[MUSIC].

I want to share with you the story of Kodak.

This is a really telling chapter in business history.

It's a pretty famous one. So, we'll think about innovation

generally. Remember these things, these floppy

disks? I don't use them anymore.

And I have probably a drawer at home full of these little floppy disks.

And for some reason I don't use them. I switched to these other things, these

thumb drives. Why would that be?

What is it that's better about these thumb drives than it would be about these

floppy disks? Well, when I ask people, some of the

kinds of things they'll say is that it's more reliable, it's faster, it's cheaper,

it's less easy to damage, it has more capa-, it has all kinds of advantages.

And they just do it, and so, over time, it made sense for me to switch from the

one to the other. But how did that process happen?

What went on there? One, another one, transition we can look

at is the transition from film to digital in the area of photography, and how that

happened. And again, I once had lots of film, I was

taking lots of pictures and I don't anymore, I don't use film.

I still take a lot of pictures but I don't use film.

And so what was it that caused me to migrate from film to this new media

called the digital camera? What we'll do is we'll rewind a little

bit and look back at Kodak, and look at the history of Kodak.

And see the company that actually, we'll see, invented the first digital camera,

is not the company that ended up exploiting it, that ended up taking

advantage of that. innovation that they made so Kodak the

name Kodak came with George Eastman, George Eastman was the founder of Kodak

and he wanted a name that could be pronounced in any language and if fact he

had it would sound the same in any language he said, his belief was that

this was I think, I think that this shows he already had world domination early on

in his idea about Kodak. George Eastman, what is, most famous for

was actually for making film movie cameras.

He was really interested in movie cameras and at the, at the time, to make

photographs you had to take a hard piece of glass and you paint an emulsion, that

is the sort of light sensitive material on there and then you would take that

glass and expose it through a lens and that would be your negative.

And from that you could use to print, other photographs from that.

Now, the problem is if you want to run a piece of glass through a movie camera,

that's problematic. And so George Eastman spent a lot of time

trying to crack this nut, he's trying to solve this problem.

What he came up with was a way of putting the emulsion, that light sensitive

material, onto a piece of cellulose. It was basically a piece of plastic.

And that plastic was able to be wound up, and so you could have what was the movie

camera then. You could move this plastic emulsion

across the lens, behind the lens, and take your movies that way.

He also had the insight, though, that, in still photography, there was a similar

problem. That people had this glass, they had

chemicals. And if you actually wanted to be a

photographer in those days, you had to go off and find, a bunch of chemicals.

It was expensive. You needed all this glass.

You had, processing in, in pure darkness. It was very problematic for just a, for a

normal person to be a photographer. And in fact, there were not very many

normal sort of amateur photographers except for people who took it as a very

serious hobby. And so what George Eastman figured out

was wait a minute, if I can get rid of the glass and the flash and all those

things, and put this film that I was using for the movie cameras into the box.

That might actually be photography. I might be able to do something with

still photography. In fact what he came up with was this

device called the Brownie. It was the Brownie camera that he got a

patent for. And here's how it worked.

There, here's a picture of a patent actually.

His, the motto was you push the button, we do the rest.

So what you would do is you would actually take a picture.

because you buy, o-, obviously you have to buy a brownie.

Then you take pictures with it. You send the whole Brownie back to Kodak.

Kodak would develop it, it would develop the pictures, would load it with new film

and send that back to you. And then, you'd have a new, the same

Brownie, but with new film in it and you'd be able to take it again.

And all this was about a cost of about $1.00.

Well, the brownie cost about $1.00. That actually, it was a lot of money at

the time, but not so much money. And this really was sort of bringing,

instead of photography to the masses, bringing photography to the masses.

Because before that again, it was very difficult, very technical, very, sort of

chemical laden procedure that you had to do in order to take photographs.

So starting from the brownie things just went uphill from there.

In the 70's at Kodak, they had a huge market share, I think they already had

about 90, 95% market share. They were, you know really pushing hard

on, on cash. I think about two, two and a half billion

dollar net income. In the 70s, which was a lot of money back

then for a company. They were also developing lots of

patents. They had over a thousand patents, so, one

year they had actually developed over a thousand patents in photography.

They had a giant R and D organization. They had a big, company that was

dominating the industry of photography. And there were a couple of competitors

that were not getting anywhere near them, Agfa and Fuji.

Because Kodak had basically world dominance, of the photography market.

So, as their making this money, and doing these pads, they're actually running this

R and D lab, the one that I mentioned, and inside the R and D lab was a young

man at the time, Steve Sasson. And what Steve Sasson did was he Was

really interested in this idea of, of digital.

Of, of the new computers and things that were coming up.

And he came out and invented, had invented a digital camera.

So, what do you think? People were excited for him?

And people were happy for him? No.

Probably not. And we know about the organization

constraint level that people in organizations are going to say like, this

is not in line with our strategy. Because our strategy is about film.

But, that is not how they said it to him. But this is what they said, you know, we

can't sell that yet, how much i'ts going to cost.

How are people going to print? You know, what's the adoption going to

happen, you know, how are we going to make money on this thing?

He knew that there was something there, but, they said you know, just Steve,, go

back to the lab, go back and come out in 25 years when you have it all cheap and

small and ready, ready to go. So, Kodak had made the breakthrough in

1975, but it was not commercializable. It was just too expensive.

Market adoption was going to take a long time.

the quality of it was pretty poor. You know .01 megapixels is pretty poor

quality for a, a camera. Given that silver-halide had, which is

the chemical, the primary chemical that they use in film, was would has,

basically instantly more resolution than the digital camera could, and then the

question was is this really bringing instant photography to the masses?

That's our goal? That's our strategy?

It doesn't seem like it, so Steve goes back in the lab.

Meanwhile a company called Noritsu had developed the one hour instant photo

machine. And so this machine actually drove a

great deal of adoption, grow, drove a great deal of excitement inside of, of

Kodak. Because these machines could be put, in

lots of different places. And they could be run by people who

weren't trained chemists or trained, even trained photography technicians.

And so they ended up going into drugstores, into photo shops and places

like that. So you could bring your photos, and in

one hour, you'd get your photo back. And we can call that basically instant

photography, in the sense. In the 1980's at Kodak you know, they're

still making a lot of money, they're little lost their way a little bit,

there, you know, in the 80's there were a lot of restructuring and realignment and

reorganizing, all kinds of things like that.

They have actually a few ideas in, changing some of the platforms, they came

up with a disc camera and some things like that, but nothing real, no real

platform changes. And really invent, innovated in a deep

way in their platform. And so, you know, a few years later in

1981, on national television, a, Akiro Morito, who is the chairman of Sony as we

showed this camera. The Sony digital camera on, on it was

basically the Johnny Carson show when he showed the digital camera there.

The Sony MAVICA it ran, it had a floppy disk.

It ran off of a floppy disk. It was about a third of a megapixel.

It stored 25 photos on one. and it was the first, their first digital

camera. What do you think?

What do you think happened at Kodak at the time?

So the guy goes on national TV. He shows a digital camera.

Meanwhile, Kodak has said, you know, it won't be ready for 25 years.

Well, in fact, talk, top executives at Kodak, and I've talked to some people

that were there at the time, and they said, you know, that's too expensive.

The quality'll never be there. you know, what a fool, why would he ever

do that? That thing is not going to work.

And, you know? That's just, it's, it's, what are the

people going to print on? So they actually thought, they dismissed

it. They said, wow, what a fool for doing

that. The camera will never work.

It'll never be there. Because Kodak believed that they

controlled the industry. Because they had 99.

You know? Not, 99.

But, upwards of 90% market share. they were controlling all aspects of the

distribution channel. they were at the center of it.

And they were sure that they could control the industry.

And so when adoption was going to happen they thought that they could be in

control of it. You know the digital came in terms of

mini lab. And so now we had, had better, more

better faster turnaround in our one hour photo booth, but still from, Kodak, saw

this as we're just basically, we're just going to milk the cash cow, as it's

called, so they're milking throwing of cash, because they have something that

works, why change it. Remember we talked about value change,

and how value changes are something people don't want to change, and that's

what was happening at Kodak as well. The top executives at Kodak kept saying

again and again and again, even in this face of what Sony had done.

Even in the face of what later what Canon had done.

Even in the face of later what Hitachi had done, that the digital camera was too

expensive. That people want pictures in their hands,

not in the camera. They said that quality will never get

there. It will never get the quality.

And there's no way to print photos at home.

And so people need to come in to our machines, and our offices, well then by

the way Kodak made the chemicals for those machines, and that was, their

strength there. And again we dictate the size, we are so

big we can dictate how quickly this thing will come in, and since our film system

is so efficient, and getting, more efficient everyday, there is no way this

digital camera can compete with that, because we can make photos cheaper,

faster than the digital camera can and so again it will be at least 25 years and

kodak should know. They invented the digital camera so they

are the ones who should know whether this is going to work or not.

So their perspective was, you know, it's, it was perfect,people have instant

photography in their hands and we have the convenience and quailty of film.

Over what they probably didn't recognize was that maybe an hour was a little bit

too long. Maybe people were thinking differently

about what photography was, or what photography could mean to people.

And so, in the end what happened was, a number of other companies popularized the

digital camera and Kodak never caught up. Kodak was never able to catch up to them

in a way that allowed Kodak to compete, in the industry of digital cameras.

In 2012 Kodak filed for bankruptcy in, in actually that was 2011.

2012 they basically stopped making film altogether.

And so you have to ask how did they get there?

How did they get from where Kodak controlled 95% of the market to a place

where you know, film now a days the only people who use film are romantics and

hipsters and, and, you know, people who just remember film to remember it.

In fact it's even harder now to use film because it's a little more difficult to

get the chemicals and things like that because not so many people use it

anymore. So the question is what happened?

What is it that happened that caused Kodak to not be able to see what was

happening, what was obvious, and what they had in their hands and not move that

thing forward. Maybe a little bit different than the,

than the Xerox story where the Xerox story was that they had their, their,

copiers. And they were focused on their copier

market, and they couldn't see the future. In fact, Kodak saw it.

So Kodak so see this thing happening, but were convinced that they could control

the rate at which this thing would come in, the rate at which adoption of digital

cameras would happen. So at the industry level, at the industry

level, we're going to try to figure out what happened and how we can explain that

in a way that gives us good explanatory power for similar situations in the

future.

L5-Part 2 Story of Kodak

Leading Innovation in Arts and Culture

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