At its zenith, Kodak combined technical excellence in chemistry with scale economies in manufacturing to create a firm with a near-monopoly position in photographic film, a product that appealed to every human.
Yet Kodak’s eventual peril was hardly a surprise: Film’s obsolescence in the mass market was widely anticipated, even if the timing and extent of digital’s takeover was uncertain. Much of the “post-game” commentary, both amateur and professional, suggests that the firm’s dramatic shrinkage—certainly the bankruptcy—could have been averted. The “what went wrong at Kodak” literature is nearly its own genre of business reporting.
The company’s CEOs were alternately praised and vilified.
■ A 1997 headline from Forbes, referring to CEO George Fisher, declared: “How an outsider’s vision saved Kodak.”
■ After Fisher’s departure, Time asserted that “Fisher’s strategy seemed to be coming a cropper—to say nothing of being in need of cropping.”
■ A New York Times story lauded Fisher’s successor, Daniel Carp, in 1999: “Mr. Fisher has given Mr. Carp an easy act to follow. … ‘Carp is well respected and experienced, so no one really has any concerns,’ said Jack L. Kelly, who follows Kodak for Goldman, Sachs.”
■ By 2002, a headline from Forbes read: “Kodak’s Carp Out of Focus.”
■ Antonio Perez followed Carp, earning his own share of criticism. A 2012 Motley Fool assessment was titled: “Eastman Kodak: How a CEO Destroys an Icon.” The article concluded: “Some days, CEOs would be better off staying in bed. … Without question Mr. Perez drove Kodak into the ground.”
Just protecting film?
It’s naïve to assert that Kodak was simply protecting film and chose to slow or block the shift to digital. Invented in 1975 by a 25-year-old Kodak engineer, Steve Sasson, the digital prototype was hardly ready for market. As the HBR article notes: “The camera was as big as a toaster, took 20 seconds to take an image, had low quality, and required complicated connections to a television to view.”
Many complementary technologies had to mature—both microprocessors and memory, for example, required improvements in speed and cost—before digital cameras could enter the consumer market. Kodak’s first digital cameras were aimed at the professional market and cost tens of thousands of dollars. News organizations, for example, were willing to pay a high price for the camera in exchange for the ability to transmit the image around the world in a matter of seconds. Four-hour processing still felt miraculous to the rest of us.
Nor did the company quit researching digital. Kodak devoted an estimated $2 billion to bring digital to market, as its many patents in the digital space confirm. By the mid-1990s, the board committed to digital by selecting Motorola’s highly-regarded George Fisher as the firm’s first outside CEO. Fisher unloaded businesses unrelated to its intended digital future, devoting much of the cash to the transition and with some success. By 2005, Kodak digital cameras were the top-selling brand. Unlike the film business, however, there were far fewer barriers to market entry, leading to a vigorous competitive climate.
As the first article in this series documented, many firms related to Kodak have survived or thrived outside the company. While put in motion by Kay Whitmore, Fisher’s predecessor, Eastman Chemical was spun out just after Fisher took over and is regarded by many Kodak’s biggest mistake. Perhaps, like Corning’s decision to unload its iconic consumer products division, splitting from Eastman Chemical was an act of “burning the lifeboats,” giving the company only one path to success.
The choice of Perez to replace Carp reinforced a focus on digital printing, another product line with few barriers to entry and many capable competitors. The Atlantic’s 2012 piece concluded: “(Kodak) isn’t in trouble because it stood still while the world turned. Rather, Kodak has spent the past decade attempting to adapt to the changing times, often creating innovative new products, but failing to turn them into a sustainable business.”
Kodak’s decline wasn’t inevitable. Fujifilm, the company’s great rival in the film business, survived the near-extinction of film. It pursued strategies similar to those attempted at Kodak, but either managed them more effectively or was blessed with better luck. Fujifilm weathered the transition and even grew. Total sales at Kodak fell nearly by half during the critical 2000-2010 period. Fujifilm’s diversification strategy enabled the firm to more than double its sales revenue over the same period.
Perez’s 2006 crack that digital cameras were “a crappy business” was prescient. Today, the majority of images are captured by smartphones, not single-purpose cameras. Every phone is expected to include a camera and the cameras in the best phones take remarkably good pictures. Most of us need no dedicated device for our daily picture-taking needs. The imaging business has gone from being fabulously profitable to being a ubiquitous freebie thrown in with another product.
Many Finger Lakes economic development strategies are aimed at finding “the next George Eastman.” It is worth asking why Kodak was successful, and thus gauging the odds of finding the next. Moreover, we should ask: What are the odds of the next George Eastman leading a company with the scale and impact of Kodak?
It is tempting to assume there was something about Rochester that enabled Eastman’s discovery and Kodak’s runaway success. Certainly, Eastman took advantage of the resources Rochester offered, critically the financial support of Henry Strong and the optics expertise at Bausch & Lomb.
Yet the key ingredient was George himself. He was in Rochester because his father had a business here. Had his father’s business been in Cincinnati or Philadelphia, Rochester’s history would have been quite different.
Eastman’s big idea grew to transform Rochester for two reasons: First, film manufacturing was a scale-driven business. The largest producers enjoyed cost advantages that upstarts couldn’t achieve without absorbing years of losses. This conferred a “first mover” advantage on Kodak, one that Eastman and his managers skillfully exploited. The outsized influence of Kodak on Rochester is partly due to its remarkable profitability. That profitability allowed the company to offer generous benefits and powered Eastman’s bountiful philanthropy.
Second, the size of the market was nearly limitless. A big idea harnessed to an enormous market required a large workforce. And let’s not forget that Kodak remained loyal to Rochester. Gannett and Xerox, for example, each chose to move their corporate headquarters to cities with a more prestigious corporate address.
George Eastman’s imprint on our city is deep and indelible. Yet his decision to found Kodak in Rochester was the equivalent of catching lightning in a bottle.
Kent Gardner is Rochester Beacon opinion editor.