Kodak’s Advantix Preview, one step ahead but step back

1.     Background

https://www.youtube.com/watch?v=jBnl0CYUD8E

Eastman Kodak Company ("Kodak" or "the Company"), once a leading global giant focused on imaging for over a century, has become a falling star in the current decades. The management’s inability to seize the opportunity in digital photography and inaccurate strategic decision has become a classic example of inexcusable business failure.

While Kodak was the industry pioneer to introduce the first digital camera in the world, digital technology was used as a prop to support Kodak’s film business, misjudged or disregard the fact that digital photography would replace film in the very near future.

In 1996, Kodak introduced Advantix Preview film and camera system, which Kodak spent more than $500M to develop and launch. Display function was added to the digital camera to enable users to preview their shots, yet it still used film and emphasized print. Such innovation was not thorough and there was a fatal logical problem, why should customers buy a digital camera and still pay for film and prints?

It turned out that Advantix Preview was an undisputable technological innovation failure which led to Kodak’s decades-long decline. In addition to the entire cost in research and development, Kodak’s lost timing and failure to transform from film to digital later resulted in billions in losses. By losing this battle, Kodak also lost its monopoly position in the photography industry.

Focused on Kodak’s Advantix Preview, we are going to conduct analysis on the key factors which leads to the failure, and try to give recommendations on what should have been done.

2.     Industry Analysis

Market: From Expansion to Shrink

(Source: CIPA)
Though not perfectly accurate, global cameras demand trend could still be perceived based on the global shipment data provided by the Japanese major players. Total demand for cameras shows overall steady annual growths until the digital cameras launched in the late 1990s, where double digit increase had been recorded almost every year. However, began with a fluctuation in 2009, consumptions declined significantly and the year-on-year decreases in the past two years even over 30%, which made the consumptions of cameras back to the same level in the early 2000s.

Industry: From Traditional Film to Digital Photography

Meanwhile, as indicated in the above charts, there was a sharp decline in demand of traditional film camera and printing industry that Kodak used to dominate, while digital photography was growing rapidly during the past few decades.

Along with the last Kodak film roll sold to a famous photographer Steve McCurry in 2010, traditional film era finally came to an end due to the digital photography revolution.

While Kodak film had been the unique industry leader for more than a century, advent of digital cameras easily killed the whole traditional film industry with no exception. Threat of substitutes in the imaging industry can be said extremely high as it is not only a simple upgrade with lower cost and better performance, but also a replacement with a brand new system and concept which is fatal and less possible to turnaround.

Technological revolution is an eternal theme. Nowadays, widespread usage of smartphone cameras is again pushing digital camera sales into an unavoidable fall.

Rivalry: From Monopolistic Competition to Perfect Competition

Dated back to 1970s when Kodak was the unique industry leader, the Company held about 90% of the market share of photographic film sales and had total control over the market price. But Kodak's previously stable and solid film business was then threatened by the intense competition from the start-ups from Japan like Fuji Film, which resulted in pressures on pricing and profitability very soon.

Especially when the market changed to digital, competitive rivalry became extremely high because of the lower entry barriers. In addition to the Japanese camera manufacturers, the industry was also flooded by entrants with electronic background. In 2010, Kodak’s market share in digital cameras further declined to 7.4%, far less than the current major players like Canon (19.0%), Sony (17.9%), Nikon (12.6%) and Samsung (11.1%).

Consumers: From Led to Lead

There is no wonder why consumers had made a rapid migration to digital, as it enables people to have much more choices comparing to the traditional film era at the very beginning. Buyer’s bargaining power has been increasing, as there are minimal switching costs because of the keen competition in the market.

What’s more, because of the strengthening green consumption concept, consumers tend to prefer to save the photos in soft copy as films and prints are not biodegradable and cost effective. In addition, growing popularity of social networking and the trend of sharing images over various platforms have led to the growth of the digital photography industry. Therefore, it has become the manufactures’ mission and duty to produce convenience, compact and user-friendly products to fulfill consumers’ needs and expectations.

(More than you ever wanted to know about APS/Advantix film cameras)

Industry analysis conclusion of Kodak Advantix
As the one whom took the lead in the imaging industry previously, Kodak had been experiencing an embarrassing situation by its failure to take appropriate pre-emptive action to transform to digital photography.

Introduction and development of digital technology innovation had brought great changes to the imaging market. It was not that Kodak did not have sufficient market analysis on this, but that the management had made wrong decisions and planning for the Company’s product strategy. Later facts also proved that research and development on Advantix Preview was totally a disaster which was a waste of time and resource and at last made Kodak a late mover to the real digital market.

3. Unconsciously Intended to be later adopter
Kodak was able to lead the digital camera industry once it had taken the decisive  initiative to further dig into the creation of "Rising Star" and audaciously made transformation of the "Cash Cows".


Steve Sasson, the Kodak engineer who invented the first digital camera in 1975, characterized the initial corporate response to his invention this way:
"But it was filmless photography, so management's reaction was, 'that's cute--but don't tell anyone about it'."

(Kodak Says “It’s Not Playing Grab Ass Anymore” with digital - in 2007)

It was in 1981, around the time that Sony introduced the first electronic camera, one of Kodak’s largest retailer photo finishers asked him whether they should be concerned about digital photography. Thus, Kodak conducted a study to look at the core technologies and likely adoption curves around silver halide film versus digital photography. The result indicted that digital photography had the potential capability to replace Kodak’s established film based business, but it would take some time for that to occur and that Kodak had roughly ten years to prepare for the transition.

(Kodak Advantix Preview Camera COMPLETE TEARDOWN)

The problem is that, during its 10-year window of opportunity, Kodak did little to prepare for the later disruption.

In 1986, Kodak’s research labs developed the first mega-pixel camera, one of the milestones that Barabba’s study had forecasted as a tipping point in terms of the viability of standalone digital photography. The choice to use digital as a prop for the film business culminated in the 1996 introduction of the Advantix Preview film and camera system, which Kodak spent more than $500M to develop and launch. One of the key features of the Advantix system was that it allowed users to preview their shots and indicate how many prints they wanted. The Advantix Preview could do that because it was a digital camera. Yet it still used film and emphasized print because Kodak was in the photo film, chemical and paper business. Advantix flopped. Why buy a digital camera and still pay for film and prints? Kodak wrote off almost the entire cost of development.

(Kodak Advantix ad (1998) )

In 1989, the Kodak board of directors had a chance to make a course change when Colby Chandler, the CEO, retired. The choices came down to Phil Samper and Kay R. Whitmore. Whitmore represented the traditional film business, where he had moved up the rank for three decades. Samper had a deep appreciation for digital technology. The board chose Whitmore. As the New York Times reported at the time, Mr. Whitmore said he would make sure Kodak stayed closer to its core businesses in film and photographic chemicals.

(Disruptive innovation: The Story of the First Digital Camera)

For more than another decade, a series of new Kodak CEOs would bemoan his predecessor’s failure to transform the organization to digital, declare his own intention to do so, and proceed to fail at the transition, as well. George Fisher, who was lured from his position as CEO of Motorola to succeed Whitmore in 1993, captured the core issue when he told the New York Times that Kodak regarded digital photography as the enemy, an evil juggernaut that would kill the chemical-based film and paper business that fueled Kodak’s sales and profits for decades.

Fisher oversaw the flop of Advantix and was gone by 1999. As the 2007 Kodak video acknowledges, the story did not change for another decade.

Kodak management not only presided over the creation technological breakthroughs but was also presented with an accurate market assessment about the risks and opportunities of such capabilities. Yet Kodak failed in making the right strategic choices.

Digital Camera Global Market Share in Year 2010

Camera Development Timeline:

1727	The discovery that silver nitrate changes Johann Heinrich Schulz discovered that a substance called  silver nitrate would change color when exposed to light. This  paved the way for the first pictures to be taken processed.
1814	The camera obscura is developed Joseph Niepce developed the camera obscura and took the  first photo with it. It wasn’t ideal, though, because it took 8 hours  of light exposure to make a picture, and the picture faded with time.
1837	The Daguerreotype was invented Louis Daguerre invented a new way to take pictures. It only  needed 30 minutes of light exposure, and the image didn’t fade  with time.
1841	Making multiple copies possible William Henry Talbot developed the Calotype process.  This made it possible to make multiple copies of the same picture.
1851	Taking pictures gets easier With the new Collodion process, cameras only needed a few  seconds of light exposure to make a picture.
1871	Film is made easier to handle Up until this time pictures had to be developed immediately  after being taken. Richard Leach Maddox invented the gelatin dry plate silver bromide process, which made it possible to take a  picture and develop it later.
1888	The invention of the roll-film camera George Eastman invented the first roll-film camera.
1948	The Polaroid camera is marketed The Polaroid allowed people to take a photo and have it  developed immediately, right from the camera.
1963	Colored film is introduced Polaroid came out with the first colored film.
1980	The first consumer camcorder is released Sony put out the first consumer camcorder, allowing  people to record their memories in real time.
1975	The first digital camera is developed Steve Sasson built the first digital camera.
1984	The first digital camera is marked Canon put out the first digital camera for the public,  which was later improved by Pixar
1990	The first camera phones(1990’s) The camera phone technology was first used in Japan,  but it quickly spread around the world
2001	The Easy Share camera comes into play Kodak put out their Easy Share digital camera, which made it easy to snap pictures and download them to  the computer
2012	Wireless cameras are developed Kodak put out cameras that didn’t have to be connected  to a computer in order to download and share the pictures

4. What Influenced Kodak's choice on Advantix Preview?

Here we use industry the Five Forces model of Porter that we learned to analyze what influenced Kodak’s choice about Advantix Preview.

Firstly, we think that rivalry among competitive providers is extremely intense. The intense rivalry among providers comes from many different competitors such us Canon, Sony, Nikon in various photography segments. As we know that the photography equipment industry suffered a big change at the beginning of the 21st century. According to Khanh. G's research," the market revenue for film sales, film processing, and traditional film cameras was declined continuously from $2.97, $6.93 and $1.65 billion in 2000 to $2.86, $6.68, and $1.21 billion in 2002." (Khanh G, 2009) However, many people would never forget that Kodak was once the filming selling giant so as the Kodak’s top management team. They still cannot let go of the gloria history of being the biggest profit earner in the camera films market. And admittedly, this kind of phenomenon also exists in many other industries. Under the intense rivalry, Kodak tried to find a way that could maintain their success of film selling, hoping that their target customer would not switch to buy the product from their competitors. In the meantime, to put more interest in creating another “profit earner” of technological innovation， which could capture the customers’ eyes and helps rescuing the company’s profit margin decline.

Secondly, the threat from the traditional film camera’s substitutes is pretty strong even the potential new entrant- digital camera was not introduced to the main market. Kodak actually was the first entered into digital technologies entry door, but the top management obviously did not catch this perfectly important transitional time. Instead, they chose to hide this great invention, telling their chief engineer that keeping his mouth shut. It’s not hard to figure that this kind of action comes from the fear of film camera’s substitutes. Top management knew that their film selling would undoubtedly face the risk of breaking down once another new technology came out. Advantix Preview turned out to be the deliration which was born under the risk and fear that provided new digital photo playback function without abandoning the film usage.

Thirdly, the bargaining power of suppliers was relatively weak after 21^st century, since they gradually moved their manufacturers from US or other western countries to eastern countries for film production. Because of the low labor, raw material and facilities cost of making films and other camera components, Kodak and other famous brand film camera providers suffered the pressure of reducing the products’ selling price successively, which urged Kodak’s top management to come up with some other solutions to save the whole market and slow down the changing the trend. Therefore, Advantix Preview was expected to be the savior of Kodak in 1996 consequently.

5)  The actual technology global forecast for Kodak Advantix (APS – Advanced photo system):

Kodak advantix is one of the Kodak’s brand for advanced photo system which consists of new high-tech cameras and film processing. It was developed by consortium of five world leading camera companies. At the time of its launch Kodak faced difficulty to meet the high dealer demand for the new cameras and films. A wide range of Kodak Advantix products as follows:

 Camera Name                                  From              To           Film Size            Price (US$)

KODAK ADVANTIX C300 Auto Camera	1998		240	59.00
KODAK ADVANTIX C400 Auto Focus Camera	1998		240	159.00
KODAK ADVANTIX C650 Zoom Camera	1998		240	69.00
KODAK ADVANTIX C700 Zoom Camera	1998		240	189.00
KODAK ADVANTIX F300 Auto Camera	1998		240	49.00
KODAK ADVANTIX F600 Zoom Camera	1999		240	129.00
KODAK ADVANTIX T500 Auto Focus Camera	1998		240	139.00
KODAK ADVANTIX T550 Auto Focus Camera	1998		240	149.00
KODAK ADVANTIX 1600 Auto Camera	1997		240	79.95
KODAK ADVANTIX 2000 Auto Camera	1996		240	99.95
KODAK ADVANTIX 2100 Auto Camera	1996		240	99.95
KODAK ADVANTIX 3200AF Camera	1996		240	119.95
KODAK ADVANTIX 3600ix Camera	1996		240	189.95
KODAK ADVANTIX 3700ix Camera	1996		240	194.95
KODAK ADVANTIX 4100ix Zoom Camera	1996		240	229.95
KODAK ADVANTIX 4700ix Zoom Camera	1997		240	309.95
KODAK ADVANTIX 5600MRX Text-Date Camera	1996	1997	240	577.20
KODAK ADVANTIX 5800MRX Zoom Camera	1996	1998	240	429.00
KODAK FUN SAVER ADVANTIX One-Time-Use Flash Camera	1996		240	19.95

Kodak Advantix Technology forecast inaccuracy:

One of the primary reasons of Kodak advantix failure was the unpredictability of the camera technology launch time. Although at the time of it’s launch all the industry experts had an agreed opinion that digital cameras are the future. But the time when it was launched, the consumer’s requirement and need were not there. As most of the masses were using the existing technology and products and not prepared to use this new innovation product of advanced photo system which was launched on huge scale.

The Advantix with new advanced cameras and films was founded in 1996 rollout. Kodak has spent around US$ 100 million in its re-launch in addition of US$ 500 million in its initial launch and it was forecasted that the launch expenses would go even higher. The Kodak’s management was optimistic about the Advantix products that it will be huge success in long term. For the re-launch the management had to rebuild Kodak’s corporate culture. Once possessed nearly a monopoly in film business, Kodak faced an array of hungry new rivals called Silicon Valley powerhouse Hewlett-Packard Co., which sees photography as a new market for its printing technology.

Kodak had gone through huge layoffs in early 1990’s. Layering of thousands of its employees has already shaken the 95,000 workforces in 1997. The company management had brought few outsiders to mix with Kodak lifers in his inner circle of executives.

Key Company and Industry learning Factors of Kodak Advantix failure:

Factors that have been identified for Kodak Advantix failure are listed as follows:

• The Kodak Advantix product launch time was not right, it was launched at the time when it was not needed or required by the consumers. The technology was so advanced that it was not needed at the time of its launch as the consumers were unaware and highly unexpected of such advanced technology. 
• After the first failure, the management was still optimistic in its long-term success and kept spending money. Kodak Advantix had to be re-launched. For re-launching, the management had to rebuild the corporate culture.
• During the time of failure and re-launching, it broke the Kodak’s near monopoly and gave chance to the competitors to create the interest in printing technology and faced strong competition from Hewlett-Packard.
• Since the product failure and re-launching caused a fear in the current workforce for layering. This would ultimately effect the employee’s motivation and morale and eventually affect the performance.

Recommendations of hindsight of failure factors of Kodak Advantix:

Upon analysis at the failure factors of Kodak Advantix, the recommendations would be as follows:

• Although Kodak’s management was optimistic about the long-term success of the Advantix products. The management should have identified the consumer’s need of the product and launch the product at the right time. As they had launched the product technology way earlier when it was not needed and caused failure. The product technology was way higher than consumer’s expectation and consumers awareness was not there at the time of launch. The product should be launch at the time when the consumers were fully prepared and had awareness of using the technology.

• After the product launched and Kodak faced a great deal of loss which result the failure of Advantix. The management somehow failed to realize the root cause of the failure and kept their optimism level high. And they kept spending the money and re-launch the product. The re-launching was an ultimate failure too. This has resulted the loss of efforts, time and money. Therefore before launching the technology the management should have come up with stiff strategic planning and market test for the product need.

• Management should identify that once the product has been failed and technology is in the market. They should be more cautious of the competitors. Therefore the Kodak’s management would have come with even strong strategy how to cater the upcoming competition. The Porter’s five forces model would be useful to cater this point.

• Kodak’s management should have taken the employees roles into consideration, at the time when they failed for Advantix. They should use the motivational strategies for their employees not to loose their moral and kept with high performance.

• Kodak management’s inability to see digital photography as a disruptive technology, even as its researchers extended the boundaries of the technology, would continue for decades. As late as 2007, a Kodak marketing video felt the need to trumpet that “Kodak is back “ and that Kodak “wasn’t going to play grab ass anymore” with digital.

References:

1.Khanh Pham Gia. (2009). Case study: Kodak at a crossroads - The transition from film-based to digital photography： 219–234.
2.Vincent Barabba. (2011). The Decision Loom: A Design for Interactive Decision-Making in Organizations: 96-123.
3.Paul B. Carroll, Chunka Mui. (2009). Billion Dollar Lessons: What you can learn from the Most Inexcusable Business Failures of the Last 25 Years: 157-183.
4. The Daily Dow article Tuesday April 16, 1996
5. The Wall Street Journal Article July 25, 1997
6. www.kodak.com

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15. Kodak's Bet on Digital Photos Has Been an Economic Loser:
http://www.wsj.com/articles/SB86http://www.wsj.com/articles/SB8697810427862280009781042786228000

16. History of KODAK Cameras
http://www.kodak.com/global/en/consumer/products/techInfo/aa13/aa13.shtml