Digital Imaging and Kodak's Strategic Mistake

It is striking how Kodak has suffered since the rise of digital imaging.

The stock declined from around 80 dollars to 3 USD in less than ten years. The company employed 140 000 people in 1988 – today around 20 000.

I have argued before that much of this decline was inevitable and that Kodak did more than many other film companies in order to meet the digital challenge (read more here).

But surely, they must have made some mistakes, right?

Of course they did, everyone does. But since we’ll never know the alternative outcomes it’s difficult to point out those mistakes.

Nevertheless, I will provide a few highly unscientific thoughts about this issue.

The wild diversifications that took place in the 1980s put Kodak in a lot of debt.

One consequence of leveraged heydays was that less resources were available to fight the global film war against Fuji.

This in turn implied that the company was financially weaker once the revolution came into motion.

But that’s not directly related to the firm’s digital strategy. Kodak’s attempts at various ’hybrid’ cameras might also have been a mistake.

While Kodak invested heavily in digital development, the company also sought to launch products which were both digital and analogue.

By doing so, the company could sell more film.

And film generated profits.

Historically, Kodak had for many decades only developed and launched new cameras in order to generate more sales of film.

To some extent it seems that the company tried to make digital technology a new way of generating higher film revenues.

This way of thinking may help us to understand why the CEO Dan Carp made the following over- optimistic statement in 2000:

"Kodak is convinced that there has never been a better time to be in the picture business…. Digital can change the way people take and use pictures. Suddenly there are no boundaries to how often you can take pictures because cost and availability are no longer issues."

Let’s take a look at the various hybrid initiatives Kodak launched in the 1990s…

Kodak made huge efforts developing the APS (Advanced Photography System) which they branded as Advantix and launched in 1996.

The system was essentially a hybrid which could transfer film into digital image files.

The Picture CD was launched in 1998 and enabled transfer of images captured with film to digital image files.

’You’ve got pictures’ was co-developed with AOL and launched in 1998. This system gave consumers the opportunity to drop film rolls off and have them delivered to their AOL email address.

PhotoNet was another initiative that can be considered similar to ’You’ve got pictures’.

These products and services had in common that they sought to increase the value of using Kodak’s film.

Most of these hybrids faced a sharp decline once digital imaging started to grow rapidly in the early 2000s and they were launched in the late 1990s…

It is of course hard to tell whether the revenues generated before the revolution compensated the R&D money that was poured in during the 1990s.

And it’s hard to say whether spending that money on pure digital products would have been a wiser decision.

However, it is striking how rapidly the digital imaging market moved away from hybrid products and removed film consumption. Hasselblad launched a hybrid camera in 2003, soon after that it became clear that no one wanted a hybrid, but rather a fully digital system and the company got into a lot of trouble (read more here).

Bearing this in mind, along with all R&D that was spent on hybrid cameras, this might have been a strategic mistake by Kodak.

If that is the case, it would be a very understandable mistake.

Kodak had been a film company for a century.

It knew film and had made fantastic profits from this for very long.

The decline that took place must have appeared as unreal for a lot of people at Kodak.

Moreover, it was much easier to regard digital imaging as an add-on, since Kodak’s existing resources were related to capitalizing on film.

Those resources lost virtually all their value in less than a decade.

Summing up: it might have been a strategic mistake by Kodak to partly regard digital imaging as a way to leverage upon its film business.

Image attributions

Christian Sandström is a PhD student at Chalmers University of Technology in Gothenburg, Sweden. He writes and speaks about disruptive innovation and technological change. www.christiansandstrom.org christian.sandstrom at chalmers.se

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Digital Imaging and Kodak's Strategic Mistake

by Chris Sandström on Sep 13, 2009

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Digital Imaging and Kodak’s Strategic Mistake — Presentation Transcript