THE TUCK SCHOOL AT DARTMOUTH
The falling giant
How Kodak gave the
wrong answers to the right
question
Vikram Gawande, Mario Alvarez, Stefano Lazzaro, Kai Verkuehlen
11/8/2010
Faced with the disruption of digital technology into the photography industry, the Kodak Eastman
company did reply manifold. However well capitalized many initiatives have been they generally failed
to generate long term perspective for the distressed company. While Kodak did master the dynamics of
the ‘old’ chemical photography ecosystem it did fail to do so in the digital photography ecosystem. This
failure lies at the root of years of wasteful resource management and continuous operational bleeding.
1. Introduction – The rise of the digital camera
The technology of the digital camera directly derives from the technology of recorded video images,
which was invented in the early 1990s. The first video tape recorder (VTR) captured live images from
television cameras and converted them into electrical (digital) impulses, which were then saved on a
tape.
In August 1981 Sony launched the Mavica, the first commercial electronic camera. Images were
recorded on a mini disc, which could be seen through a video reader connected to a television or a color
printer. However the Sony Mavica cannot be considered a truly digital camera, because it was a video
camera that took video freeze-frames1.
The first truly digital camera was the Dycam Model I, launched in 1990. It had a built-in RAM memory of
1Mb which could store up to 32 compressed black and white images with a resolution of 320 x 240
pixels. The images could be downloaded with a cable to a computer and seen on the monitor2.
But it wasn`t until four years later, in 1994, that digital cameras became available to the wide consumer
market. Apple launched the Quick Take 100, a color digital camera with 640 x 480 pixels and a fixedfocus 50mm lens. The camera cost US$ 800, the quality of the images was low and the design was not
very appealing. Nevertheless, from that moment on the race for the commercial market had begun. The
same year, Olympus introduced the Deltis VC-1100, a camera with a removable memory card and builtin transmission capabilities.
The commercial breakthrough came in 1995, when Casio, a company with no past experience in the
camera industry, launched the QV-11, the first digital camera with an LCD screen. This characteristic
enabled users to instantly view their pictures. This concept became the dominant design for digital
cameras, on which all major players developed ever improving qualitative and functional devices3.
1
2
3
http://www.infoborder.com/Digital_Camera_History/
http://www.thehistoryof.net/the-history-of-digital-cameras.html
http://www.luminous-landscape.com/essays/rise-fall.shtml
2. Introduction into industry dynamics
In the mid-1990s the digital revolution did finally unsettle the traditional photography market. Whereas
the market was dominated by chemical photography until that time with Eastman Kodak being the
preeminent incumbent, things changed dramatically around that time. Specifically the ‘old’ market of
chemical photography can be divided into the following submarkets4 addressing different customer
needs:
1. Durables: the market for cameras
This market is comprised of the manufacturers of cameras such as Sony, Kodak, Canon etc. The main
factors of competition are price, picture quality and features and functions.
2. Consumables: film and photo paper
Traditionally, cameras recorded pictures on film, which was a consumable. Incumbents in this segment
were Kodak and Fuji who provided most of the industry with the disposable film. The basis of
competition was picture quality, price and brand reputation.
3. Services: developing and printing
This sub-market is comprised of the walk-in developing and printing service providers. Basis of
competition was location and brand reputation.
Certainly, all these ‘old’ markets where heavily affected by the rise of the digital camera and henceforth,
unless stated otherwise, will be referred to as the photography market. Following the description of
Peter Zelten (2002) the digital photography industry changed the market dynamics in many aspects5.
From Figure 1 below it becomes obvious how on the one hand the emergence of the digital camera (and
the associated ecosystem) increased the span of potential applications and opportunities for the end
customer, but on the other hand also instilled a vast amount of complexity compared to the one
directional chemical photography industry.
4
5
Ron Adner, The Photography Industry “Chemical to Digital”, 2002
Peter Zelten, Digital Photography and the Dynamics of Technology Innovation, 2002
Digital photography industry
Chemical photography industry
Figure 1 'New' and 'old' industry dynamics
The second implication that can be drawn from Figure 1 is that even though the digital camera per se is
the preeminent innovation of the system, it constitutes one piece among many to successful mass
market adoption. Put simple, the value from the camera per se, without the co-innovation of flash
storage capacities or the growing penetration of personal computers is limited, and on a stand-alone
basis could not have driven massive substitution away from the old system.
In analyzing these
dynamics, the innovation ecosystem map in Figure 2 will be the guiding framework to demonstrate and
structure the interplay of critical industry dynamics. Before analyzing the ecosystem dynamics in a
detailed and structured way, the key new value drivers of digital photography will be mentioned briefly
to support intuitive understanding:

Immediacy: the opportunity to see the shot immediately after taking it

Manipulability: multimedia enabled attributes of being able to store, share and manipulate the
picture

Printability: ability to print the picture at home or processing services
Interestingly, while quality and price were the main factors of competition before the advent of digital
photography, none of these factors for competition arise in the list. It is therefore important to
understand that the power of a radical innovation lies in its ability to change the basis of competition to
its advantage, often times rendering the alternative technology inferior or obsolete.
3. The digital photography ecosystem
Figure 2 Digital photography ecosystem
As Figure 1 showed many parts needed to come together in order for the digital camera to gain mass
market traction. These complementary developments pose innovations in themselves and are
summarized under Co-innovation risk in Figure 2.
a. Co-innovation risk
Co-innovation risk answers the question to the innovating company: Which co-developments need to
fall into place before my offering can unfold satisfactory value. Paying attention to the necessary coinnovations in your ecosystem is many times what distinguishes failing from winning strategies. In the
following the most important among the many co-innovations will be mentioned and explained.
Transferability creates value to the benefit of the digital camera. However, transferability depends
among others a) on the penetration of computers, b) availability of a standard picture compressing
format and c) on the availability of bandwidth for transmission. Before 1990 computers have been an
item predominantly accessible to the professional industry, the value associated with transferability
entails network externalities. Hence, the relative value of a user increases in the amount of users.
Commonly, industries that incur network externalities grow slowly until an inflection point of critical
mass and then swiftly into a dominant system. Generally speaking, the implications from Moore’s law
regarding price dynamics have been major driver for accessibility of necessary co-innovations in the
ecosystem. This holds true for the many IT related co-innovations.
Editability of pictures was another key value driver for the digital camera compared to the limited
functions of chemical photography. It is however not until the development of the PhotoMac in 1988,
the first image manipulation software for the Macintosh, or the development of Adobe Photoshop 1.0 in
19906 that this value could materialize. Importantly, Adobe Photoshop 1.0 was priced at an accessible
$800 in a package with scanners, again critical to widespread penetration.
Finally, printability was another key value driver to the adoption of the digital camera, however external
to the device itself. While it took at least one hour to process a chemical picture, digital pictures could
be printed immediately in theory. However, the materialization of this value depends on the availability
of printers at households convenience. The decision by Kodak in the late 1990s to secure its dominant
position in the image output business lead them to endorse digital photography and set up a series of
web based photo finishing services as well as photo kiosks and high end inkjet paper7. Moreover, at that
time HP has already been investing heavily in printers that could be linked directly to the digital camera
without the necessity to understand the myriads of a computer in the 1990s.
Concluding, co-innovation risk in the digital photography ecosystem around the 1990s was high. Even
worse, no single player could internalize the ongoing co-innovations into network partnerships or joint
ventures. The pattern of open, or independent innovation is a recurring pattern specifically in the IT
world, however it greatly increases the risk as manageability of the ecosystem is diminished. Certainly,
the accumulation of these many co-innovations is one reason why even today there is no dominant
winner in the industry.
6
7
Peter Zelten, Digital Photography and the Dynamics of Technology Innovation, 2002
Peter Zelten, Digital Photography and the Dynamics of Technology Innovation, 2002
b. Adoption chain risk
Adoption chain risk highlights the risk that stems from the ultimate dependence from distribution
channels and relative value perception throughout the adoption chain. Consequently, adoption chain
risk answers the question: If any institution along the adoption chain was faced with the choice of
adopting, will he adopt; if not, why?
To assert the likelihood of adoption, the concept of relative value needs to be introduced. Relative value
prescribes the value a participant asserts to an
innovation compared to the old, known alternative.
Hereby, it is critical to notice that the cost benefit
analysis
a
rational
participant
undertakes
is
influenced by visible cost as well as by invisible costs.
(Figure 4) Complicating the matter of adoption,
hidden costs such as switching costs or learning costs
are often many times greater than visible costs.
Following the logic of relative value evaluation, the
Figure 3 Elements of total cost
adoption lifecycle as presented in Figure 4 will guide the following discussion.
Figure 4 Adoption lifecycle8
8
Ron Adner, The Photography Industry “Chemical to Digital”, 2002
As shown in Figure 4, mass adoption started in 1998-99. Before 1998 early adopters would generally
adopt the product based on novelty and the appreciation of new, even though highly complex and nonstandardized functionalities. It is key to notice that many of the co-innovations explained before have
not yet gained traction in the market meaning they are still either priced prohibitively high or not yet
fully developed. From the end customers perspective things changed however in 1998. Not only have
complements reached critical mass in the market place to substantiate the benefits of the digital
camera, but also did demand patterns change. Figure 5 does conceptionally reveal this insight.
Figure 5 Preference overlap⁸
Until 1998 relative value assessment has largely been centered on resolution and quality of pictures. The
upcoming digital cameras suffered a massive discount compared to their analog alternatives on this
dimension. When companies such as Sony and Casio however managed to switch the center of relative
value assessment away from resolution towards features and ease of use the value appraisal changed
drastically. Consequently market expectations with respect to quality of the digital camera shifted
downwards as other features became more important. It is critical to notice that quality of the pictures
however needed to be ‘good enough’ to constitute a legitimate alternative to chemical photography.
While this point was reached in 1998 other dynamics helped to foster adoption. Moreover, additional
value began to materialize as friends suddenly had PCs and the usage of the internet was growing. Being
able to easily share pictures incurs network externalities; hence value increases in the number of
customers. On the cost side, the average selling prices for digital cameras has been around $750 in
19969 but decreased heavily towards 199810. Apart from the visible purchasing price, potential
9
Ron Adner, The Photography Industry “Chemical to Digital”, 2002
customers incur learning costs. Those did decrease over time as the complexity11 of the system “digital
camera” decreased. Finally, switching costs can be asserted to be of lower importance, as potential
customer do not have to give up much apart from specific knowledge and the analog device itself.
Concluding the adoption dynamics of the end customer, the culmination of increased relative value (due
to the change in the basis for comparison) and the decreased total costs led to the dynamic adoption
pattern described in Figure 4.
However, before an end customer can touch the product, distribution channels need to adopt the digital
camera as well. Their relative value appraisal is mainly driven through potential profit considerations.
Hence, growing demand was about to generate volume for adopters around the late 1990s. However,
assuming margins for distribution channels are similar in both product categories, on the cost side retail
stores have to retrain their personnel to sell the novel and technically difficult devices to customers.
While this posed significant switching costs to retailers, the growing sophistication in consumer
electronics, PCs and the internet in general of retail store personnel helped during the period of the late
1990s to steadily decrease this cost. Ultimately, retail stores do not pose a massive hold up to
adoption12.
c. Initiative risk
In considering initiative risk it needs to be mentioned that companies generally know how to execute
their innovations, hence initiative risk poses the least challenge among the factors of the ecosystem.
Concluding, the analysis of initiative risk will remain rudimentary and solely focus on the value of
immediacy introduced before. Immediacy depends on the development of the LCD display and its
integration into the digital camera. While Casio was the first company to introduce a digital camera with
a LCD display to the market13, other followed soon, indicating that this, albeit important factor, did not
pose a lasting challenge to different entities.
10
It is crucial to mention that the upfront price of comparable chemical cameras was much lower, despite the fact
that lifetime costs of a chemical camera as compared to a digital camera could have been even already at that
time.
11
The system incurred massive complexity not only from the usage of the digital camera, but also from the novelty
of the interactions between, camera, PC, internet, printing
12
Assuming total volumes dynamics are favorable to digital cameras
13
The Casio QV11 was introduced in 1995 already, hence by the time of mass adoption as shown in Figure 4, all
major models included this feature.
4. Introduction of the Case – The Falling Giant
Eastman Kodak Company was founded by George Eastman in 1880 and eight years later it had already
developed the first snapshot camera. Kodak’s guiding principles were mass production at low cost,
international distribution, extensive advertising, customer focus and growth through continuous
research14.
Since the very beginning, the original business model of Kodak was set up according to the “razor and
blade” model. Cameras were sold at low prices, relying on the fact that consumers were subsequently
using large amounts of film. Therefore, the company focused its investments on building capacity for the
production of film and in R&D. Consequently, when color photography was introduced, Kodak was one
of the few companies that had the know-how to succeed, so that by 1963 Kodak film became the
standard for the industry. Much of the company`s investments went into its huge film-producing
plants15, and by 1976 it dominated the majority of the US film and camera market, with market shares
respectively of 90% and 85%. Kodak`s popular slogan “You press the button, we do the rest” implied
that its business model required a high degree of vertical integration. Indeed, Kodak controlled almost
the whole value chain, from basic research to manufacturing, sales, marketing and photo-finish.
At the end of the 1970s Kodak realized the potential of digital photography, and subsequently initiated
massive investments in R&D and in acquisitions of small companies in order to complement its knowhow in digital technology, which resulted in the development of the first megapixel sensor in 1986.
Nevertheless, though having invested several billion dollars in the development of digital imaging,
results fell short of expectations for much throughout the period until the mid-1990s.
In the early 1990s Kodak launched the first two digital cameras models, the DC40 and DC50. In the late
1990s Kodak introduced among other innovations the Picture Vision PhotoNet system, which allowed
customers to drop off their films at retail stores, and view the pictures online on Kodak`s PhotoNet
website, where they could order prints.
14
G. Mendes, “What Went Wrong at Eastman Kodak” A Strategic Analysis, www.thestrategytank.org
H.C. Lucas Jr., J.M. Goh, 02/25/2009 , “Disruptive technology: How Kodak missed the digital photography
revolution”, Journal of Strategic Information Systems
15
However, the once dominant player in the market has steadily lost relevance in the digital era. As
explained before, success in the digital era demanded the management of a bigger and more complex
ecosystem. In the following, some of the more prominent reasons, why Kodak was ill positioned to lead
this new ecosystem will be explained.
a. Failure – Factors explaining Kodak’s demise
As Figure 1 shows, many more institutions participated in the digital photography ecosystem than in the
chemical photography ecosystem. Kodak, having frown into the dominant player of the ‘old’ ecosystem
developed strong vertical integration and an all in-house attitude. Having been able to internalize the
complete ecosystem of chemical photography yielded great benefits and allowed Kodak to make their
slogan come true “you take the picture, we do the rest”. However, what has been a strength in the ‘old’
ecosystem turned out to be a weakness in the ‘new’ one. Kodak did know how to internalize many
different activities, however it was never exposed to leading a partnership of alliances. Still, no single
company could possibly internalize the many co-developments described in section 3. Not having been
forced to rely on successful alliances in the past, Kodak was ill prepared to engage in alliances at the
verge of the digital revolution. Grant puts this insight the following way: despite being in a relatively well
endowed and renowned position at the verge of transition into the digital era, Kodak’s real challenge
was to “overcome a long history of insularity and hierarchical control in order to make its newfound
alliances fruitful” (Grant, 2006). Hence, while Kodak eventually engaged in many alliances with
important players such as Microsoft, HP or Lexmark, the outcome has generally been rather
disappointing16.
Another major driver of Kodak’s fall was the growing irrelevance of its traditional razor blade business
model. The old business model required Kodak to be vertically integrated in order to “do the rest”,
which meant all the activities along the value chain related to the lucrative photo-finishing business.
With the shift to digital imaging, “doing the rest” lost importance, since printing was more and more
democratized. Therefore, companies like Kodak that dominated the traditional business suffered from
inertia while facing the changes in the industry. Particularly, the old razor-blade strategy had been highly
profitable for very long time17 and continued to do so through much of the 1990s. Being faced with the
tradeoff of following a profitable, yet slowly dying business model, and completely reinventing the
16
17
Robert M. Grant, “Eastman Kodak – Meeting the Digital Challenge”
PhD Christian Sandstroem, 2009, “Casio and the rise of digital imaging”, www.christiansandstrom.org
company upon unclear proceeds,
Kodak chose to stick to its old business model. This dynamic is a
general problem to incumbents when faced with radical innovations. While Kodak realized early on that
digital photography was going to be a successful technology, the timing of its investments was
particularly unfortunate. While they invested heavily throughout the 1980s, they started to become
unsettled with the proceeds of the technology in the midst of the 1990s. Clearly, as necessary coinnovations only reached critical market penetration in the mid-1990s, proceeds from their investments
could not have materialized early on. The failure to understand the interplay of necessary coinnovations and the timing of these constitutes a key reason why Kodak eventually was caught wrong
footed when the technology took off.
Additionally, Kodak has often been attested a lack of focus in its digital investments18. Among others,
two key factors contributed to this lack of focus: First, Kodak had to follow a hybrid strategy through the
transition into digital photography as it main source of revenues remained the traditional film business
for some time19. Unlike Casio, who entered the digital camera business from its core in the commercially
unrelated consumer electronics, Kodak had to manage two antagonistic, eventually cannibalizing
businesses. This certainly caused a lack of focus eventually leading to misallocation of scarce resources.
Further, following the logic of tendency to internalize the complete value chain as mentioned above,
Kodak failed to choose its place in the new ecosystem.
The compliments had increased so did
specialization and fragmentation20. There were specialized hardware and software companies like
Adobe, Flickr, Microsoft, Epson, and Dell to take care of these new compliments and this was an age of
co-innovation, which Kodak did not realize. Instead of trying to concentrate on certain vertical of the
value chain Kodak tried to be omnipresent and did not concentrate on certain niche. A better
proposition would have been to co-innovate with other members of the value chain and reposition itself
as a strong player in photo finishing also in the digital ecosystem.
Moreover, management in Kodak missed the change of paradigm in the basis of competition. Kodak,
having grown into the premium player of the ‘old’ ecosystem was throughout its involvement in digital
photography concerned mainly with resolution and issues of quality. This over-commitment to quality is
understandable considering that Kodak did not want to dilute their brand value, but proved fatal
eventually. When players such as Sony and Casio promoted multimedia features and ease of use as the
core basis of competition on which the digital camera could surpass its analog alternative Kodak was
18
Robert M. Grant, “Eastman Kodak – Meeting the Digital Challenge”
In 2002, still, the traditional film business had accounted for about 70% of total revenues
20
The Photography Industry “Chemical To Digital”, Ron Adner, May 2002
19
caught wrong footed. Grant (2006) attests that Kodak’s R&D process was slow and suffered from inertia
derived from the history in the chemical business. This meant that innovations had to undergo a lasting
phase of basic research followed by a long and meticulous product development process before being
rolled out to the market21.
Concluding, many factors precluded Kodak from taking a leading position in the digital ecosystem. Many
of its core capabilities and strengths derived from the chemical photography market proved hindering to
a better positioning in the ‘new ecosystem. Additionally, while Kodak did see potential in the digital
technology early on, it showed poor understanding of co-innovation dynamics and timing. According to
the ecosystem analysis performed in section 3, it was no surprise that digital did not take off until critical
co-innovations have moved into place. This did however not happen until the mid-1990s. At that time
Kodak’s management, and shareholders, where already deeply unsettled with its long history of losses
in the digital market.
5. Old technology strategy; trying to outrace the inevitable
Utterback states that the appearance of a disruptive innovation in an established market often times
spurs new levels of innovation by the incumbents22. However, many times this increased level of
innovation can be defined to be racing behavior instead of a focused counter measure. Consequently,
scarce resources are generally poorly allocated to generate short term relief instead of long term
perspective. As Figure 6 indicates, technology innovations
generally follow a S-curve like performance trajectory
over time. At the time when it becomes obvious to the
current technology incubator that it will be overtaken,
the dynamics of the trajectory are generally already
unfavorable to racing behavior. Even if the old
technology incubator manages to significantly lift the
level of performance for the old technology, the Figure 6 Technology S-curves and racing
steepness of the development in the new technology will soon render this improvement insignificant.
Hence, instead of racing and burning resources along the way, companies should rather allow
21
22
Robert M. Grant, “Eastman Kodak – Meeting the Digital Challenge”
Peter Zelten, Digital Photography and the Dynamics of Technology Innovation, 2002
themselves to retreat from battles they cannot win and allocate resources into different initiatives.
Adner and Snow argue that such retreat strategies could take the following forms23:

Retrenchment to a niche of the traditional market where the old technology has an advantage

Relocate to a new market where the old technology is the superior offering
Certainly, the emergence of the digital camera posed a disruptive challenge to Kodak. However, a
challenge of which the company was aware of already since the early 1980s. Apart from being heavily
invested in the digital camera development itself Kodak did innovate on several other spheres in
response to the digital camera. In the following a list of those innovations will be developed to show
how Kodak did eventually burn tremendous resources upon its search to relief the pain from the digital
revolution.

Kodak’s first response to the digital camera was the introduction of the single use cameras
(SUC) in 198724. The SUCs created a cheap level entry point into conventional photography.
Additionally they set a new standard for ease of usage and Zelten argues that they exhibit a
“better than average resilience against the digital assault” (Zelten, 2002). In fact, SUCs are still in
usage today, almost 30 years after their invention which indicates their success and the render
this strategic move thoughtful.

The second response was the introduction of the Kodak Photo CD system in 199025. Photo CD
constitutes a hybrid of traditional and digital photography and can be considered as pure racing
behavior. The idea was to centrally collect traditional film, scan it and digitalize the content. The
digitalized content was compressed onto a mini disk and sent to the customer for import onto
their computers. Additionally, customers could order and re-order prints form Kodak. Moreover,
Kodak developed a CD player which could be linked to the TV so that pictures could be viewed
on the TV at home. The obvious intent by this misguided strategy was to imitate some of the key
value driving features of the digital camera, i.e. transferability, shareability, storeability. It is
critical to notice however that no matter how sophisticated this complex system grows, it can
never exceed the relative value generated by the digital camera. As shown in Figure 6, the Photo
CD system could have lifted the performance of analog photography slightly but insignificantly
eventually. Point in case, “the consumer product never took off with consumers” (Zelten, 2002)
23
R. Adner & C. Snow, Bold Retreat, 2010
Peter Zelten, Digital Photography and the Dynamics of Technology Innovation, 2002
25
Four years after the Canon Xapshot and two years after the Sony Mavica
24
indicating the fatality of this initiative. Certainly Kodak has misallocated a significant amount of
funds to the Photo CD system.

The third response was the introduction of the Advance Photo System (ASP) in 1996 26, right
before mass market adoption of the digital camera started. Interestingly, the ASP was
developed by a consortium of Kodak, Fuji, Nikon, Minolta and Canon. While the ASP will be
considered a classical racing attempt in the following, some positive remarks about this
particular strategic move seem appropriate: a) a positive side effect of the APS format was that
it used about 40% less film, hence accounted for cost savings, despite its premium segment
positioning; b) the APS did generate entry barriers to players apart from the partners due to the
proprietary licensing agreement. Ultimately, however, the APS again tries to compete on
features it is naturally disadvantaged and can at best generate short term benefits. It was
enabling, fault free loading, increased usability, better photo finishing and multi format photos.
Additionally, some digital information could be stored on a magnetic band of the film, such as
date and time. Clearly, these features need to be judged as naturally inferior to the value
proposition of the digital camera. Even worse, Kodak with the APS Kodak further strengthened
its position in high quality resolution, and manifests its incapability to see the daunting change
of factors of competition. As we already analyzed in section 2, it was not resolution on which
basis the digital camera was attacking its analog alternative, but a host of other features.
Concluding, the APS which was a prestigious and costly initiative to Kodak and the whole analog
photography industry needs to be considered as an ill-advised racing attempt with the inevitable
consequence of easing the pain in the short term but eventually merely “postpone the day of
reckoning” (Adner & Snow, 2010).
Concluding, as Zelten puts it, each of the responses “addressed some issues of usability, reliability and
reprocessability” (Zelten 2002), the dimensions on which digital photography would eventually
substitute its analog alternative. This assertion in itself highlights how these responses are generally ill
advised and do not follow sound strategic thinking. Instead of investing resources in short term relief,
Kodak could have either more heavily invested in the digital technology itself or in line with Adner and
Snow (2010) have looked for alternative markets where its core competencies are not as exposed to the
threat. For example, Kodak did eventually react in a more strategic way to the digital revolution;
Understanding that its key competence is in the image output business (as well as its major source of
26
Peter Zelten, Digital Photography and the Dynamics of Technology Innovation, 2002
revenue) Kodak did eventually endorse digital photography and tries to channel image output business
into its newly set up mini-labs or photo kiosks. Specifically, Kodak has been able to engage in a cross
licensing agreement with Sanyo and Olympus for its Print@Kodak27 initiative, intended to channel
printing output to Kodak. While this strategy does in effect forfeit the market of the device itself to
competitors it refocuses the company towards its capabilities and leaves it less exposed to battlefields
where it is at tremendous disadvantage.
Another viable option, in line with Adner and Snow (2010) is the relocation to a new market where the
old technology poses superiority. Kodak could potentially have found this kind of market in emerging
markets, where all the explained ecosystem dynamics necessary to the success of the digital camera
have not yet occurred28. Indeed, Kodak is pursuing this strategy nowadays, whilst with its digital
inventory, in China for example. Offering cheap digital cameras and SUCs in China in connection with a
deep penetration of kiosks, mini-labs as well as 7,000 Kodak Express stores, the company is pursuing its
core strengths (razor blade business model) in these markets29. However, much to the disappointment
of Kodak the demand for old fashioned analog cameras in emerging markets is declining at similar rates
as it is in developed markets30.
6. Strategic Portfolio – Focus, Focus, Focus
Kodak’s slogan and core strategy was "you press the button, we do the rest" 31. Following the merit of
this strategy Kodak should have concentrated on the post shooting technologies such as photo –
printing, photo editing, the online sharing of photos or supplies of the materials required for digital
photography also in the digital photography ecosystem. But instead of concentrating on their core they
jumped into the Digital Photography R&D. In 1993 when George Fisher took over Kodak, Kodak had
already spent $5 billion on digital imaging R&D; Product development and sales were scattered over
more than a dozen divisions, at one point the company had 23 different digital scanner projects under
development32. This indicates the huge amount of stress the company was suffering and is another
27
Peter Zelten, Digital Photography and the Dynamics of Technology Innovation, 2002
Particularly, the limited proliferation of desktop computers and penetration of broadband internet decreases the
relative value of digital photography. So do the generally lower income levels that preclude swift adoption due to
high acquisition costs of cameras and printing devices
29
G. Mendes, What Went Wrong at Eastman Kodak?, www.thestrategytank.org
30
Robert M. Grant, “Eastman Kodak – Meeting the Digital Challenge”
31
http://www.kodak.com/global/en/corp/historyOfKodak/historyIntro.jhtml?pq-path=2217/2687
32
Journal of Strategic Information Systems 18 (2009) 46–55
28
exhibition of classical racing behavior. In order to allow a judgment on the strategy portfolio of Kodak
Figure 7 is based on some ad hoc assumptions regarding product and process change of different
innovation initiatives.
Figure 7 Strategy portfolio analysis33
Ideally, Kodak should abide from heavy process change and their capabilities in photo finishing are not
immediately impaired by the rise of the digital camera. They should invest in initiatives to channel photo
finishing volume towards their mini-labs or kiosks also in the digital era which entails product change
but few process change. Overall, Kodak should focus in its core capabilities and unique strengths in one
segment of the digital value chain, instead of being the ubiquitous, vertically integrated incumbent they
have been in the analog ecosystem. However, Kodak did not follow the guidance of its own core
strategy but rather engage in many, highly complex initiative combining product and product change.
Kodak’s venture into the production of their own digital cameras as well as the internal production of
digital sensors where ventures that overburdened Kodak in many respects. As mentioned before, all
these initiatives diluted resources away from Kodak’s core competence, its finishing capabilities.
Ultimately, it is hence a matter of opportunity costs that Kodak forfeited strengthening its core business
during the transition into the digital age, in favor of the many unfocused and highly complex endeavors
in digital photography. Concluding from section 5 and 6 it becomes obvious that Kodak did panic and in
33
Digital Camera – required high level of process change and product change
Online place for photo sharing/supply of digital camera complements – required medium level of process and
product change
Digital photo printing – required minimum level of process and product change, as retail store setup was already in
place
the light of the digital emergence. Its launched initiatives where not necessarily in line with its core
competencies and strategy and ultimately bound resources that could have been better deployed in
other areas of development.
7. Conclusion – Limit the Bleeding
The analysis has shown that the rise of digital technology in the photography industry created a highly
complex and interdependent ecosystem. In this ecosystem of many, specialized entities, Kodak failed to
secure a lasting position for itself as it did not manage to on the one hand understand the ecosystem
dynamics of co-innovation and on the other hand restrain itself from costly racing behavior. Eventually,
the company broke with many of its core competencies and its core strategy to follow an opportunistic
and ill-advised all inclusive approach to the digital photography ecosystem34. Instead of panicking Kodak
could have realized early on the structural problem that growing digitalization posed. Over time, photo
finishing, particularly printing lose value to the broad consumer market as pictures are no longer stored
in physical albums or exchanged in physical form. Facing this hard but inevitable truth could probably
have saved the company tremendous resources and would have allowed it to better upscale into high
end markets. Ultimately it is the high end markets such as professional photography or health where
Kodak’s prints are a key source of value and exhibit resilience to the otherwise ubiquitous digital
dynamics. Certainly7, the company would have had to take a big hit, but being faced with the decision of
losing everything or loosing many would have chosen to forfeit 50%. Today, Kodak is massively suffering
from its heavy bleeding in its traditional business, decreased margins and the cost of the many failed
responses to the digital camera.
34
This approach did however work in the less complex analog photography ecosystem