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Polaroid, Disruptive Innovation and the stock market
 

Polaroid, Disruptive Innovation and the stock market

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How financial analysts ignored Polaroid's initiatives and praised its film business.

How financial analysts ignored Polaroid's initiatives and praised its film business.

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    Polaroid, Disruptive Innovation and the stock market Polaroid, Disruptive Innovation and the stock market Presentation Transcript

    • Polaroid went bankrupt in late 2001.
    • The shift to digital imaging had removed the company’s profitable sales of film.
    • More about how and why this happened can be found here.
    • Let’s take a look at how the stock market commented on Polaroid’s development throughout the 1990s when there was still a chance of survival.
    • Mary Benner at Wharton has done some great research regarding how securities analysts looked at Kodak and Polaroid during this period.
    • The results are very interesting and will be summarized briefly on the coming slides.
    • Benner shows that analysts basically ignored digital initiatives but praised all products that generated revenues from film.
    • In total, Polaroid launched 20 digital cameras. They were only mentioned 13 times in the 1990s.
    • Polaroid’s first digital camera, the PDC-2000 should have caused quite some attention, but was only mentioned four times by analysts.
    • The PDC-3000 was never mentioned at all even though it won an industry award from the Photo Marketing Association for the “best image/print quality, production level, features and price” .
    • This view stands in sharp contrast to what the analysts thought about Polaroid’s new film cameras.
    • The I-Zone…
    • … The Joycam…
    • … and the Popshots…
    • … are in total mentioned 610 times!
    • These products have in common that they are incremental improvements of the existing film technology and do not in any way address the threat from digital imaging.
    • Analysts were even optimistic about Polaroid…
    • “Polaroid plans to introduce 50 new products... Some of the more intriguing ideas that have captured our attention are a one time use instant camera [and] differentiated film products...” //Morgan Stanley, March 1997
    • “Based on the current trajectory of these new product launches, it’s becoming clear that Polaroid is poised to deliver solid revenue growth over the next several years…” // Prudential, July 1999
    • “We are upgrading Polaroid to Outperform from Neutral based on the company’s new product performance…” // Morgan Stanley, January 2000, less than two years before the company goes bankrupt!
    • Analysts even stated that Polaroid was less vulnerable to the digital threat than firms like Kodak…
    • “Digital Is Nothing but Net for Polaroid… we continue to believe that instant is less susceptible to digital inroads, as the demographic profile of the typical instant camera user is significantly biased toward low-income users.” // CSFB, February 1998
    • “We believe that investors are inappropriately grouping Polaroid’s position relative to digital imaging along with that of Eastman Kodak. In our opinion, Polaroid’s consumer instant business is less vulnerable to digital imaging… consumer applications of digital photography will likely have a smaller impact on the instant photography market than on the conventional photography market.” // CSFB, December 1997
    • “We view the introduction of the C-211 Zoom as encouraging in that it exemplifies Polaroid’s adaptation to the convergence of traditional (silver halide) and digital imaging…Moreover, with several more new products slated for introduction over the next 12 months, the ability to sustain top line growth going forward is enhanced…” //SalomonSmithBarney, July 25, 2000
    • Pretty interesting idea that instant photography would not be vulnerable in the same way because it was an amateur segment.
    • I remember when my friends and I bought our first digital cameras in the early 2000a and took photos of everything, simply because it was fun.
    • A typical Polaroid behaviour of using cameras…
    • … Instant photography must have been much more vulnerable and given the fate of Polaroid this must have been true to some extent.
    • It even seems that the financial analysts were more critical towards Kodak than Polaroid, even though Kodak was much more committed to digital imaging.
    • Ironically, the reason for this might very well be that Kodak cared more about digital imaging.
    • If you care more about it, you’ll talk more about it and this will sooner or later be absorbed by financial analysts, who seem to be very reactive in their way of looking at companies.
    • Once the jaws of digital imaging were opened, things turned nasty for Polaroid.
    • The bankruptcy was a disaster for employees, retirees and shareholders. In the months before this, Polaroid paid in total 6,3 million USD to senior executives…
    • … Polaroid shares were traded at $60 in 1997. In 2001, they were frozen on the New York Stock Exchange at 28 cents. The stock lost 99,5 percent of its value!
    • You would have been right by doing the complete opposite of what the analysts suggested.
    • In the end, it was obvious that Polaroid’s weak response to digital imaging was the main reason why the company went bankrupt in October 2000.
    • But this was not mentioned at all by the financial analysts before it happened.
    • And they were the last ones to encourage or understand the importance of entering this technology in the 1990s.
    • Image attributions
    • Sources: Benner, M.J. (2007). Securities analysts and incumbent response to radical technological change: The case of digital technology in photography. Tripsad, M. and Gavetti, G. (2000). Cognition, Capabilities and Inerta – Evidence from digital imaging.
    • 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@chalmers.se