In defense of Kodak

Kodak.

It’s the boogeyman of MBA programs. You’ve heard the story. The company held an unassailable position in one of the world’s largest markets. It had a deep, lasting brand with consumers and professionals along with a high-margin, recurring revenue stream.

MichaelKanellos

But it failed to fully understand the impact of emerging technologies. It couldn’t get its 100+ year-old self to pivot in time. It didn’t cross the chasm and cannon-balled deep into the abyss.

You could build a small mountain out of the airport books that regurgitate this horror story.

It’s also not exactly true. With a number of companies facing competition and disruption, now is a good time to re-examine the myth:

1. Kodak faced a transition few, if any, companies could have made

Contrary to what branding experts will tell you, Kodak was not in the business of images and memories. It was in the business of chemical processing, i.e. creating and then refining the large-scale production of films, liquids and other materials. The golden recurring revenue stream came from people dropping off canisters of Kodak film to be dunked in chemicals produced and used by the same company.

Digital photography, by contrast, is rooted in semiconductors. While semiconductors rely on chemistry, chip-making revolves around mass-producing transistor-based devices on silicon substrates. It’s an entirely different business, ruled by the relentlessness of Moore’s Law and technical issues like gate-leakage and defect-density. Designing a new chip can cost hundreds of millions and new fabrication facilities top out at $5 billion. Predictably recurring revenue doesn’t exist.

Kodak pioneered digital imagers and came out with some of the first cameras. Ultimately, however, it would have to rely on third parties like Samsung to design and make devices. It had no competitive advantage anymore; in fact, it was at a competitive disadvantage. This was an entirely different business.

Few companies have ever made a wholesale transition like this. This isn’t like Apple taking the same components and software it uses in computers and fashioning a music player. This is like Apple forming a band.

2. But it could have been a brand!

Yes, it could have licensed its brand to third parties and eked out a revenue stream, but how many old-time brands survive the migration to a new market. Remember Polaroid TVs? Or Westinghouse solar panels?

3. But it didn’t invest in innovation!

Actually, Kodak was a pioneer in Organic Light Emitting Diodes in the late 90s. OLEDS are thin, flexible, provide a wonderful viewing experience and are theoretically 100% efficient. They are also murderous to make in volume. Or in large sizes: one of the reasons OLEDs are still mostly confined to phones is that making large OLEDs remains more of an art than a science.

Kodak spent years and millions on the project, too early and too smart for its own good. The technology has really only gone mainstream because Samsung has the time and money to endure the headaches.

4. But now there’s nothing left!

Eastman Chemical, the chemical subsidiary carved out of Kodak proper to provide supplies to the people in film processing, garnered $9 billion in revenue last year. It also employs 14,000 and is a recognized leader in material science. 

It’s a fate many would gladly accept.

Michael Kanellos is senior manager of corporate communications and technology analyst with OSIsoft