The Rise and Fall of the Company that Invented Digital Cameras

By Steve Brachmann
November 1, 2014

Imagine a time well into the future where someone might not understand what it means to “Google” something. A time when they would have absolutely no clue that the name of this corporation was used colloquially to describe a search of Internet-based content and data. Or, as it is essentially used in conversation, as the way to find the answers to your questions.

That mental image is impossible for anyone with regular Internet access to fully realize, with good reason: Google is a company offering a product, but that product has become something with widespread cultural implications. The Information Age is driven by the value derived by instant access to data, and one of the foundational tools of consumer access to data is the search engine.

If, in 100 years, Google is no longer recognized in this way, it would be said that Google had become the world’s next Kodak. What had been known as “the Kodak moment,” a culturally persistent reference to a moment in time with friends or family that should be saved for posterity, has been completely subverted by “the selfie” and the act of “gramming” a picture on Instagram.

There are few more interesting tragedies in the history of American business than the demise of Kodak, which filed for Chapter 11 bankruptcy in January 2012. and few that are more frustrating given the fact that the key to the company’s renewed success lay within its grasp for years. Digital photography, the technology that decimated Kodak in the 1990s and 2000s, was originally a Kodak innovation. The company’s stubborn refusal to support the development that rivalled its core product, film, should be a cautionary tale to any major corporation and a sign to innovative start-ups that even the most monolithic corporations can become vulnerable.

 

The Rise of the Kodak Empire

It’s not impossible to understand why Kodak would be so single-mindedly set on protecting its core business: film was wildly successful for decades. At its peak, about 70 percent of the U.S. film market, consumer or otherwise, was locked up for Kodak, and the company had a strong international distribution as well. The gross margins on film sales approached 70 percent as well; Kodak was selling a lot of film, and it was making them a ton of money.

Founded in 1888 by George Eastman, Kodak was responsible for the rise of amateur photography among American consumers, and it took photography out of the professional portrait studio and into everyday life. In 1900, the company released the Brownie camera, a consumer model that customers bought for $1; they paid an additional 15 cents for film. In 1912, the company released the Kodak Vest Pocket camera, which weighed 10.5 ounces, measured one inch in width when fully compressed, and sold by the millions by the time production stopped in 1926. The 1920s were an important decade for the company: in 1923, the company produced the Cine-Kodak for home movie making, and in 1929, Kodak released the first film optimized for motion pictures with sound.

Much is made by those commentating on Kodak’s corporate history of the company’s advertising success as well. The company successfully exhorted those with families to become archivers of those ethereal Kodak moments, which could now be forever captured in a photograph caught on film. Having created the consumer market for film photography, Kodak used its campaigns to inspire people to use its products. Phrases like “Kodak as you go” or “Keep a Kodak Story of the Children” can be found all over the company’s old advertisements, which were dripping with sentimental language and also featured colorful photographs of people gifting, using or otherwise enjoying their Kodak cameras.

In 1962, Kodak employed 75,000 people and earned more than $1 billion in U.S. sales. It had achieved an incredible position over the course of 70 years in an industry that was largely its own creation. The company had gotten to that point by focusing on selling inexpensive cameras to keep consumers buying its film. The way Kodak saw it, there was nothing more important to the company’s success than protecting its interests in film photography.

 

Kodak Invented the Digital Camera

That fact may very well explain why executives at Kodak didn’t take advantage of a technology that would form the foundation of the next generation of cameras. As we discussed in our recent coverage of the Evolution of Digital Cameras, the digital camera was invented during the mid-1970s by Steve Sasson, an electrical engineer working at Kodak.

What Sasson did was to build a system of electronic components that could capture an image and display it on a screen. Nowhere during this process was film required. Sasson’s invention focused on the use of the charge-coupled device, a light-sensitive electronic sensor designed to gather optical information and convert it into digital data. In December 1975, Sasson and chief technician Jim Schueckler performed the first successful test of the digital camera at Kodak.

The pictures produced by Sasson’s digital camera were not of the same image quality as film photographs; the camera was a 0.1 megapixel camera in terms of how image quality in cameras is measured today. Sasson’s contraption, which required a constant wired connection to a television display to show images, was also highly impractical in terms of portability. Still, there were those at Kodak who understood the significance of filmless photography, and when Sasson presented the technology to the company it was estimated that Moore’s Law would make the technology viable for consumers within 15 to 20 years.

 

The Demise of Kodak

Addicted to the profits generated by its 35mm film, Kodak would do nothing that it saw as endangering the success of this business. A lack of early investment in digital photography during the 1970s brought a double-whammy during the 1990s as the giant corporation was not only laid low by smaller firms like Sony and Canon but the entire film photography industry created by the company was finally relegated to second-class status behind digital by the 2000s.

However, although the rise of digital photography as the sole reason for Kodak’s failures makes a good story, it was not the first major technological disruption in the company’s history. Instant photography had been invented by 1950 and Polaroid was able to develop the cameras needed to capture this segment of the market. Kodak developed its own instant photography products but was sued by Polaroid and ended up having to pay that company $909 million in 1990. Throughout the 1980s, a major shift in the film market was sparked by Japanese photography company Fujifilm, which was able to sell mass-produced film to huge retailers like Walmart for a price less than Kodak’s film, a move which dramatically undercut Kodak’s profits. By the late 1990s, Fujifilm had captured a large portion of Kodak’s share of a market that was quickly being evacuated anyways.

Kodak did not sit still and simply watch its business diminish, although in some cases it may have been better if they did. The company did focus on some digital photography innovations during the 1990s, including the creation of the film-based Photo CD and a computer printing dock for photos. But its focus on film’s profitability and the chemical processes used to create that film led the company to make some inadvisable business decisions. For example, in 1988 Kodak paid $5.1 billion to acquire American pharmaceutical company Sterling Drug. The company hoped to utilize its expertise in chemical engineering to create drugs with high profit margins, but lacked the ability and resources to apply that knowledge in creating patented pharmaceuticals or extremely cheap generic medications. Kodak dismantled the Sterling operations and sold off the remainder of their pharmaceutical business for less than $3 billion only six years after acquiring Sterling.

Peak employment at Kodak was experienced in 1988, when the company employed 145,300 workers across the world. In 1999, Kodak enjoyed its highest stock price ever, with shares approaching prices of $80. However, by this time the damage had been done, and the fall would be precipitous: Kodak stock was 78 cents per share as of September 2011, just months prior to the company’s Chapter 11 filing.

 

What Could Have Happened Differently?

Kodak is not the first company to face major threats to its success posed by the ability of new technologies to disrupt markets. It is certainly not the only company to have its profits damaged by missing the boat on a new technology. The history of personal computer development provides a couple interesting examples of this. For instance, Xerox and that company’s Palo Alto Research Company (Xerox PARC) invented many of the technologies that form the basis of personal computing, such as bit mapping, graphical user interfaces and Ethernet networking, much of which were incorporated into the company’s Xerox 914 photocopier. Although the product was wildly successful, Xerox focused on the photocopier elements in research and development and ignored the personal computing aspects, allowing companies like IBM and Apple to take advantage of market opportunities much later.

Stories of successful transitions that mark a major shift in business also exist, however. IBM had been a major early developer of personal computing technologies. However, when the profits from computing commodities began to drop as personal computers became less expensive for consumers, the corporation was able to successfully shed its PC business and move into the technology consulting sector.

As a corporation with massive profits and huge research and development activities, Kodak had the power in the 1970s to make some strategic investments in Silicon Valley companies. The CCD electronic sensor used to capture image data for the Kodak digital camera was developed by Fairchild Semiconductor, one of the seminal Silicon Valley companies. As at least one commentator aptly points out, Kodak’s legacy attachment to film blinded it to the potential that digital imaging had to disrupt the photography market. Partnership with smaller technology firms in the 1970s instead of keeping digital camera production in-house would likely have enabled the corporation to compete in the digital camera industry that exploded throughout the 1990s and 2000s.

The story of Kodak should be a cautionary tale to companies of any size: if you invent a technology with consumer potential and you ignore it, you do so at your own peril. Kodak knew that digital photography was going to become a consumer technology at some point in the future, but they did not anticipate digital toppling film the way that it did. Companies which fail to take advantage of the reasonable applications of their intellectual properties are likely doomed to repeat this fate on some level, while companies who can spot vacated opportunities like this one will have much more success over time, no matter how profitable 35mm was at one point.

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 8 Comments comments.

  1. Benny November 2, 2014 7:06 am

    Interesting article.
    I would add that at the time digital cameras were making their first, expensive inroads into the “early adopter” market, Kodak was trying to promote a replacement for 35mm film, which it called APS (advanced photo system). This film would record camera data on the negative for use in processing/developing. It wasn’t readily accepted.
    Anyone who has read the book “the innovators dilemma” can see exactly who this came about – the early market for primitive digital was too small to generate an increase in profit for the company, relative to the investment required
    Microsoft may well be heading down the same path, in competition with iOS and Android.

  2. Dick Stahl November 2, 2014 9:24 am

    Great Article…

    I used to work for Kodak as an engineer in the 70’s.

    In a broader sense what happened to Kodak is now happening in the book industry… as companies fail to recognize the shift from PRINT to DIGITAL.

    In 2011 Borders went out of business — and a key contributor was its failure to adapt to digital and on-line sales. Borders actually outsourced its online book-selling to Amazon.com.

    Borders didn’t foresee the popularity of e-books like Amazon did and later as Barnes & Noble did. And when you walked into Borders store, you barely knew that they sold e-books for e-reader devices.

    The business model for publishers is changing! As more consumers read books on Kindles, Nooks and mobile devices, every sale becomes a Rights transaction. This is very different from the traditional sales model, where publishers moved product from inventory to retailers and then to consumers — and those pricing models are becoming obsolete.

    The entire industry for ‘content’ is also converging as content becomes interactive. Is a book ‘content’ or is it an ‘app’? These are the challenges facing publishers and media companies alike!

    Companies that fail to embrace this Digital change may soon become the next KODAK!

  3. Benny November 2, 2014 9:34 am

    Dick,
    A little off topic here, but what you describe is much more relevant to the music industry. Amazon still enjoys huge sales of printed books, and that is what is putting the brick and mortar bookshops out of business. An industry insider once said that in the last century the music industry wasn’t selling music – they were selling little plastic circles – as long as the circles shifted across the counter and money changed hands, the content was irrelevant. Same with books, really.
    I have a friend who is working for Kodak – they still have a presence in the commercial printing business.

  4. Next November 2, 2014 9:44 am

    Awesome summary.

  5. Simon Elliott November 2, 2014 2:07 pm

    The same unwillingness to embrace a competing technology can be seen with Microsoft and its Windows business line.

  6. tifoso November 3, 2014 2:32 pm

    There is more to the IBM personal computer story.

    IBM dominated the personal computer market with its XT. When it brought out the AT, based on the Intel 80286 chip, IBM made two major blunders. One was the attempt to corner the market on peripherals by using a proprietary interface. A printer that worked on the XT would not work on the AT. You had to buy a new printer. That, in essence, raised the price of the AT.

    The other blunder was the result of internal corporate politics similar to the Kodak problem. The AT bore an artificially high price tag. The story that I was told by someone in the know was that the division that made and sold the IBM Selectric III typewriters fought any attempt by the PC division to price the AT below the price of the Selectric. The fear was that the AT would make it clear that word processing would destroy the market for typewriters, a corporate cash cow. IIRC, the Selectric sold for around $1,300. so the AT was priced above that, around $1,400. These figures may be off Intel sold the 80286 chips to many who put them in their PC’s. The competitor’s PC’s sold for around $600. Only those who were married to IBM bought the AT. IBM subsequently sold the PC division.

    Just as Kodak’s film people stopped the digital camera development, IBM’s typewriter people killed the IBM PC division – or so I was told.

  7. Benny November 4, 2014 1:57 am

    tifoso,
    Your story doesn’t resonate with my own experience. First, both the XT and AT models used Centronics printer interfaces. Add on interface cards – “hercules” was the most common – were not expensive (by the standards of the time) Secondly, where I worked the last Selectric typewriters left when the XTs’ came in – that was a couple of years before the AT.

  8. tifoso November 4, 2014 6:32 am

    Benny –

    Whatever your personal experience, the facts are there. IBM used the ICA bus when it introduced the AT. Later, it went to the proprietary MCA bus which required proprietary peripherals. Savvy customers realized they were headed down the path of higher prices and resisted. The industry responded with the EISA standard so that existing peripherals would work with the non IBM PC’s.

    The Selectric III typewriter was introduced in the early 1980’s. The AT came out in 1984 and continued until 1987. There was a substantial overlap. At one time, users even hooked up S III’s as printers for the AT.

    You state that where you worked the Selectric typewriters left when the XT came in. Perhaps that happened where you worked but it was far from widespread. Look at the dates. The XT came out in 1983. Selectrics would be sold for years after that. They are still available refurbished for around $500. Many customers use them for filling in various forms and such.

    None of what you state contradicts that IBM’s typewriter division forced the PC division to price the PC’s higher than the price of the typewriters in order to protect the cash cow that was the typewriter market. Brachman’s article was about how Kodak mishandled the digital camera to protect its film sales. IBM mishandled the PC to protect the typewriter division.

Our website uses cookies to provide you with a better experience. Read our privacy policy for more information.Accept and Close