Kodak

"At the same time, he was investing in Pacific Film Laboratories, which was giving Kodak a run for market dominance by employing what was then the latest computer-assisted processing technology, as well as giving away free film to those who took photos there for processing. In 1982, he made a takeover offer for the company. This, too, became owned by ACE, and after the takeover Stokes changed the board so it had largely common membership with Australian Capital Television. Stokes took to referring to the different interests ACE held as ‘partners’, with the relationship between them and ACE ‘not that of control but rather cooperation’. He clearly saw all kinds of potential for collaboration across media and photography. Pacific Film, however, did not last as a Stokes investment. In 1985, he sold out to Kodak, ahead of the dominance of the domestic digital camera, the minilabs for processing on each street corner, and all the changes that transformed photography forever. ‘I lost a fortune,’ he told The Bulletin in 1991.9"

"Before turning to those cases in which collateral damage serves as the decisive inhibitor, I would like to comment on another frequently discussed issue. Kodak could have easily taken the view that their business was image storage, not film, thus avoiding “marketing myopia.”29 Unfortunately this broader view of the business would have been to no avail, as the lack of semiconductor capabilties would have remained and been decisive in determining a negative outcome."

"More generally this situation can be characterized by three conditions: A new superior approach is developed (lower costs and/or improved features). The products from the new approach exhibit a high degree of substitutability for the products from the old approach. In this case, as semiconductor topologies shrunk, digital imaging came to completely supplant chemical imaging. The incumbent has little prospect for Power in this new business: either the industry economics support no Power (a commodity), or the incumbent’s competitive position is such that attainment of Power is unlikely. Kodak’s formidable strengths had little relevance to semiconductor memory, and those new products were on an inevitable path to commodization."

"1. Milking: Negative Combined NPV. Suppose the new approach was unlike digital storage for Kodak and instead looked promising on a stand-alone basis. In this case, our hypothetical CEO would face another set of issues:"

"In its first step, the business development team would hive off those situations in which a stand-alone assessment of the new approach forecasts an unattractive return, as these are not Counter-Positioning. To this end, the team would pose this question: If “No” is the answer, then collateral damage does not account for the incumbent’s rejection of the challenger’s approach to the business. The new approach is simply a poor bet all by itself. Here the example of the digital camera challenge to Kodak is instructive. Kodak’s business model was legendary, built on the customer’s continuing need to purchase film, a product in which Kodak was wildly profitable due to both Scale Economies and a proprietary edge (this Power type is Cornered Resources, to be covered in Chapter 6). Kodak offered the first of its path-breaking Brownie cameras in 1900. By 1930 it was one of the firms in the Dow Jones Industrial index, and it stayed in that group for more than 40 years—one of the great business empires. Until digital photography came along, that is. Anyone could extrapolate from Moore’s Law that analog chemical film was eventually doomed. Pundits have looked back and chided Kodak for poor management, lack of vision, and organizational inertia, and a reasonable person might well ask, “How could a company high on the lists of the best companies in the world succumb to such a defeat?” A reasonable question. And the answer is much simpler than many suggest: in fact, Kodak was fully aware of its eventual fate and spent lavishly to explore survival options, but digital photography simply was not an attractive business opportunity for the company. Kodak’s business model was built on its Power in film—it was not a camera company. The digital substitute for film was semiconductor storage, and Kodak brought nothing to this arena. As a company, Kodak had excellent management; thus the observed wheel-spinning, their fruitless explorations in the"

"PACIFIC FILM HAD one thing in common with PGF: Stokes bought it just as its market was colliding with technical changes that made long-held knowledge and ‘advantages’ obsolete. Buying Pacific Film was ‘like buying a yacht with a big hole below the water line’. He explains: ‘I misread the problem. I thought it was marketing but it was the same problem Kodak had: the world was going digital.’"