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Kodak’s Decision to Enter theConsumer Digital Imaging Market

A Case in Decision Making In the Presence of Uncertainty

Jerry E. Boger

March 15, 2002

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The Strategic Question

In 1991, looking for areas to generate profitable growth, the Group VP of the photographic products group asked the question:

“Should Kodak get back into motion imaging?”

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Background

• In the early 1970s Kodak had a healthy business supplying film and cameras for the 8 mm consumer motion picture market

• In 1976, JVC introduced the VHS Video Cassette Recorder and companion video camera

• Video quickly replaced consumer film systems

• In 1982, JVC & Sony announced the first camcorders

• In 1984, Kodak introduced the first 8 mm consumer camcorder (manufactured by Matsushita)

• In 1986, Kodak withdrew from the camcorder market

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Fundamental Questions

• Will we stick with still photography or reenter motion?

• What is the fundamental strength that will drive our strategy to win?

• Where will we generate value and returns?• What must we do to catch up where we lag behind

the competition?

Each implying a decision

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Approach

• Cross-functional, cross-business unit team to develop alternatives, analyze them, and recommend a strategy

• Trend analysis and industry structure analysis• Hired technology consultant to assist• Scenario-building to organize possibilities• Spreadsheet model to evaluate NPV of alternatives• Presentations and discussions with Business Unit

Managers to build buy in and act on recommendations

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A Key Uncertainty

• Will there be a significant market for a consumer still-only electronic camera?

– Technology consultant thinks no, motion-still camcorders will dominate

– Kodak thinks yes, 4.9 million units in 2000

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Alternatives

• Start now to learn motion by jumping into a small market niche to test and learn; aim to be first with digital motion

• Enter through a small (< $1 billion) acquisition; keep it separate from the rest of the company

• Joint venture with a major company that would become our supplier of chips, including the sensor

• Defend silver-halide while slowly building strength in digital not yet staked out by competitors; center the infrastructure in Japan or Silicon Valley

After developing a number of alternatives, the field was narrowed to four to evaluate in depth

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Kodak’s Advantages

• A strong brand name• Knowledge to design “easy-to-use” systems• Understanding of customer needs and how they

use images• Knowledge in image and color science• Megapixel sensor design and manufacturing

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Where is the Value and the Return?

• Margins for cameras will remain low• There is no high-margin film; media profits (e.g.,

memory cards) will be limited• The profits are in “processing” (prints at home and

distributed retail imaging services)• The “capture-end” (camera) is an important

gateway for participation in the more profitable “back-end” (prints, manipulation, and transmission)

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Recommended Strategy

• Long term– Be #1 or #2 in digital still cameras

– Be #1 in distributed/home printing and services

– Build motion capability in case motion-still cameras dominate

• Short term– Innovate in electronic camera backs for professional

– Develop consumer PC camera with Apple Computer

– Introduce a consumer electronic camera in 1996

– Develop thermal printing technology

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Executives Debate

• The GM of the consumer film business opposed doing anything that ran the risk of hastening the demise of film

• The electronic imaging business GM argued that if Kodak didn’t develop electronic imaging, others would

• The photographic products group VP took a middle ground position and supported the PC camera in a “skunk works”

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What Happened Next?•Developed with Kodak, the Apple QuickTake 100 was introduced in 1994

•In 1995, Kodak introduced its first consumer digital camera, the Kodak Digital Camera 40

•Management did not implement the recommendation to center the digital imaging efforts in Japan

•In 1996, Kodak introduced 4 x 6 Kodak Snapshot Inkjet Paper

•Apple partnered with Fuji on the QuickTake 200 in 1997

•In 1997, Kodak acquired a 50.1% stake in Chinon

•In 1998, AOL and Kodak introduced “You’ve Got Pictures”

•In 1999, introduction of Kodak DC200 Plus Digital Camera with easy prints through Kodak Picture Network and Kodak Image Magic Print Service

•In 1999, Kodak partnered with Intel to invest in “Digitization” introducing Kodak Picture CD

•Industry shipments of digital still cameras passed 5 million in 1999

•In 1999, introduction (with Lexmark) of the Kodak Personal Picture Maker inkjet printer

•In 2001, Kodak began selling CMOS sensors manufactured by Motorola

•Introduction of the Kodak Easyshare camera docking system in 2001