SourceCode: What went wrong at Kodak?

The Big Freeze: Kodak faces uncertain times. Photo from Vator.tv

By Gadjo Cardenas Sevilla

The recent news that Eastman Kodak could be headed into bankruptcy is surprising not just because Kodak  has thrived for most of its 131 years, but because innovation and invention have long been the foundations of this once great and powerful company. Long after it monopolized film and consumer cameras, Kodak's list of critical innovations have touched the world at large. 

Aside from constant breakthroughs in chemical film, photography and processing, Kodak is responsible for a number of disruptive innovations that changed the course of history. The photo CD, the LED screen technology, CMOS sensors and a host of other  technologies are now the basis for the way we take and share photos.

Kodak even bravely spearheaded digital photography and is credited for inventing the digital camera back in 1975 and was among the first companies to sell consumer grade digital cameras and memory cards in what would be an industry that was so successful it all but obsoleted chemical film and changed the way we take and share pictures forever.

A Cautionary Tale

So what went wrong with Kodak? Did the tide of innovation wash them aside, did competition get better and offer cheaper solutions faster? It seems that while Kodak managed to innovate and the products were good, bad business decisions and failure to differentiate themselves from the competition slowly did them in.

According to The Telegraph, "Kodak's share price has fallen from $30 five years ago to just a few cents in the last month as hedge funds refused to extend its credit and the company tries to sell its patents to raise cash." As of this writing, Eastman Kodak stock is at $0.42 a share.

Very few of the company's products or services are earning as expected and the losses have added up through time, as a last resort, Kodak now has to cannibalize and sell off its patents cache to avoid going bankrupt.

Patents have become the new currency and weapon of choice of tech companies competing in the mobile, consumer technology and computing markets.

A 131 year old juggernaut like Kodak has a sizeable patent portfolio that newer companies like Google, Apple, Microsoft, Intel and others would love to have and can now afford.

Kodak has actually been living off its patents for some time now.

According to the Wall Street Journal, "the company made $1.9 billion between 2008 and 2010 through licensing and litigation over its IP."  So patent games are something Kodak has learned to play except at this point the money generated by its intellectual property may not be enough.

A Bloomberg report states that, "Analysts have said the (Kodak) patents could fetch $2 billion to $3 billion, but no takers have emerged since the company started shopping them around in July. In November, the company had said it could run out of cash in a year if it didn't sell the patents.

If Kodak runs out of cash, it will be ripe for takeover by another company and we know that all they would want are the patents and possibly the brand which is still an iconic and globally recognized name.

The Smartphone did it

In a way, Kodak is facing bankruptcy because it seems that the already small share it had in digital cameras is being made even more insignificant by today's smartphones which are the preferred way for most people to take casual photos. Prices of entry level point and shoot cameras are at their lowest price ever, some even going as low as $75 because few people are buying them.

Ironically, Kodak owns a number of patents pertaining to cameras in smartphones and is in court with companies like RIM and Apple on patent disputes.

The digital camera market is also undergoing a sea change right now with smaller interchangeable lens cameras chewing up some of the upper share of DSLRs and they are almost as affordable as point-and-shoot cameras.

P&S EasyShare cameras were Kodak's bread and butter, they had various inexpensive models that were known for their simplicity and ease of use.

More recently, Kodak got into the portable video recorder segment just as the leading company in this niche, Flip Video, bowed out of the market due to poor sales and flagging interest.

The culprit here was once again the smartphone with recent models offering HD video recording that was just as good as what these standalone $150 devices offered. Kodak has also been agressively selling its printer and ink products but this segment is dominated by the likes of HP and Canon.

Jordan Weissman writing for The Atlantic notes,  "But the company 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. Its problems are almost reminiscent of another struggling giant: AOL."

To many, Kodak's path seems to be the one that Research in Motion is headed straight for unless it can pull itself out of its current predicament. Like Kodak, RIM invented and innovated and even created its own market but when competition eventually flooded in, it was slow to capitalize and lost its lead and faith of its investors was shaken.

Culturally significant

It is heartbreaking to see a company with Kodak's technological, and more importanly, its cultural significance facing ruin and essentially running against the clock.

As an avid photographer who loves both digital and film cameras the importance of Kodak cannot be overestimated. My first camera at age eight was one of Kodak's snapshot cameras (the Ektra 100) that opened me up to a world of photographic possibilities.

It is tough to see the company behind so many magic moments fighting for its life in a new and unforgiving economy.

Sources: The Atlantic

               Wall Street Journal

               Bloomberg