The case of Eastman Kodak & digital cameras (1975-2012)

Main areas: Patterns of digital disruption, disruptive strategy & business models
Other possible areas: Lean innovation

Eastman Kodak Case

Going into the mid-1990s, Eastman Kodak was a giant in the photography world. Founded in 1888, the company built up a dominant position in the camera and photographic film industries over the next century. Zhang (2018) notes that “by 1976, 85% of all film cameras and 90% of all film sold in the US was Kodak”. By 1997, they still controlled two thirds of the market; however, the subsequent fifteen years saw a dramatic decline. By mid-2011, Kodak was offering its remaining patents for sale, and in early 2012, the company had entered bankruptcy and was delisted (Zhang, 2018). Although the company emerged from bankruptcy, it was a shadow of its former self.

Digital Photography at the Heart of Eastman Kodak’s Decline

One major cause of Eastman Kodak’s decline was digital photography, which became popularized in the late 1990s and early 2000s (xedknowledge.com, n.d.), and for which the company was seemingly poorly prepared. However, there is a well-known twist to this factor: it was Eastman Kodak themselves who invented the digital camera, as far back as 1975 (the original prototype can be seen in Figure ‎1 below).

Figure ‎1: The first digital camera, developed by Eastman Kodak in 1975
Source: Hudson (2012)

Despite rapid internal improvements over the following years to the technology, which could have been commercialized, company executives refused to develop and market the project to its full potential, convinced that film would never decline substantially as the basis for photographic development and that “no one would ever want to look at their pictures on a television set” (Estrin, 2015).

Although the company did patent and to some extent develop digital technology through the critical two decades following its invention, their early refusal to market it properly left them unable to catch up to the competition, who popularized digital cameras in the late 1990s and early 2000s and quickly flipped almost the entire photography market from film to digital. In perhaps a stark example of their lack of interest in the digital space, Kodak Chairman Kay Whitmore famously fell asleep during a meeting with Microsoft’s Bill Gates to talk about incorporating Kodak’s technology into Windows (Hiltzik, 2011), a partnership that surely could have helped project the company into a leading role in the new digital era.

The Power of Digital Imaging

What Eastman Kodak initially missed was the potential of picture digitalization to radically simplify the processes of taking, storing, viewing, and sharing photographs. They were wrongly convinced that customers would continue to prefer film and would continue to require extensive assistance at photographic outlets, and they lost their revenue base quickly as a result (Hiltzik, 2011; xedknowledge, n.d.). Their business model – which partly relied on the process of developing film at photography studios – fell by the wayside quickly once digital photography removed the need for film development for most users.

In general, digital cameras were a massive revolution for photography. Being digital, the technology and its use was able to spread exponentially. Notably, digitalization allowed customers to take exponentially more photographs than with film, which was expensive both to buy and to have developed. Film, therefore, could grow at best linearly. Although digital cameras decimated the revenue stream related to film, it allowed every person to take photographs cheaply and easily, and the rise of the internet – notably social media – enabled and incentivized people to share digital pictures at a rate never before imagined by the industry.

Digital cameras rapidly reduced in price (demonetized), growing the customer market rapidly. Later, cellphones began to include cameras as an added feature, meaning that almost everyone began to acquire photography capabilities without the need to own a dedicated camera. Unless they partnered with cellphone manufacturers, this was bad news for camera manufacturers as their product had essentially disappeared (dematerialized) as a stand-alone device in many, if not most, households.

We see the digital disruption of analogue photography in Figure ‎2.

Figure 2: The growth in photography with digital disruption of analog
Source: xedknowledge.com (n.d.)

Digital imaging ultimately democratized photography, which has changed society fundamentally since it has allowed people to share their lives and connect globally, and has enabled social revolutions such as citizen journalism and the uncovering of police brutality. While traditional photography companies such as Eastman Kodak declined or fell, the digital revolution also created new business models for revenue streams in the area, such as the ways in which social media companies host user pictures or video for free in order to advertise to those users or sell their data, and internet giants use freely-supplied user photographs to train artificial intelligence algorithms.

Conclusion: Eastman Kodak

Photography itself has only increased in popularity. However, digitalization led to a major shift away from companies like Kodak which could not imagine the dramatic shift lying ahead to new and completely different business paradigms.

Challenges to the Reader: Eastman Kodak

Consider the following questions in relation to the Eastman Kodak case.

How did Eastman Kodak reflect the 7Ds model of digital disruption?
Do you think Eastman Kodak could not only have survived but thrived, and how? This is obviously a highly speculative question. However, marshalling what you know about the technology industry and the trajectory of photography, try to consider whether Eastman Kodak could have survived, and how.

Reflections on the Challenges: Eastman Kodak

How did Eastman Kodak reflect the 7Ds model of digital disruption?

The Eastman Kodak story with regard to digital cameras illustrates many features of the 7Ds step model of digital disruption:

Digitization: Of course, by definition, digital cameras as invented by Eastman Kodak digitized photography.
Dramatization: There is, in fact, no indication that dramatization / hype happened in this case.
Deception / disillusionment / denial: One could certainly argue that Eastman Kodak exemplify the trap of deception or denial, in other words that they did not grasp the potential of their own invention and, as a result, fail to adjust their strategies and business models to it. Admittedly, they would have been far ahead of the curve had they grasped digital photography early on (as discussed in the next reflection), which allows them to survive for several decades. However, their continued denial of the disruptive potential of digital photography even up until the 1990s eventually leads to their demise.
Disruption: We see in Error! Reference source not found. how the exponential trend of digital photography thoroughly disrupted traditional, analogue (film-based) photography. This partly occurs because, as discussed in the next point, digital cameras radically reduced the costs of the art form (demonetization). Note that the disruption of photography does not necessarily mean that Eastman Kodak itself had to be disrupted and perish like they did – the next reflection illustrates this.
Demonetization: Digital photography removes much of the variable cost of the process (buying film, developing it, and ancillary products such as photo albums in which to store them), and once cellphones shipped with camera even the device cost was subsumed by a commonly required physical object. Even the storage cost of photography was removed when social media companies widely took over the function of photo curation for free. Thus, digital imaging demonetized photography.
Dematerialization: The removal of film from the equation is an example of dematerialization, a physical piece of the process being removed or reduced. In addition, even the exitance of a separate, stand-alone device in the form of specialist cameras was radically reduced with the inclusion of cameras in cellphones. Digitization allows for this by allowing for a minimal deployment of digitalized functions within miniaturized electronic components.
Dissemination: Digital photography rapidly becomes almost ubiquitously used worldwide, illustrating massification. Digital photography has also radically altered societal patterns, such as the way many people communicate, project humor, watch entertainment, and so on. This illustrates the power of disruptive technology to create social change.

Could Eastman Kodak have survived and even thrived?

We would argue that Eastman Kodak could not only have survived, but also in fact thrived in the oncoming digital era. Part of this argument is to consider that photography itself not only increased in popularity after digitalization of the art form, as seen in Figure ‎2, but was at the heart of significant new business models.

Consider, then, that Eastman Kodak controlled the patent for digital imaging from 1975 to 1995. If they had committed to digital photography, during this time, they would have had endless ability to commercialize the technology without competition, and to innovate further in the field. One can imagine that, as Eastman Kodak honed digital cameras to a high standard (perhaps into the 1980s after an initial period of development), most households would have adopted these at a premium given that they eliminated the variable costs associated with buying and developing film, as discussed in the first reflection above. This strong start in the digital photography era would have fared Eastman Kodak far better into the late 1990s and early 2000s as their sole patent expired.

However, Eastman Kodak’s traditional profit source of photographic film sales and development would have dwindled as digital cameras exploded, so even dominating digital cameras and being able to charge premium prices without competition for a while may not have been enough.

However, reflect also that part of this story is a shift away from traditional, handheld cameras themselves towards other deployments of photography, other forms of imaging, and new sources of revenue. So, dominating cameras was probably not the key to continued survival of Eastman Kodak anyway. Could they have found more long-term options for survival and growth?

The case study alludes to one possibility. In seeking Eastman Kodak’s partnership during the 1980s, Microsoft was presaging the far wider applicability of digital imaging than just photography, a vast array of fields in which Eastman Kodak could have licensed their technology and become core.

Perhaps more tantalizing is a highly speculative possibility. Consider if Eastman Kodak had embraced digital cameras through the 1980s. As noted above, although they could have sold this as a premium, their traditional film-based profits would have been denuded. Imagine then, if they had asked themselves where the new sources of profit could come from. How long before would Eastman Kodak have realized that the real potential lay in the deeper relationship with their customers, and that an ongoing relationship could be nurtured through curating not only the digital photographs taken by the customers but other elements of their life? This sounds a lot like social media, which eventually became a major new industry and source of profitability. Is it possible that, given the early start given by dominating digital imaging, Eastman Kodak could have become the first social media company, many years prior to the likes of Facebook?

Of course, photography itself never dwindled, but, following the advent of the smartphone in 2007, cellphone cameras have taken over. Could Eastman Kodak have participated in making these for the likes of Apple? Probably not; however, it would have been a possibility.

So far, we have speculated on where Eastman Kodak could have revitalized their business, but not on what managerial disciplines could have been applied to achieve this completely different reality to what actually befell them. We would submit that one major approach, widely adopted by successful players in the modern digital world, would have been key. This is a set of lean innovation principles, especially experimentation. Imagine if Eastman Kodak had taken the nascent digital camera to users, especially professional camerapeople, from the 1970s. If they had experimented with such users on the concept of digital cameras in build-measure-learn cycles constantly through these initial years, they would almost certainly have realized rapidly that digital was the way of the future, encouraging them to adopt it en force. Such experimentation cycles would also not only have streamlined the development of the concept but also learned deeply about the needs and preferences of users, allowing them to perfect not only the product but other elements such as the business model. Lean innovation principles such as this have become crucial tools in the digital era. You can read more about this in Armstrong, B. & Lee, G. J. (2024). Digital Business Vol III: Digital Transformation & Maturity (2^nd Ed.). Mercury Books, which you can link to at the bottom of the page.