DigitalPro Shooter Volume 2, Issue 13, September 28th, 2003

Welcome to DPS 2-13: Wither or Whither Kodak? In this issue we'll discuss the implications of Kodak's dramatic move to invest $3 billion in digital product lines by cutting their dividend, and the less dramatic but exciting to serious photographers announcement by Kodak Japan that they will begin printing raw files.

Kodak: This time we're serious!

Kodak has once again declared that they are serious about digital imaging, this time with a commitment to spend up to $3 billion in gaining market share in their self-declared target areas of consumer, commercial and health imaging by cutting their dividend to fuel investment. Predictably, Kodak cites shrinking traditional markets as the impetus for this bold move. Kodak is funding the investments by cutting their dividend from $1.80 to $.50, moving more production offshore, and cutting costs (and more jobs) elsewhere in the company.

However, Kodak has been investing money in digital for decades. As a technical consultant to them in the 1980's I worked on several different digital imaging efforts which were far ahead of their time. One of them turned into Photo CD, which was many photographers first introduction to digital. Kodak was also a pioneer in high-end digital cameras. There too they were first to market and most pros who were early to digital started with Kodak equipment. An early entrant in online photo sharing and photofinishing, having bought several products and companies including most recently Ofoto, Kodak is only now beginning to see rewards. Kodak was an early player in the now hot market for LCD projectors, but abandoned their product line mid-stream. Even in software, Kodak had some of the first really good color management tools but has been eclipsed by many other vendors. The list of Kodak innovations goes on and on, from the amazingly easy to use EasyShare cameras to the incredibly clever ERI image format.

So why isn't Kodak raking in billions already from owning the world's top photographic brand and a huge proportion of the important innovations in digital imaging? Kodak has repeatedly made the same set of mistakes with many of its digital forays:

Targeting markets, not customers: The press release announcing Kodak's new strategy uses the word market or markets 15 times, but only uses the word customer twice--and one of those is as a risk factor. Sure, the target audience is investors, but the words echo Kodak's recent obsession with sheer numbers. The result has been confusion to Kodak's customers, who see digital products come and go with little apparent long term commitment from Kodak to their needs. Contrast this to the film business, where Kodak has a nearly century long history and has kept specialty products such as Kodachrome 25 around for decades past their prime to ensure that they keep the hearts and minds of the professional film photographer. Let's hope that as Kodak rolls out their newest digital strategy they focus on real customer groups and their needs and not just on the spreadsheets that total up to the $16 billion in revenue Kodak is planning to achieve by 2006.

Spending, not learning: Kodak has been one of the first entrants and an early leader in almost every important category of digital imaging product or innovation. But a rush to judge their own efforts and a corporate culture not used to change caused many of those efforts to die out before they had time to truly catch on. Rather than fixing their culture, Kodak often went out and acquired new technologies and products which then failed or under-achieved the same way. Initial failures are common, but great companies learn from them, build on them, and improve. Kodak has been very weak at this. Their $3 billion war chest will cut both ways here. Kodak has already invested more in digital imaging than any other company on the planet. The key will be whether they can make the investments pay off.

Fighting with Film: Kodak, like every company with a large 'cash-cow' business being replaced by new technology, has struggled with how to position digital products and not cannibalize their existing products. As survivors like Dell, Sony and Sun have learned, that is the wrong way to ask the question. They know that if they don't obsolete their own products, someone else will. It's always easier to do that in the face of a runaway success in the new market, like the Coolpix line for Nikon, but now is Kodak's best remaining chance to get serious about getting out of its own way. Clearly the dramatic change in Kodak's top leadership over the last two years and the promotion of so many executives with a background in digital is a positive sign that Kodak is ready to make this move.

Where from here? Is it too late?

How does Kodak retain its leadership in imaging and photography by becoming a leader in digital? By leveraging its true strengths into new markets. Kodak showed in the consumer film market that it knows customers and it can respond to competition. MAX film and mass marketing of disposable cameras put Kodak back into the hearts and minds of millions of customers who had drifted away towards lower cost Fuji films with punchy colors. Kodak's EasyShare family of cameras is still the simplest way to get started in digital. And ease of use is still the largest barrier to the use of digital point and shoots. Kodak has to turn its marketing muscle to making that the primary issue in consumers' minds--instead of mega-pixels.

Among pros and advanced amateurs, there is massive confusion as to the role Kodak wants to play in their digital business. Kodak's early innovation in high-end digital cameras has turned into a disjointed set of products which are no longer leaders in their market. This is an area where Kodak needs to decide really quickly whether to fish or cut bait--and how to either partner or compete with Nikon and Canon. Kodak still has the imaging science to be a software leader here as well, but historically has been completely unable to market its imaging and color software to any broad audience--despite numerous acquisitions of software products and companies to beef up its own remarkable in-house technologies.

The good news for Kodak is that digital imaging is really still in its early stages--particularly in the key commercial market. Photofinishing retailers and commercial photographers alike are still skittish about the transition. Here is where Kodak can win big. With a rock solid brand, Kodak can be a leader of this transition, with risk-reducing offerings and education on how digital can be profitable for pros.

Raw Printing: Tomorrow's Custom Lab?, plus Time Saving Computer Tips. In an unexpected move, Kodak Japan has announced that they will begin producing prints from customers' Raw files--including those from Nikon, Canon and Fuji D-SLRs. While unlikely to produce large revenues, this kind of creative thinking is what will help Kodak gain marketshare and mindshare of digital users. We'll be waiting to see if this step is repeated in the US.

Kodak still has the top photographic brand, a long list of innovative technologies, and a huge business in imaging. We'll see if the new management team and new strategy can turn those assets into the foundation for growth in the 21st century.

A Day in Paradise:
Fall Color in Northern Michigan

Upcoming Events:
Seminars, Talks and Photo Safaris

• Fall Color Seminar & Day Shoot with Digital Extension. To register

• Bay Area Bird Photographers (Palo Alto, December 3rd, 2003)

• Sequoia Audubon Society (San Mateo, January 8th, 2004)

• NEW: Bird Photography class. (Palo Alto Baylands, February 28th & 29th, 2004)
      (registration info forthcoming, or email safaris@cardinalphoto.com)
   

• Yosemite in Spring! Digital Landscape Workshop (Yosemite, March, 2004)

• Grizzly Bears and Puffins (Cook Inlet, Alaska, July, 2004) Pre-register.

DigitalPro Tip: If your copy of DigitalPro2 is starting more slowly, try clearing the preview images (using Tools->Clear Preview Cache) to cut down the startup overhead of loading the image cache.