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Your business model can be your biggest enemy: How did Kodak fall?

Kodak was one of the most successful companies in the 20th century, controlling 70% of the US film market. It was so popular and well marketed that people often referred to the photographing of significant moments, such as birthdays or holidays, as a “Kodak moment”.

In January 2012, after not being able to keep up with the rising popularity of digital photography and the death of photo films, Kodak filed for a Chapter 11 bankruptcy protection. Although the company exited its bankruptcy in 2013 (or 19 months later), Kodak returned as a smaller company. Owning 7,000 patents, being an avid technology developer and having learned about innovation the hard way, it still has a lot to offer.

So how did Kodak, once the dominant market leader, manage to go bankrupt in the first place?

A usual argument is that Kodak failed to innovate, and that’s why it did not catch up with the digital photography revolution. That is not true. Kodak, and in particular its engineer Steve Sasson, invented the first digital camera, before anyone else did, in 1975.

Maybe then Kodak didn’t anticipate the rise of digital photography? No, they did. In 1981 Vince Barabba, Kodak’s Head of Market Intelligence conducted a study, which showcased how digital photography could replace Kodak’s film business and that they had about ten years to prepare for the transition.

Then, what happened?

Kodak was too comfortable with its current business model and it failed to make any transition. As a matter of fact, as New York Times reported, Kodak’s management told their engineers that filmless photography is ‘cute - but don’t tell anyone about it’.

To add, any kind of innovation was so intertwined with Kodak's existing business model and its dependence on films. In 1996 Kodak spent more than $500 million on research and development to launch the Advantix Preview film and camera system. Advantix allowed its users to preview their photos, which were taken on film, before deciding which ones to print. As Forbes rightfully describes ‘Advantix flopped. Why buy a digital camera and still pay for film and prints?’

The key takeaways from Kodak’s story are: a) The markets move and evolve. Innovation always takes over, cancels existing leaders, and creates new ones. b) Stay open. Always consider possibilities, even if they lead you outside of your comfort zone.

Kodak didn’t fail because it lacked innovation. The company was actually a pioneer in innovation, yet, its executives chose to ignore it.

'3 Min Reads' is a series of innovation stories brought to you by Capacitor Partners. As you may have guessed, each story takes about 3 minutes to read - yet delivers a powerful message.


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