What could Kodak have done differently?

I’m very tempted to buy a Kodak Slice when they come onto the market in April (despite a self-inflicted ‘Gadget ban’). Looks like a great ‘social’ camera, and a great way to take the next 5,000 pics of the children; and I’m always keen to do my bit to help Kodak on their road to recovery.

I’m writing a fair chunk in the book about Kodak and their journey since their print business crashed about them. Since their refinancing by KKR over the summer, they’re at least on a more stable footing – but the downturn hasn’t been kind to them. They’ll give their full year figures in a week’s time – but Q3 revenues were down 26% year on year, and they losing money.

One of the things I wanted to know is what could they have done differently. It is – as the slideshow above points out – a completely academic question. It is no use for Kodak, but it is a valid exercise if, knowing what we know now ,there are lessons there for other businesses.

In Jeff’s book What Would Google Do? He takes a leaf from Theodore Levitt’s 1964 classic, Marketing Myopia, , and encourages businesses to ask what business there in. Then he looks at Kodak and  says

Kodak is a classic case of a company said to be making the transition from atoms to bits – physical film to digital services. If it had realised soon enough that it was in the image and memories business – if it hadn’t defined itself by the atoms it pushed and processed – it should have beaten Yahoo to the punch and bought the photo and community service Flickr. When I think of pictures today, the first brand that comes to my mind is Flickr…Who now thinks of Kodak…? No one.

If only it had been that simple for Kodak.

Yahoo bought Flickr in May 2005. By that stage Kodak was already all too aware that it had moved on from the world of selling boxes of film to a world of images, memories and much more. In fact, the opening sentence for Kodak’s 2004 annual report, for example, is

‘Eastman Kodak is the leader in helping people take, share, print and view images – for memories, for information, for entertainment. The company is committed to a digitally oriented growth strategy….’

In other words, they had – conceptually at least – moved on from being defined by their primary means of distribution (film). In fact, Kodak was pushing itself as a broader imaging business for years before that. It had already bought an early version of Flickr, Ofoto way back in 2001 (three years before Flickr was launched) and turned it into the (admittedly not as good as Flickr) Kodak Gallery.

If Kodak had been smart enough to buy Flickr (and if the owners had wanted to sell to them), and had they managed not to ruin it, it would have been a great little asset for them.  Under a CMO such as Jeff Hayzlett who is genuinely committed to social media, it might have acted, as Jeff (Jarvis)  suggests, as a smart piece of branding. But it would have been no more than that. A Band-Aid for a broken leg.

There problems were much deeper than that. To list but a few

• They were distracted by a ferocious price war with Fuji in the late 90s

• They were petrified of cannibalising their film business with digital (further compounding the impact of the Fuji price war)

• They massively underestimated how quickly consumers would ditch film

• Decades of comparable success had made them fat and way, way too happy with themselves

A few months ago, I asked this question to  the my favourite Swedish PhD student, Christian Sandstrom who has made something of a speciality of creating fabulous Slideshare presentations on the changes in the photographic industry. He responded quickly, but I never posted it here. You can see his answer above.

Here’s the quick summary

• Over aggressive diversification left them burdened with debt and in a weak financial state for dealing with the Fuji price war.
• They put too much focus on ‘hybrid’ solutions – using digital as a way to sell print (eg the Photo CD system)

The first point is an interesting one, because without the diversification – or at least without some of the better bits of it – they wouldn’t really have much of a business.

The second one is something that really strikes you when you look at their first wave of ‘digital’ innovations all started from the premise that people would buy film – and then have the prints digitised.

They developed a future in the shape of the past.

Even though they talked about being in imaging and memories – their financial base was still in film, and even though they could move conceptually, they could see no way to move economically (and I suspect that many of us sitting around the Kodak board table at the time would have come to similar conclusions).

It seems like an obvious mistake, but I stumbled across a piece in Fortune in 1997 (What’s Ailing Kodak?) about the price war with Fuji talked in the final paragraph about  ”the danger–still much in dispute–that film sales will soften as digital cameras made by companies like Sony, Canon, and Casio take up a bigger share of the market” (my emphasis).

Still much in dispute? In other words – way back then, the disruptive power of the digital world was still very much in question.

Now we know differently.

So what do we learn from this?

• There are rarely simple solutions to profound structural problems
• Short term competitive pressures can’t be ignored, but nor can they be allowed to obscure long term strategic challenges
• Redefining ‘what business your in’, only works if it is credible financially, as well as conceptually
• Beware hybrid solutions that reframe disruptive forces as growth opportunities – they are often too good to be true

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