The Unbearable Kodak Moment: Strategic Suicide

George Eastman, the founder of Kodak and the inventor of roll film, invited a few guests to his house on March 14, 1932, to witness changes in his will. He then bid them goodbye, saying he had to write another note. A single gunshot was heard. The house staff found his body, still spewing blood from the bullet hole that went straight through his heart, along with the note he had written. It read "To my friends, My work is done--, Why wait?" He was 72. By chance or by fate, 72 years later, the company he founded may have released its own suicide note. They announced 15,000 workers would be laid off, and they would focus on the sales and marketing of digital devices like cameras (where they have been relatively successful) and inkjet printers (where they have made little impact to date). My initial thoughts were decidedly negative. On a scale ranging from Suicidal to Great New Strategy, my opinion tilted the scale towards Suicidal.

A few of the thoughts that raced through my head were:

• They must have hired some freshly laid-off executives from the recent HP-Compaq merger, and these executives had "sold" Kodak on the wonderful margins of the digital ink supply printer business.
• They're not paying enough heed to their existing customers, and this date (January 2004) marks the death of Kodak as we know it.
• They're entering Commodityville where many tread and few survive.
• I heard nothing innovative in their press releases. Nothing daring. No breakthrough. No "change the world."

Fuji Sends Hugs and Kisses

Fuji, Kodak's arch rival, knew what to do. They read the same in-between-the-lines messages in Kodak's press releases as everybody else. They decrypted the "we don't like you old fart film lovers" message from Kodak's press releases and immediately released a press release of their own.

It read: "Despite pressure on the conventional camera market, and with some manufacturers consolidating their R&D functions or exiting the market altogether, Fujifilm affirms that certain product categories are, in fact, exhibiting steady demand [...]. Consequently, Fujifilm is continuing to support the industry with the introduction of both film and digital products, with developments in film, compact cameras and single use cameras projected throughout 2004 and beyond."

Now isn't that a nice pre-Valentine's Day message for Fuji to send to their customers?

Aren't they sweet? On the surface, it may appear that way, but don't underestimate them. Another story that ran that day tells why. The Journal tells the tale of how Fuji kicked Kodak's digital butt out of Wallgreens (a large drug store chain in the USA) to become the vendor of choice for the development of prints from digital cameras. Oops.

So What Does Mom Say?

Dave Etchells, with the help of his entire family, runs a very useful site called www.imaging-resource.com. His wife, Marti, sometimes refers to the new world of digital photography as "the black hole." By this she means many pictures are taken but few are printed. She's right. Summit Research estimates that less than 4% of digital photos ever get printed. There's the gold. If somebody could make those pictures painless to print (i.e. less time, cost-efficient, etc.), there might be a business model to exploit. Sure, geek-dad may spend his entire Saturday supervising the printing of 24 digital pictures (hi res printing is slow), and geek-dad may be the one to run to the store to get a new ink cartridge because the photos of grandma came out a bit blue because the the cyan in the ink cartridge was running low. But geek-dad's enthusiasm for his digital toys will soon wane. He's a busy guy (with the commute and all), and mom can only nag so much. Eventually, she'll be the one to figure out that Walmart and Walgreens can handle digital photos as well. She'll learn what photo-labs she can take her flash card into to get good results. Thus, I propose that Kodak is wrong for believing that the franchise relationship between the consumer, the photo-lab, and the company that supplies the photo-lab, is going away anytime soon (the way retail didn't die with the advent of e-tailing). Fuji seems to understand this, and now that Kodak has blinked, I predict they're going to make hay.

Half-way through writing this article I emailed the Walmart digital photo processing people and asked what kind of photo paper they used. Their answer? Fuji.

What do the Professionals Say?

I know a professional photographer who made the transformation from analog to digital. The camera he uses (along with all the lenses, etc.) cost him close to $20,000. With yearly revenue just north of $200,000 per year, he can afford it. Do his customers know he shoots digital? No. Does he print his own pictures? No. He still does what he has always done. He sends his pictures (ftp instead of snail-mail) to his professional photo-lab in Toronto. As such, the switch to digital for him didn't require changing photo-labs. He can't afford the risk of offering his clients anything less than the best prints possible, and his photo-lab delivers that quality. Does he ever print his own photos? Hardly ever. As such, the fact that he has made the transition to digital has not changed his relationship with his professional photo-lab (nor the money he pays them per year). Did you hear that Kodak? No change.

Invent Here, Die Here. Time to Dream.

Kodak's core business isn't going away anytime soon. Their name and business will live beyond my years. They are doing well in the medical field and the margins (and cash flow) on film sales still represent sizable profits for years to come. Yet they have entered a dangerous territory with their dream of dominating the print-at-home market. They are in danger of transforming the Kodak name into an also-ran. Their franchise and relationship with photo lovers everywhere has been put at risk. My prediction is that in a few years they'll try to get "the love" back by telling consumers how great their photo-paper is. They'll try once again to become important to consumers and the relationship these consumers have with their photo-labs. Unfortunately, they'll discover that while they've been busy playing with their digital toys, companies like Fuji will have sewed up the consumer photo-finishing market for digital pictures out from under their nose.

There is hope, though. Kodak could do something very innovative, perhaps even wildly innovative. Here's an idea/dream that I have.

I want to take a digital picture and then, while I'm taking the next digital picture, I want the first digital picture I took to be uploaded (wirelessly) to a photo-finisher's website that I have specified. (I'm not talking about those cheesy-cheap cellphone cameras, but a 3 or 4 Megapixel image from a high quality digital SLR camera). Next, I want to go home (or directly to my photo-finishing outlet) and choose what photos I want printed. I don't want to print them myself. This way if my images are always being sucked up wirelessly, my flash memory will always have room for more pictures! Sure, if I'm in the middle of nowhere and my camera is unable to connect to a receiver/transmitter, then I'd have to wait until I get into range. Still, wouldn't it be nice to drive into a populated area and know that if my camera is left on that my pictures are being wirelessly transmitted to the location of my choice?

If Kodak invented the type of camera described above, then they could also subsidize the price of their camera knowing that the pictures could only be transmitted to a photo-finisher that had the right Kodak equipment. Of course, users could choose to print at home, and they could choose to transfer these pictures to another photo-lab, but they would not get the benefit of automatic wireless transmission. This type of breakthrough would allow Kodak to have a defensible consumer-to-photo-lab franchise.

Good luck, Kodak.

Here is a press release that touches on what could be, but it's still missing "the magic" that I'm looking for.

ROCHESTER, N.Y. and BEDMINSTER, N.J., Feb. 12 -- Eastman Kodak Company and Verizon Wireless, the nation's largest wireless service provider, today announced that KODAK Mobile Service will be available to Verizon Wireless' Get It Nowcustomers. With KODAK Mobile Service offered through Kodak's Ofoto subsidiary Verizon Wireless customers will be able to view, share, organize, and store their digital photos in one trusted place.....