Lessons From a Tragic Business Failure

11.3BlogKodak

In 1975, a Kodak engineer named Steve Sasson invented the first digital camera, a toaster-sized prototype that captured black-and-white images at a resolution of just .01 megapixels (by comparison, there’s now a Nokia smartphone with 41-megapixel resolution).

Because the first digital camera was filmless, Kodak management wanted Sasson to keep quiet about his invention rather than embrace it as the future of photography.

Instead of looking forward to the possibilities, Kodak dwelled on the concern that offering digital cameras would cannibalize its lucrative film business. In the end, digital very well might have taken a chunk out of the film business, but Kodak would also have remained at the forefront of its industry rather than becoming an also-ran.

In one of the biggest ironies in modern business, Kodak didn’t recognize that digital cameras were on the rise and didn’t adjust quickly enough to a landscape where traditional film was no longer dominant.

To understand where Kodak went wrong, we have to look back to its roots.

A Kodak Moment

Founded on September 4, 1888, by George Eastman, Eastman Kodak was originally designed to mimic the “razor and blades” pricing model found in shaving: The camera itself was inexpensive and offered small margins, but the consumables associated with the camera — film, chemicals, and paper — had much higher margins.

Kodak sold all kinds of products and services throughout the 20th century, but the proof that Kodak had really “made it” as a brand was the ubiquity and longevity of its tagline: “Kodak moment.” The Kodak moment was an indelible part of the American lexicon, to the point where taking a snapshot of everyday life was synonymous with the Kodak brand.

There’s a reason why the phrase “Kodak moment” was so popular. For years, Kodak was the instant camera marketplace. At its peak in 1976, Kodak’s U.S. market share was 90 percent in film sales and 85 percent in camera sales, according to a 2005 case study for Harvard Business School. Kodak was so entrenched in the traditional film market that its victory was practically assured — until digital replaced analog, that is.

Enter the Digital Camera

Digital photography exploded from the late 1990s until about 2008 — the same year camera phones really entered the mainstream. In that same time frame, the digital still camera market domestically grew from just 4.5 million units in 2000 to 28.3 million units in 2007, according to the Photo Marketing Association (PMA).Photo logotype concept analogue film versus digital photography

Kodak refused to adapt because they were comfortable with film photography and that marketplace. They knew digital photography was growing in popularity, but they weren’t open to making the necessary changes to stay competitive. The forays they made into digital cameras started much too late, and they remained too dependent on the shrinking film industry for their revenues.

In the end, a lack of change was their (unnecessary) downfall.

Gone in a Flash

Sadly, bankruptcy was inevitable. In 2011, Kodak shares fell more than 80 percent, hitting an all-time low of $0.54 a share when the company hired law firm Jones Day in September 2011 for restructuring advice. Finally, on Thursday, January 19, 2012, Eastman Kodak filed for bankruptcy with assets of $5.1 billion and a debt of $6.8 billion. The New York Stock Exchange suspended trading of Kodak stock after announcing that the company was no longer suitable for listing.

The company’s credit had dried up as revenue from traditional film plummeted.

In the case of Kodak, the story has one silver lining. Over the course of its decades in business, Kodak was granted more than 11,000 patents that analysts value at around $1 billion. Because Kodak can sue or sell patents to other technology companies — RIM, HTC, Fujifilm, Samsung, and Apple — it still has a trick up its sleeve.

But even as it shifts its business away from cameras and toward printers and ink, it’s clear that Kodak missed a huge opportunity and paid a heavy price.

LOS ANGELES USA - APRIL 5 2014: Dolby Theatre in Hollywood. Formerly known as Kodak Theatre it is the home of Academy Awards ceremonies.

A Sign of the Times: The once iconic Kodak Theatre in Los Angeles was renamed the Dolby Theatre in 2012, when Kodak terminated its naming agreement with the CIM Group — giving way to digital formats once again.

Moving Forward

So what lessons can be learned from the tragic end of this iconic 131-year-old American business? For one thing, no matter what business you’re in, be aware of the marketplace and what customers are saying and feeling. Try to get in front of new trends, and never stop learning. That means investing in education, attending conferences, and taking action when you spot new opportunities.

In this day and age, more than ever before, change is good. Or perhaps more accurately, change is inevitable. You can either change with the times, or you can fade into obscurity. At TNP, we’re always on the lookout for new ways to help our clients with their marketing, whether that’s in direct mail or through alternative marketing strategies.

Call The Newsletter Pro at 208-297-5700 if you want to shake up your marketing and collaborate to innovate on new solutions.

And no matter what, heed the lesson from Kodak’s demise — as times and markets change, make sure you’re the one leading the pack.

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