers view

[yodleboy]

read this: A Photographer's Eulogy for Eastman Kodak a couple of weeks ago and it's a good complement to TFA. Among other things, the author recalls a meeting with a Kodak product manager in the early 90's who's response to digital on the horizon was "How do we stop this thing?" He also notes this wasn't the first time Kodak's ego got in its own way. Anyway, an interesting read.

But...Kodak invented digital cameras

[MpVpRb]

From Wikipedia...

1975: Steven Sasson, then an electrical engineer at Kodak, invented the digital camera.

1976: The Bayer Pattern color filter array (CFA) was invented by Eastman Kodak researcher Bryce Bayer. The order in which dyes are placed on an image sensor photosite is still in use today. The basic technology is still the most commonly used of its kind to date.

They also produced the first digital SLRs

http://en.wikipedia.org/wiki/Kodak_DCS

And, their sensor division made extremely high quality sensors for scientific, industrial and consumer cameras.

Makes it even more ironic and baffling that they couldn't make it in the digital world.

Re:Pretty simple

[Tharsman]

They failed to react to changes in their market.

Not true, Kodak actually adopted digital technology extremely early. They ventured into inventing many of the first generation digital photography technologies in association with Apple (and that’s biting them in the rear since now the patents they got from that and are using to sue Apple, among others, are being disputed by Apple as also or exclusively belonging to them.)

What really killed Kodak was the structure. The company had an extremely high profit margin business model in the film arena. So profitable they own[ed?] their own silver mills. When digital photography came to be, and film finally died, a humongous branch of their business died.

The only way for them to survive would have been to axe a gigantic percentage of the company, firing insane chunks of their manpower and getting rid of a lot of physical assets. The problem with such a move with a publicly traded company is that it makes it sound like the company is dying; investors will pull back in a heartbeat if the company suddenly axes over 60% of their manpower (and I’m being generous, they likely would have had to cut back even more.)

Another issue was that Kodak had too many eggs in one simple basket. They did go into photocopiers and printers, but those are two shrinking markets. In fact, now that it’s dying the company finally decided that they may as well axe the entire photography business and stick to printers. At this point they have little to lose since everyone knows they are walking dead. Investors that would had pulled out already did.

Kodak could have expanded in other fields, like computers and displays or TVs, spread their boundaries. This would have made them a bit more resilient to any given branch drying up. Or they could have gone the Apple way and not expand like crazy just because they can, keep a huge stockpile of cash in the bank and not expand operations just because they can afford to, only if they had to. Actually Apple did both. They expanded from computers into music, mobile smartphones, and TV setup boxes (business that is rumored to expand even further) not to mention invent a brand new computing branch with content consumption focused tablets.

So, Kodak did try to adapt, react and even be proactive, but restricted themselves to the familiar grounds (photography) and decided to live (like most companies) using up almost all their income nearly as quickly as they acquired it.

Re:Pretty simple

[jellomizer]

More to the point their Marketing failed to convince their consumers that Kodak was changing with the market.

Right when Digital cameras were getting popular, Kodak should have gone all out in their marketing trying to sell their own Digital Cameras and far more effort on their Printers and such.

The problem with their Printer Campaign was they were trying to sell that they have lower Total Cost of Ownership... It is really tough to sell Lower Total Cost of Ownership, They should have pushed High Quality Images... And TCO is one of the benefits that customers will get later.

Oversimplification

[Comboman]

They failed to react to changes in their market.

That's not entirely true. They saw digital photography coming before most people did (they still have many of the original digital photography patents to show for it). They had digital cameras on the market while Canon and Nikon were still saying bits would never replace film, and Sony was still making cassette Walkmans. Their biggest problem was public perception rather than reality. People still saw them as a film company rather than a camera company.

It's about the film.

[Animats]

What killed Kodak was the demise of the photographic consumables business. They had a 70% margin on film. The margin on photographic paper was probably even higher. And the developing business was profitable, too. All the consumables products had strong repeat business. Digital cameras offered none of that.

Kodak kept trying to somehow attach a consumable to digital photography. They tried PhotoCD, printer paper, and ink. They even tried selling flash memory cards. They bought Ofoto, an early picture-sharing site, and tried to make it a pay service. None of those offered the margins or market presence that film did, and none were notably successful.

Without a consumables business, Kodak had no competitive edge.

The end came when cameras became a component of phones. There was no longer a defined low-end photography business at all.

The Economist did it better

[PCM2]

This article struck me as pretty weak. The Economist has done a series of articles on Kodak and I think theirs were much more thorough and insightful.

Technological change: The last Kodak moment?

Kodak's woes: Out of focus

Kodak files for bankruptcy protection: Gone in a flash

I'm not sure how much of that is accessible to nonsubscribers...

Re:Pretty simple

[Anne Thwacks]

No body is mentioning the fact that they had an image problem - at least here in the UK, they were seen as having started as a low price company, worked their way to raising the prices with improvements in quality, and then ditched the quality while retaining the high prices. Kodak could have done loads of things, but with an image of selling over priced tat, they were probably already doomed. (Like Carly Fiorina and HP).

Meanwhile Samsung has gone from selling cheap tat to top of the range. Who is is making the profit? Is there a lesson here?

Re:Absolutely.

[ZeroSumHappiness]

I think I just realized why we have this derisive and abusive notion that a person who uses a point-and-shoot cameras is "just some dork with a camera." We're conflating the art of photography with the practice of recording an event in a visual format using the science that allowed for both. Unfortunately, these two acts do not have separate words in English so I will coin one now...

Let us call the act of taking pictures to record events "picturing" instead and things become far more clear:
This lets us say: "Casual picturers always regarded cameras as just a do-hickie: a means to an end."

You would be an amateur photographer (yes, amateurs can still be called amateurs even when on a shoe-string budget) rather than a picturer. I am "only" (though to be derisive about such a thing is to misunderstand) a picturer. I have no interest in the art of photography but I would like to have a keepsake to help remember that time I climbed a mountain. However, to call me "some dork with a camera" is unfair to me. It is not my intent to make great art, only to have a memento of the past that I can show others.

So can we stop being pompous jerks about photography so that I don't get chided for having poor composition skills and not understanding what f-stops are for?

Re:Pretty simple

[icebike]

Not true, Kodak actually adopted digital technology extremely early. They ventured into inventing many of the first generation digital photography technologies in association with Apple (and that’s biting them in the rear since now the patents they got from that and are using to sue Apple, among others, are being disputed by Apple as also or exclusively belonging to them.)

What really killed Kodak was the structure. The company had an extremely high profit margin business model in the film arena. So profitable they own[ed?] their own silver mills. When digital photography came to be, and film finally died, a humongous branch of their business died.

I'm not so sure it wasn't failure to adapt after all. In fact, your own description pretty much says it was.

It was a given that film was going to go away fairly early. While Kodak did make some forays into digital photography, they did not lead the charge into a whole new way of doing business. It happened without them. They were not a significant player.

Additionally they ceded the only other remaining aspect of the old methods to HP. They pretty much dropped the ball on printing too.
That previously relied on a silver process, and Kodak simply could not get away from that silver technology in any meaningful way.
So both sides of the company got hit with a new technology, and rather then leading the way, Kodak hung on to the past.

Their only chance for survival would have been to wholeheartedly embrace digital photo printing, where they at least had the chemical expertise, and the possibility to retain a "consumables" portion of the business, in ink, paper, and also devices (printers). But HP beat them in that market as well.

While a dozen companies make photo printers, (even Kodak) they are a huge pain in the neck, the ink is always dried out when you need it, the paper is way too expensive, way too finicky, and the archival quality is abysmal. Few people bother to print family photos as a result.

Sadly lost in all of this is the family photo album, or the shoebox of history. Nobody prints photos anymore. Entire family photo history is lost
to the first hard drive failure, and the one at a time viewing of computer files on a monitor is simply unsatisfying.