Fujifilm Found a Way to Innovate and Survive Digital. Why Didn't Kodak?

Friday, January 4, 2019
Christopher Sirk
SHARE:

Change is the one constant in our lives. One may view it as a threat, or an opportunity.

When it comes to business, response to change immensely impacts the fortunes of many. Startups go from rusty Honda Civics to Ferrari riches. Industry giants continue to grow or shrink into irrelevance.

The radically divergent fates of Kodak and Fujifilm offer one such example.

Two legacy companies doing similar things, with radically different responses to disruptive technologies. One company failed, the other thrived.

The rise of digital and Kodak’s twenty years of decline

“In an often unpredictable business world, a peak always conceals a treacherous valley.”

                                                                               – Shigetaka Tomori (CEO, Fujifilm)

In 1997, just as digital innovation was starting to upbraid the traditional camera market, Kodak’s stock price hit an all-time high of $94.75.

George Fisher, who headed the photo industry juggernaut as CEO from 1993 to 1999, had pushed through an initiative to pump $2 billion into research and development for digital tech.

While he and other top executives were strong advocates for Kodak’s traditional analog business, they couldn’t ignore the enormity of the digital threat. They chose to confront it head-on.

Springing into action, Kodak quickly installed 10,000 self-serve kiosks for printing digital camera photos in partner stores. They figured such a bold move would get them one step ahead of the nascent digital printing market.

In 1996, the company rolled out the Advanced Photo System (APS) with their line of Advantix cameras and film, featuring drop-in cartridges and a magnetic stripe on the film—which stored date, time, and format information—for ordering extra copies.

Later Advantix Preview cameras had digital displays for previewing images on the back of the camera à la digital models, straddling the divide between mediums past and future.

That same year also saw the release of the DC20, Kodak’s first digital camera priced to sell at $299 a pop. It was a very simple hobbyist camera—no flash and no LCD display, but it did take digital images and it was super compact. The DC25, DC120 and other subsequent models in the series steadily improved storage size and image resolution while adding increasingly better LCD screens for image preview.

However, each product line ultimately failed, as did the kiosk initiative.

The DC20 produced low-quality images and cost too much for what it was, annoying traditional Kodak customers (and many other people besides). Later models in the series failed to bring anything new to the table as Sony, Canon, and Nikon quickly closed the price gap and produced more consumer-centric products.

The Advantix, meanwhile, never really managed to find an audience. It tried to please digital and film advocates alike, and ended up pleasing no one in particular. Case in point, these days a Google search for Advantix is more likely to turn up some exciting dog flea and tick control products.

Digital kiosks didn’t really jive with what most consumers wanted either, which turned out to be printing at home. That need was filled by a range of ever-cheaper inkjet printers from Hewlett-Packard, Xerox, and others.

As the 21st century kicked off, Kodak pumped more and more money into digital research and tried to poach top talent from competitors. Ironically, a lot of the disruptive technologies they were confronting (at increasing desperation) in the market had actually first been developed in-house, then shelved.

They kept trying, but it was simply too late. Kodak was attempting to catch up in every field they tried to compete in—from image storage to inkjet printers to digital cameras and medical imaging technology.

In fact, a Kodak engineer in the 1970s named Steve Sassoon actually created the prototype for the first digital camera way back in 1975. However, management failed to see its massive disruptive potential and make coherent long-term plans to capitalize on their innovation.

In 1987, the company employed 145,300 people at its enormous facility in Rochester, New York. 20 years later, in 2007, that number had fallen all the way down to 26,900, and it kept on shrinking.

2007 was also the year Kodak threw a “Gen X savvy” old white spokesman at the problem, announcing the company was “not playing grab ass anymore with digital.” The unfortunate PR effort showcased the company’s awareness that the idea of the “Kodak Moment” had become a cliche, but didn’t really offer any new coherent philosophy, tangible product innovation vis-à-vis competitors, or image change beyond negative self-awareness; i.e. they knew their legacy image was now ‘pretty lame.’

That face when you rebrand your company with 90s ‘tude seven years too late.

The edgelord strategy failed. In February 2012, Kodak announced it would stop making cameras, something they’d been doing for a whopping 110 years. They also filed for bankruptcy.

In January 2018, Kodak jumped the shark completely by announcing an ICO (initial coin offering) for their own cryptocurrency, designed to protect digital photographer copyrights on the blockchain. It’s called KodakCoin, and designed to work on the KODAKOne platform.

As this cringe trailer suggests, it’s headed straight to the crypto graveyard.

Over just the last four years, Kodak’s stock price has gone into a death spiral, falling from a peak of $36.88 to around $2.70 a share. It’s a phenomenal, and frankly quite sad decline for a company that did much to define how we saw the world, and even space, this past century.

What Fujifilm did to save itself, and why it worked

“The company’s core photographic film market was shrinking at a spectacular rate, and the situation was critical. Fujifilm had good management resources, first-rate technology, a sound financial footing, a reputable brand, and excellence in its diverse workforce. If all these assets could be effectively combined into a successful strategy and applied, I was sure that something could be done to save the day.”

                                                                   – Shigetaka Tomori

As America’s Kodak dug itself into deeper trouble, across the Pacific, Japan’s Fujifilm was reinventing itself and rising to meet the digital challenge in surprising ways.

Founded in 1934, Fujifilm had an almost complete monopoly on film in Japan for several decades (aka a 70%+ market share). Then in the 1980s, digital imaging technology began to register as a credible threat to the company’s traditional business. They weighed the possibilities and chose to try their best to pivot and embrace change, rather than fight against the tide.

Fujifilm quickly released the world’s first digital camera in 1988, the FUJIX-DS1P. It was absolutely revolutionary, storing images on a semiconductor memory card.

However, it was also prohibitively expensive, and personal computers hadn’t yet advanced to the point of letting people do their own photo editing. So the cutting-edge camera didn’t exactly sell like hot cakes.

Moving forward into the 1990s, Fujifilm’s conventional film business actually continued to grow. Analog film products were getting better and cheaper while digital tech moved in fits and starts.

Case in point, the company’s QuickSnap disposable camera, introduced in 1986, became an enduring hit globally. It retailed for about $6 (a steal of a deal relative to all the $200+ USD traditional film cameras out there at the time), weighed next to nothing, and produced decent pictures.

As a consequence of traditional photo film’s continued, and oddly enough, increasing, profitability, management began to discredit the magnitude and speed of the digital threat.

By the end of the 20th century, Fujifilm eclipsed Kodak as the market leader in film and 2000 was the year that global demand for film products reached its all-time peak.

But despite the milestones, the company’s forecasting predicted turbulent times ahead—a contracting market for film and the end of a long era of massive profitability.

Then all at once, in 2003, the digital tide finally hit hard. Two-thirds of the company’s traditional business was wiped out. Once popular film kiosks quickly went from processing 5,000 rolls of a film a day (on average) to 1,000 or less.

Fujifilm elected a new CEO, Shigetaka Komori, and went into crisis mode. If they couldn’t find their footing in the digital era fast, they were done for.

Komori details how the company dramatically retooled in his book, Innovating Out of Crisis: How Fujifilm Survived (and Thrived) as its Core Business was Vanishing.

To avoid going under in short order, Komori oversaw the difficult decision to shutter most film manufacturing plants and downsize the company. Fujifilm cut 5,000+ jobs and lowered operating costs by $500 million.

With a bit of breathing room secured, he resolved to make the business profitable under a new technology-driven direction.

He decided the company needed to capitalize on its scientific assets. Fujifilm had developed a vast array of chemical compounds (approximately 20,000 of them) over the years. These were now taken out of their original film photography research context and redeployed in other industries, namely pharmaceuticals, healthcare, and cosmetics.

When this changeover began, it seemed like madness to some employees. After years working on film products, entire departments now found themselves devoted to beauty products and moisturizer creams.

For example, Fujifilm launched Astalift, a line of anti-aging skincare products that promise to give you “photogenic beauty” (how fitting). All the products are based on anti-color fading technology originally applied to film conservation. Rather ingeniously, the company’s lab team discovered these compounds also had similar positive effects on skin, helping to prevent sagging and fading.

Fujifilm’s pharmaceutical division, meanwhile, used the company’s lab infrastructure to develop new drugs. The company conducts research on cancer, Alzheimer’s, and a host of other diseases, while also developing new viral vaccines and gene therapies.

In the high-tech field, the company’s wide arc of research and development has found unexpectedly diverse medical applications. These include digital x-ray diagnostics systems, mammography, and medical informatics.

Healthcare and cosmetics now contribute a significant share of Fujifilm’s annual income, about $3.4 Billion USD in all.

By contrast, in 2017, less than 1% of Fujifilm’s profits came from traditional film photography products. However, Komori states they will never abandon this aspect of their business.

Possibly for good reason, as the Fujifilm instax® instant camera has been mounting a quiet comeback with a new, aesthetically aware product line. Going against the prevalent wisdom of image sharing in the social media era, the line has found devoted followers among young, savvy social networkers and nostalgic old shutterbugs alike.

Fujifilm took a definite risk pushing instant film cameras, especially after rival Polaroid stopped making film products in 2008. Nonetheless, it seems that after digital camera market saturation, people are discovering or re-discovering the joy of soft analog images and tangible, physical media.

2015 saw 5 million instax® units sold, while sales in North America and Europe have doubled year after year since 2014.

Moreover, according to earnings figures from 2018, Fujifilm’s film business is now beating out digital when it comes to increasing the company’s bottom line in imaging products. Is digital...over?

Currently, the company’s overall annual revenues are around $21.4 billion. Not too shabby for a company many had expected to die.

The dramatically divergent fates of Kodak and Fujifilm

At the start of the 1960s, Kodak had 10 times the revenue of Fujifilm. Half a century later, Kodak is on life support and Fujifilm is doing just fine, thank you very much.

The usual comparison story is that Kodak failed to adapt to the late 90s drift into digital, while Fujifilm set a new course, innovated, survived, and thrived.

In this framework, the case of Kodak vs. Fujifilm is an example of the latter’s ability to overcome the stubbornness of institutional memory, the “this is what we do and why we’re great” mentality and aversion to change. Kodak, meanwhile, is seen as the lumbering, arrogant juggernaut; that old man telling the youngsters to shape up and do things the old timey way.

But as we’ve learned, that’s really not the whole picture.

Exploring new, unexpected applications for technology and products allowed the Japanese company to re-deploy its enormous assets and conquer new markets.

One can see that Kodak fought tooth and nail to also try and adapt to the digital changeover.

The problem is they fought in exactly the wrong way, committing resources aggressively and too soon. They invested in digital cameras, inkjet printers, and all the other markets that were a race to the bottom, as new competitors emerged and flooded the market with increasingly low-cost products.

Ultimately, the American company failed to understand many things, including the shift away from photo kiosks to printing at home, the move from physical to electronic storage of images on computers, and people’s desire to share a lot of their snapshots online—without bothering to create a physical copy of each image.

Fujifilm made mistakes too, but the company’s management knew when to cut losses and try something else. They released the first consumer digital camera, sure, but when they saw it wasn’t selling, they didn’t keep releasing it iteration after iteration (as Kodak had done with its DC20 and later models).

Later on, in the early 2000s when radically intensified competition saw Sony, Nikon, Canon, and so on getting the leg up in the digital camera market, Fujifilm slowly gave up and pulled out of the fight.

As Komori notes in his book, many of Fujifilm’s early 2000s spin-off ventures blew up on the launch pad. But rather than try, try again each time, they were generally allowed to fail.

In other words, Fujifilm displayed a growth mindset that accommodated learning, innovation, and screwing up. In doing so, they cultivated and nurtured the organization’s innate talents and found new ways to express them.

Kodak, meanwhile, displayed a distinctively fixed mindset. At an institutional level, they kept trying to “prove themselves” with over-assertive actions, showing they could win big the way they always used to win. The company’s organizational inflexibility and lack of careful, iterative decision making may well have been caused by its leadership’s inability to overcome a fixed identity of being on top.

If you prefer another analogy—Fujifilm acted like the shrewd investor who opens positional trades at different price levels, leveraging risk and the possibility of a further market downturn. Kodak bet the whole farm over a series of risky plays but unfortunately didn’t manage to pull off a Hail Mary.

Fujifilm’s growth hacking and the post-Kodak moment

Fujifilm may well represent an example of growth hacking at its finest. The legacy company found a way to reinvent its business and find value iteratively, in the manner of a new upstart (albeit one attached to a massive existent infrastructure).

Kodak, meanwhile, tried to understand market changes and react, but it did so in broad sweeping gestures, rather than drilling down and exploring new forms of value. The company seemingly couldn’t shake the memory of its dominant position in the camera/image market, and in turn, made a series of expensive strategic errors that eventually brought down the company.

Change will come and with it new challenges and opportunities for sustainable growth and value delivery.

As demonstrated by Fujifilm, a dose of humility and a willingness to adapt are a good starting point for continued survival and success.

SHARE: