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THAT KODAK MOMENT
By William Terdoslavich
Too narrow a focus.
Once upon a time in America, every photograph ever taken had something to do with the Eastman Kodak Company, popularly called Kodak. It was a company so well-known that it could stand beside motherhood, apple pie, and Coca-Cola.
Chances were good that every family photo was taken with a simple Kodak point-and-shoot camera, loaded with Kodak film, processed with Kodak chemicals, and printed on Kodak paper.
Kodak lasted over a century. It had a brand name once as recognizable as McDonald’s. It was once a Fortune 500 company. Its stock was one of thirty that made up the Dow Jones Industrial Average. But now Kodak is just a footnote in business history, a name hardly anyone has ever heard of.
What happened?
Just Press the Button and Leave the Rest to Us
In America, an inventor is usually some guy who looks for a better way of doing something, because the present way sucks. George Eastman was one of those guys.
He wanted to take pictures of his vacation trip to the Dominican Republic—back in the 1870s. That meant lugging a huge single-shot camera that used glass plates instead of film. Everything was heavy.
Eastman thought this was stupid. So, like anyone inconvenienced by current technology, he looked for a better way. He started by replacing that glass plate with a sheet coated in light-sensitive gelatin. When somebody else invented film, Eastman coated it with his patented goo and camera film became a product.
In 1888, Eastman changed the name of his company to Kodak. He just liked the distinctiveness of the letter K and made up a name that sounded right, but meant nothing.
Eastman turned out several cameras that used his film, but really struck gold when he went to market with the “Box Brownie” in 1900. The camera came preloaded with a hundred-shot roll of film. You sent the camera back to Kodak for processing, and your developed pictures came back with your camera, reloaded with another hundred-shot roll of film.
“Just press the button and leave the rest to us,” Kodak once advertised.
It worked.
Betting on a Chip
Kodak spent the rest of the twentieth century coming out with new film formats and new products—personal movie cameras (and film), color slides (and slide projectors), film packed in preloaded cartridges that went into cheap point-and-shoot cameras (the Instamatic).
By 1976, Kodak sold 90 percent of all camera film in the United States, as well as 85 percent of all cameras. It was taking in $10 billion a year by 1981. By 1988, Kodak employed over 145,000 people. The company even made X-ray film and cornered the market for that, too!
But Kodak was the mighty dinosaur that took no notice of the little mouse nibbling at its toes. That mouse was the Charge-Coupled Device (CCD), a light-sensitive chip invented in 1969 by George Smith and Willard Sterling Boyle at AT&T Bell Labs.
By 1973, the CCD found its way to Kodak’s lab at corporate headquarters in Rochester, New York. A young twentysomething engineer named Steve Sasson was told by his boss to find a practical use for the chip.
Sasson scrounged a lens from a Kodak Super 8 movie camera, with the CCD mounted right behind it. He slapped together six circuit boards for the electronics, linked to a digital/analog converter. The portable cassette tape recorder would store the data. Sixteen nickel-cadmium batteries powered the system.
When Sasson demonstrated the first digital camera, it snapped an image in less than a second. But it took twenty-three seconds to record the digitized image to the tape cassette, and another thirty seconds to play back the data and display a 100x100-pixel image on a black-and-white television.
The executives at Kodak were not impressed.
Film Works
Kodak practically owned the American market. Close to 100 percent of its revenues came from camera film and everything that revolved around it. Why stop a machine that is printing money?
Vince Barabba, head of Kodak’s market research unit, glimpsed the future in 1981. He studied the existing film business and knew that the digital camera could only improve with time. So he told his bosses he had good news and bad news. The bad news first: digital will replace film. The good news: Kodak had about ten years to figure out how to make the transition to digital and stay in business.
Barabba left Kodak in 1985. Kodak executives stuck to film.
Not all was lost—yet. Change always comes from the top. If you hired the right CEO, he could demand change—and get it! That moment came in 1989, when CEO Colby Chandler retired. Kodak’s board could choose a digital future by picking Phil Samper, or stick to film by tapping Kay R. Whitmore. The board chose Whitmore. He lasted three years.
Kodak’s board then turned to George Fisher, bringing him over from Motorola, where he was also CEO. Fisher plowed $500 million into the Advantix Preview film and camera system. This was a digital camera that relied on film. It previewed the shot you took; then you used it to order the number of prints you wanted. The product flopped. Fisher was out by 1999.
While Fisher pursued folly, Kodak finally brought out its first true digital camera, the DC20, in 1996—fifteen years after Sony brought the first digital camera to market. It was a start, nonetheless. By 2001, Kodak was number two in the US digital camera market, behind Sony. But Kodak was also losing sixty dollars on every camera sold. Worse, every digital camera sold subtracted from Kodak’s revenues from film, chemicals, and paper.
The last blow came from cell phones, which Sharp and Samsung managed to outfit with small digital cameras. They were good enough for snapshots. Then Apple came out with its iPhone in 2007, packing a simple two-megapixel camera. No one needed to carry a point-and-shoot camera anymore.
Developing a Slow Death
Kodak financed its decline the hard way: by failing in its attempt to diversify, and by selling off existing units to pay for its doomed digital camera division.
Diversification failed when Kodak bought Sterling Drug in 1988, only to sell it six years later, after realizing that film chemistry and drugs made a poor fit. Kodak then sold off its Eastman Chemical Company.
The cash helped improve Kodak’s digital camera effort. Kodak reached 27 percent market share in 1999. But competition from Nikon, Canon, and Apple eventually took that market share away. Kodak doubled down on consumer cameras again, selling off its X-ray equipment unit for $2.35 billion in 2007. (Officially, it did not want to invest the needed funds to migrate X-ray from film to digital.) Despite the added cash, Kodak’s digital camera market share fell to just 7 percent by 2010.
By the end, Kodak was selling off its patents, just to keep the camera business going. The final straw came shortly before 2012, when Kodak closed all of its processing facilities and laid off more than a hundred thousand employees. Over $6 billion in debt outweighed $5 billion in assets. Kodak filed for Chapter 11 bankruptcy.
Taking a Different Picture
When a major company goes down, it takes many livelihoods with it. Kodak once employed more than 145,000 people. Each one took home a paycheck that supported a family and kept a roof overhead. It would have been a hundred times better for them if Kodak never went out of business. Ditto for the stockholders who invested in Kodak, and the scientists who developed its new products.
To survive, Kodak would need to kill film, which was its sacred cash cow. It could have been done, if Kodak’s board had been farsighted enough to heed the Barabba report and hire Phil Samper to drive its digital transition.
Underneath that veneer of a red brand name on a bright yellow box, Kodak was a technology company. It had over 1,700 patents, including those needed for digital photography. If it could not compete in cameras, it could still collect royalties from those patents. Kodak would still have the scientists on its payroll to develop new products.
Kodak’s rival, Fujifilm, showed how it could be done. It had a near monopoly on film in Japan, where the company obtained 60 percent of its profits. Once executives saw the digital handwriting on the wall, they decided to take that figure down to zero. They would milk as much cash out of film as possible while that market existed, prepare to switch to digital, and diversify. Kodak made the same choices, albeit haphazardly, with little regard for sequence and planning.
Fujifilm applied its chemical expertise to cosmetics, since skin care products and camera film both rely on antioxidants. It also applied its film expertise to optical films for LCD flat panels, now used in smartphones, tablets, digital cameras, and computer screens. Restructuring and layoffs freed up cash to buy other companies in markets where Fujifilm could make a yen.
Kodak was too wedded to existing lines of business that produced tons of cash. Marketing outweighed technology. Management vetoed innovation.
And so Kodak was done in by the very technology it invented—the digital camera.