Digital Imaging and Kodak's Strategic Mistake

It is striking how Kodak has sufferedsince 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 wasinevitable and that Kodak did more than many otherfilm companies in order to meet the digital challenge

(read more here).

But surely, they must have madesome 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 willprovide a few highlyunscientific thoughts

about this issue.

The wild

took place in the

lot of debt.

diversifications that

1980s put Kodak in a

One consequence of

available to fight the

leveraged heydays was that less

resources were

global film war against Fuji.

This in turn implied that the company was

once the revolution financially weaker

came into motion.

But that’s not directly related

to the firm’sdigital

strategy. Kodak’s

attempts at various’hybrid’

cameras mightalso have been

a mistake.

While Kodak investedheavily in

digital development, the company

also sought to launch

products whichwere bothdigital and analogue.

By doing so, the company could sell more film.

And film generated profits.

Historically, Kodak had for many decadesonly developedand 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 thinkingmay help us to

understand why the CEO Dan Carp madethe following over-

optimistic statementin 2000:

"Kodak is convinced that there been a better time

can change the way people take and use

pictures because and availability are no

has never to

be in the picture business…. Digital

pictures. Suddenly there are no

boundaries to how often you can take

cost

longer issues."

Let’s take a look at the various

hybrid initiativesKodak launchedin the 1990s…

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

The system was essentially a hybrid whichcould 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-developedwith AOL and launched in 1998. This

system gave consumers the opportunityto drop film rolls off and have them

delivered to their AOL email address.

PhotoNet was another initiative that canbe considered similar to

’You’ve got pictures’.

These products and services had in commonthat they sought to increase the value of

using Kodak’s film.

Most of these hybrids faced a sharp declineonce digital imaging started to grow rapidly in the early 2000s and they were launched in the

late 1990s…

It is of coursehard to tellwhether the

revenuesgenerated before

the revolution compensated the R&D money that was poured in

during the 1990s.

And it’s hardto say whetherspending that

money on pure digital

productswould have

been a wiserdecision.

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 rathera 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 veryunderstandable 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 theirvalue 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.orgchristian.sandstrom at chalmers.se