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The wages of disruption: North of Stockholm, Sweden, a Kodak film finishing facility lies in ruin. Kodak opened operations here in 1967 and shuttered the site in 2000.

When I photographed Eastman Kodak’s shuttered and vandalized film processing center outside of Stockholm a few years ago, it became clear to me that I held the very cause of all this destruction in my own hands: a digital camera.

Kodak held a monopoly position in the photographic-film industry throughout most of the 20th century. At its peak, the company employed more than 140,000 people, and its logo could be seen at every tourist attraction. In its hometown of Rochester, New York, the company was referred to as “The Great Yellow Father.” A job at Kodak was considered a job for life. In 1997, the stock market valued the company at over $30 billion.

Today Kodak is worth only $265 million. As rumors abound about a looming bankruptcy, the story we hear is that it failed to see the shift to digital photography, and management incompetence sped its decline. A closer look, however, reveals a different picture: Kodak not only recognized the coming shift to digital photography but was also in many ways a pioneer.

Source: PMA

How is it possible for a company to have seen a technological discontinuity yet still end up on the brink of bankruptcy? To understand what at first appears to be a paradox, think back to Kodak’s famous slogan “You press the button, we do the rest.”

Kodak always sold cameras, but its real business was “doing the rest” – supplying and processing film. During Kodak’s decades of dominance, the company built a vast and specialized infrastructure of machines, equipment, and skills in manufacturing, R&D, and distribution for film and photographic paper. With huge economies of scale and skills that were hard to replicate, barriers to entering the film business were very high. Competitor Fujifilm began to increase its global presence in the 1950s, but it took several more decades before the Japanese company became a serious threat to Kodak.

The large and complex process of operating a film business required a high degree of vertical integration. Kodak owned most parts of the supply chain; needless to say, control over basic research, raw materials, and film finishing further increased barriers to entry. The company had low production costs and few competitors, and back then people had no choice but to buy film in order to take photos. Kodak enjoyed tremendously high gross profit margins. Each “Kodak moment” was money in the bank.

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Credits: Christian Sandström, Kodak

Tagged: Business, Business Impact

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