Shutterfly Inc.has agreed to acquire Kodak Gallery from Eastman Kodak Co. for $23.8 million after no other bidders came forward with a higher bid for the online photo service.
Kodak is selling Kodak Gallery as it restructures its operations in bankruptcy court.
Kodak warned that because the migration "will be a massive undertaking, involving the movement of billions of photos," customers' images may not appear on Shutterfly for months. Photos will appear under a "Kodak" folder in Shutterfly.
Kodak also announced that it is killing its digital cameras business and plans to focus on printing in an effort to save money.
At one time, Kodak -- the pioneer of modern-day handheld film cameras that brought into popular culture the phrase "Kodak moment" -- had more than 90 percent of the market share of film sales in the U.S. But the 131-year-old company struggled since the introduction of digital cameras.
For the company that actually invented digital photography it's a sad end. The fact that the firm is restructuring to concentrate on PRINTING?! is probably the saddest part of the story and points directly to why it has failed.
Printing?!... at a time when electronic readers are replacing books, magazines and pretty much any form of correspondence?
It was a stagnated leadership with no vision that brought the firm to this point. Because it had a sweet 90 percent of an analogue market to themselves and didn't acknowledge that the world would change with or without them, management froze from marketing the very innovation they created... instead, they licensed and sold it away.
Of their photography contempories... Nikon, Olympus, Canon and Fuji went digital and are thriving....Minolta and Konica went into the copier business and are surviving... is that the best model they could have chosen to emulate... when Rochester neighbor Xerox is moving on to consulting?
Producing and processing film in K-14, C-41, E-6 chemicals was a profitable business and why would management want to disrupt the status-quo? They didn't, and the business of imaging all went away to other firms with cleaner technology... their next move?... they are concentrating on the diminishing use of ink and paper. Oy vey.
With the accepted explanation for the demise of Kodak being the victim of disruptive technology, should anyone at the bankruptcy court share with the folks planning their future that being determined "and doomed" to stay analogue til' the very end might not be the long term solution.
Back in October Tony Jackson wrote in the FT about Clayton Christensen and of how Christensen's explanation of disruptive technology applied to Kodak :
Properly defined, a disruptive technology is cheaper than the existing version and initially not as good. For established players, this poses an acute cultural problem.
They got where they are by giving their customers what they wanted at the highest practicable quality. Faced with a cheap and dirty alternative, they may address the challenge, but it goes against the grain to devote resources to it.Thus, makers of mechanical diggers failed to meet the threat of backhoe loaders and integrated steel producers were caught unawares by mini-mills making steel from scrap.
Both products were for niche markets – those who could not afford the real thing. By the time they were of equal quality – while still cheaper – it was too late for the old guard to respond.
These examples were laid out in 1997 by the US academic Clayton Christensen in his remarkable book The Innovator’s Dilemma. As it happened, Kodak’s price peaked in that same year at $94.25. Last Friday it closed at $0.78.
Kodak’s predicament was not then advanced enough to figure in the book, but it illustrated the theme to perfection. For a century, it had based its business on silver halide film and paper. It was aware of the threat of digital imaging and had spent considerable sums tinkering with it, but to no useful effect.
In the mid-1990s I paid several visits to Kodak’s headquarters in Rochester, New York, and the cultural mindset was – with hindsight – on full display. Various executives told me how wonderful silver halide was.
Professional photographers could not do without it, nor could Hollywood. Digital was for amateurs. And even they would always want prints for the family album and home movies to send to distant relatives.
Kodak’s then chairman, George Fisher, was in an excellent position to know better. A technologist to his fingertips, he had recently moved from running Motorola. But faced with the stubborn Kodak reality, he took an awkward halfway position.
Film would co-exist with digital. If nothing else, he argued – in an upside-down version of Prof Christensen’s thesis – it was cheaper.
A picture taken with Kodak’s top-of-the-range digital camera would print out on silver halide paper with no loss of quality. But the camera cost $27,000. Even Kodak’s cheapest, with a poorer image than film, cost $1,000.
That would change, he conceded. But “the popular scientists get carried away with the pace of those things”.
It is instructive that Mr Fisher – a thoughtful and well-regarded manager, as well as a technologist – could get it so wrong. But in the event, it was not merely film that was doomed.
The camera itself was to be largely swept away. Today people take pictures with their mobile phones and chat face-to-face with distant relatives on their laptops.
So was Kodak’s fate inevitable? Not entirely.
In the days of film, it shared world domination with Fuji. Founded in the 1930s as Japan’s answer to Kodak, Fuji has had a tough time recently. But not as tough.
Thus, while its sales have fallen 8 per cent in total over the past decade, Kodak’s are down by nearly half. Fuji’s net earnings are down 20 per cent, while Kodak last made a profit in 2007.
And crucially, Fuji still had net operating cash flow last year of $2.4bn, while Kodak has had negative cash flow for the past two years running. Indeed, last week’s share price drop was prompted by fear that Kodak is finally running out of cash.
That looks increasingly plausible. Kodak has just drawn funds unexpectedly from an existing credit line and has hired lawyers specialising in restructuring – while stoutly denying that it contemplates bankruptcy. But why the difference between two so similar-looking companies?
Part of the answer, no doubt, is that whereas the US is the home of IT, Japan has for decades been the home of consumer electronics – digital cameras now included. Another cultural clue: Kodak did not attend the annual Las Vegas Consumer Electronics Show until 2004.
Meanwhile, the company tries to eke out a living from its dwindling patents and a belated push into ink-jet printers. The lesson: when that disruptive technology gets you, the company is never the same again.
No comments:
Post a Comment