It’s amazing to me that Eastman Kodak (EK) has lasted as long as it has. In the 1980s, I did consulting work for the maker of the Brownie and saw it heading unstoppably for its end decades ago — but it took longer than I had anticipated.
When Kodak was founded in 1888, quality was its “fighting argument.” It gladly gave away cameras in exchange for getting people hooked on paying to have their photos developed — yielding Kodak a nice annuity in the form of 80% of the market for the chemicals and paper used to develop and print those photos.
Inside Kodak, this was known as the “silver halide” strategy — named after the chemical compounds in its film. Kodak had a fantastic success formula that keyed off of international distribution, mass production to lower unit costs, R&D investment to introduce better products, and extensive advertising to make sure consumers knew about Kodak’s superior quality.
Unfortunately, competition came along and introduced ugly splotches all over this beautiful picture. Here are three examples:
- Instant photography. A few days prior to Thanksgiving in 1948, a Massachusetts-based inventor, Edwin Land, offered consumers an instant camera that developed photos in 60 seconds. Instant photography threatened Kodak’s profits from chemicals and film. Kodak responded by introducing its own instant photography products. Polaroid sued — alleging that between 1976 and 1986 Kodak stole its technology – asking for $12 billion in damages. In 1990, Polaroid won a mere $909 million and ultimately filed for bankruptcy in October 2001.
- Cut rate film from Japan. In the 1980s, Japan’s Fuji started to sell rolls of film at a price way below the one that Kodak had been accustomed to charging. Fuji’s willingness to cut prices was quite popular with the rapidly growing mass merchandisers like Wal-Mart (WMT) that preferred to deal with suppliers who were willing to sell high volumes at ever-lower prices. And Fuji helped make consumers aware of its value by sponsoring big events — such as the 1984 Los Angeles Olympics. By 1999, Fuji’s market share gains were so great that Kodak took a $1.2 billion charge along with 19,900 layoffs. Such layoffs persisted, for example in January 2009, Kodak took a $350 million charge to nuke 3,500 people on a 24% revenue plunge.
- Digital photography. Digital photography offered consumers a better value but one that wiped out a decent way for Kodak to make money. After all, digital film — flash memory — was a low margin proposition even if you had the huge fabs needed to produce it. And even though Kodak was number two in digital cameras by 1999, it lost $60 on each one it sold. In one of many bids to replicate its Silver Halide business model in digital photography, Kodak offered a Photo CD film-based digital imaging product – but since it was priced at $500 per player and $20 per disc it did not attract many customers.