Kodak faced a similar story in the aughts, when it first attempted to remake itself as a leading digital camera company, and more recently, as a high tech printer maker. Kodak wasn't a late-comer to digital photography. In fact, they invented it. Its engineers pieced together a large, boxy prototype in 1975, calling their new technology "filmless photography." In 1991, they partnered with Nikon to market a professional-grade digital camera, and in 1996, they debuted their first point-and-shoot. Still, compared to competitors such as Fuji and Olympus, Kodak moved slowly, choosing instead to focus on its core business of making and selling analog camera film. That changed at the turn of the century, when then CEO Dan Carp vowed to invest two-thirds of the company's research and development budget on digital projects.
The initial result was a smashing success. In April 2001, Kodak debuted its EasyShare line of point-and-shoots, which made it simpler to download photos onto your computer and featured a longer battery life than most competing products. By Christmas, stores couldn't keep them on the shelves. By 2005, Kodak was the top-selling digital camera brand in the United States.
But while the cameras were a hit with consumers, they were a dud for Kodak's bottom line. As early as that first Christmas of blockbuster sales, Businessweek reported that there were signs that the margins on digital cameras were about to drop. And drop they did. The cameras swiftly became commoditized, and it became harder to eke out a profit. By 2006, current CEO Antonio Perez was quoted calling digital cameras a "crappy business."
Kodak's investment in digital technology wasn't a total wash, though. It created a valuable chest of intellectual property, which would help keep the company afloat for the next several years. In the second half of the aughts, Kodak became a professional patent troll. According to the WSJ, the company made $1.9 billion between 2008 and 2010 through licensing and litigation over its IP.
That money was used to tide the company over while it invested in a new endeavor: printers. Before he arrived at Kodak in 2003, Perez had been an executive at Hewlett-Packard, where he headed up the company's inkjet imaging business. Kodak, he thought, had a chance to innovate in that sector. As the WSJ explained in August:
Kodak began selling printers to consumers in 2007. Its strategy was to turn the industry's prevailing approach on its head by offering a more expensive printer and cheaper ink. At its core was a bet that nanotechnology used in filmmaking would enable Kodak's scientists to produce an ink that wouldn't clog printer heads, which typically have to be replaced at each refill, adding to the cost.
By 2010, the company held 3% of the all-in-one inkjet printer market world-wide, according to IDC, up from 1% in 2008. Kodak's strategy is to subsidize the cost of the printers until its installed base is big enough to generate a lot of ink sales. Still, because its ink refills are cheaper, Kodak is able to sell its printers at a higher price than competitors.
Sales are growing. But as of last quarter, Kodak's innovative printers still weren't turning a profit. And while the company is litigating a case against Research In Motion and Apple over the technology in smartphone cameras, its income from lawsuits has dried up. Today, Kodak is trying to sell off its cache of digital patents, which may in fact be worth more than the company's market cap. In a way, it's a fitting metaphor for the company's recent history: Often great at innovation, but always bad at business.