I copied this from Steves-Digicams at:
steves-digicams.com
Steve has a great site, but I could not link this article.
Please visit his site often!!!
Is Kodak’s 3rd Quarter Demise an Indicator of the Death of Film?
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Belmont, Calif. -- Sept 28, 2000
In 1994 Apple Computer Inc. brought the first consumer digital camera to market called the QuickTake 100. Unbeknownst to many, this camera was manufactured through Eastman Kodak’s manufacturing arm (Chinon), in Japan and was in fact internally a Kodak camera. Apple provided the ID and software, Kodak provided the CCD and silicon, Chinon the lens assembly. Apple at that time had grand ideas of expanding the QuickTake camera line and move to faster processors, much better image quality, more functionality and higher resolutions. The product line managers at Apple, at the time had designs to take digital cameras as fast as possible to a place in which they would become a direct replacement for film and film cameras. Only one thing stood in Apple’s way.
Apple did not have access to manufacturing capacity and know-how was very limited at the time. Apple was forced to go through Kodak. Struggles with Kodak ensued and after six months it was clear to everyone at Apple that Kodak had another agenda other than to produce cutting edge digital camera technology. Kodak needed to protect their film business. Digital camera technology and adoption needed to be controlled and slowed down. If not, consumer adoption of digital cameras could occur before Kodak could prepare for it and develop a revenue stream that would potentially replace film. Nothing less than the future of a great American corporation was at stake.
Since 1996, there has been an enormous internal struggle at Kodak between the "film business" unit and the "consumer product" business unit. The film unit at Kodak has the revenue base, e.g. nearly 100% of the internal power base at Kodak. The consumer product people at Kodak include some of the smartest, most-informed business and product people I have ever met, led by Willy Shih. So why haven’t these brilliant Kodak people led the digital camera industry in innovation? They’re clearly capable of doing so. It is a known fact that resolution and image quality has led market requirements since 1995. It is also not a coincidence that Kodak has been latent with market requirements, including resolution in all their digital cameras, compared to vendors pushing the resolution envelope since 1995.
The reason is simple. Kodak recognizes that DCAM development will occur naturally by osmosis from other vendors, but Kodak doesn’t want to drive this innovation and cause their film business any more pain that it has to.
Fast forward 5 years and we see Kodak’s "digitization" initiative, which in theory could actually increase film sales by providing consumers with digital capability and also provide a key "bridge" for Kodak, which could slowly move consumers over to the digital world at a pace Kodak can control. Together with film sales and print fulfillment, this could bridge that gap for Kodak.
This week a report in the Wall Street Journal noted that Kodak’s stock, which was pounded down by Kodak’s failure to meet earnings expectations by 15% was eroded 5.1% further by a group of renegade, ill-informed Wall Street analysts that believe silver-halide film will be replaced by digital technology much sooner than most other industry watchers think.
In 1999, digital cameras represented just 9% of over-all consumer compact camera unit sales, excluding one-time-use cameras. In 2000, this adoption will move to 13% of total consumer compact cameras. At this rate, digital cameras will be equal in unit sales to consumer compact cameras by 2006. This scenario takes into account several factors including prolonged adoption at the same rate we have seen over that past two years. It does not take into account the amount of one-time use cameras being sold or the fact that consumers most likely will continue to purchase film and film cameras and supplement these with digital cameras as needed.
The primary purpose for consumers to use film cameras is the convenience of retail or mini-lab printing. Online printing and fulfillment and its lack of expedience and convenience has a direct correlation to the sales of digital cameras. Right now, home printing is the domain of early adopters. Average consumers or mass adopters will not opt to print at home due to cost and inconvenience. Until users experience the same level of expedience and convenience online as they due at their local retailer or one- hour mini-lab, digital camera adoption will be stymied and film will remain.
Kodak clearly is in a nether world and so are a lot of companies that have recently moved their traditionally channeled businesses online. What we see now is a phenomenon that we term an "online technology vacuum" in which traditional channels and analog technologies have dropped off, yet online business and digital processes including digitization have not picked up the slack. We also see this in the print fulfillment sector. In this interim companies that are early leaders are at risk and it becomes a "last man standing" game. By the same token, companies that remain in the traditional analog world, using old-world channels are doomed. Timing is everything.
Kodak has done little to bridge this gap with their "corporation saving initiative", digitization. Cost of digitization to consumers has changed little in two years and there is very little incentive for consumers to digitize. Did the Wall Streeters get it right? The answer is clearly no. Their timing is premature. Can Kodak be one of the "last men standing" in this game? Clearly they will, but not without restructuring and unfortunately, eventual downsizing.
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