02: Developing Disruption

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Digital cameras disrupted Kodak’s film business, and led to its bankruptcy in 2012. The catch? Kodak actually invented the digital camera. In this episode, host Walter Isaacson explores how the disruptors can become the disrupted - and vice versa.

Nothing has changed the way we see the world quite like photography. Now, we take over one trillion images every year. But who could’ve foreseen it? A man named George Eastman in Rochester, New York, could. Trying to take a trip to Santo Domingo, he jettisoned this idea after realizing he couldn’t carry around all that photography equipment. So, in 1883, he created a way to make photography portable, convenient, and available to the masses. And it gave him a line into luminaries like Thomas Edison and Walt Disney.

After decades of dominance, and a dogged pursuit of innovation, the R&D department financed the invention of the first “digital camera,” way back in 1975. With Steve Sasson’s invention, Kodak had the keys to the future and kept them locked – because execs feared the digital camera would cannibalize their film business. Sometimes, an idea can be too ahead of its time, and years before the popularization of the personal computer and the internet, the technology gathered dust before ultimately finding a home in the Smithsonian.

By protecting the core business at all costs, Kodak found itself usurped on the low-end of the market by Finnish conglomerate Nokia, whose camera-phone popularization changed the way humans take, share and consume photography. It’s a behavioral evolution that’s turned us all into amateur photographers and allowed us to share our lives instantly. Kodak filed for bankruptcy in 2012, a mere 15 years after being one of the most well-respected brands in the world. It just goes to show you, that if you’re unable to predict the future, or unwilling to pivot quickly, you can go from industry titan to cautionary tale in a snap.

“They said, ‘OK Sasson, let me get this straight… for $1,100 you’re going to give me worse pictures than I get from an Instamatic camera that I can buy for $25? Tell me why we’re listening to this.’ And I didn’t have an answer.”

STEVE SASSON, INVENTOR OF THE DIGITAL CAMERA

What you’ll hear in this episode

  • One trillion images per year. How did we get here?
  • The kitchen sink that invented mass-market photography
  • “My work is done. Why wait?”
  • 70% market share. 70% margin. No, that’s not a misprint.
  • 20 years ago, Kodak was the 4th most valuable brand in the US
  • The toaster-looking thing that was a generation too early
  • What’s a “zone of discomfort?”
  • A former toilet-paper company that became a photography legend
  • How a Tom Cruise film changed the way we take pictures
  • Kodak’s ten-year terminal illness
  • It’s not about quality, it’s about timing
  • Nokia and the touchscreen of doom

Guest List

  • Steve Sasson Steve Sasson worked for Eastman Kodak company for over 35 years. During that time he designed and built the first digital camera and playback system.
  • Alecia Swasy Is the author of Changing Focus: Kodak and the Battle to Save a Great American Company. She is also the Donald W. Reynolds Chair in Business Journalism at Washington & Lee University.
  • Vince Barabba Is Kodak’s former Head of Market Intelligence. He also the former director of the Census Bureau, book author and current Chairman and Co-founder at Market Insight Corporation.
  • Willy Shih Was previously was a senior vice president at the Eastman Kodak Company. He was also the president of a division that was responsible for all of consumer digital imaging. He is currently Robert & Jane Cizik Professor of Management Practice at Harvard Business School.

WALTER ISAACSON: Deep in the exhibit halls of the Smithsonian’s National Museum of American History sits a large glass case. And like many of the glass cases at the Smithsonian, it’s full of unique pieces of history. Things that played a key role in shaping the world as we know it today.

Not that you’d necessarily know that by looking at them. The stuff in this exhibit actually looks pretty junky. Exposed wires, circuit boards, the electronic guts of machines, minus the pretty cases that normally protect them.

And there’s one device sitting on a shelf towards the left hand side of the case that seems totally out of place in these hallowed halls. It looks like an old slide projector that’s been mounted onto a bunch of metal trays. It could easily be mistaken for a homemade science project made by a high school student.

But if you read the description below it, you’ll find out that this Frankenstein-y looking machine was not just important to the world. It was a key technological advancement for the company that invented it. Something that shook their industry and had the potential to put them well ahead of the curve, in front of every other company on the planet.

The only problem? The company that invented this strange looking machine ignored it. And it was the fact that they ignored it that led to their downfall.

I’m Walter Isaacson, and you’re listening to Trailblazers an original podcast from Dell Technologies.

– The camera lens is a mechanical eye.

– In color, of course.

– Seeing everything and recording everything.

– Begin to use a Polaroid camera, and a crowd gathers.

– Always on the lookout for good pictures.

– Only with the newest Kodak Instamatic Camera.

WALTER ISAACSON: In this episode, we’re focusing on disruptions in the world of the photographic image. Perhaps nothing has helped shape our culture more over the past 100 years than photography.

It’s not only helped us better understand the world around us, but it’s also managed to change the way we interact and communicate with each other. The ability to use our phone camera to snap photos and instantly send them to whomever we want anywhere in the world is completely revolutionary. We now communicate with each other through these digital images. And as a species, we currently take over a trillion of these images each year.

But this trend began long before cell phone cameras, long before Instagram and Snapchat. It began in Rochester, New York with a disrupter named George Eastman.

It’s 1880, and a 24-year-old George Eastman is in the planning stages for a trip down to Santa Domingo. Knowing that Eastman has an interest in images, a friend suggests that he buys some camera gear to document it. Eastman goes ahead and buys all the equipment necessary.

Once he gets it home, he’s shocked by the bulkiness of it all. The camera itself is the size of a microwave oven. And then there’s the unimaginably heavy tripod, capable of keeping the mammoth sized camera still. Then there’s the canvas tent he’ll need to carry with him– something he can use on site to mix all the chemicals.

For Eastman, it’s all too much. And in the end, he never takes that trip down south. Instead, he becomes obsessed with just how cumbersome the act of photography is. It’s a problem that he becomes convinced he can solve.

Alecia Swasy wrote the book, “Changing Focus: Kodak and the Battle to Save a Great American Company”.

ALECIA SWASY: When you talk to people who knew George Eastman, they’ll tell you stories about he was constantly studying everything.

And, well, he was he was pretty obsessive about details. And he became just obsessed with keeping logs about everything, including how many blooms were on the flowering bushes in his backyard, or how many pounds of sausage one pig butcher would yield. And he really paid attention to the details.

And frankly, I mean, he did behave like an inventor. He was constantly thinking about, well, how’s that work.

WALTER ISAACSON: Three years later, Eastman comes up with something. A process where a dry gel can be spread onto paper. Photographic paper. Eliminating the need to travel with a portable lab stocked with photographic chemicals.

Shortly after that, he does one better, and disrupts his own technology by patenting the first film available in a roll. And perhaps more important than these innovations themselves, he also patents the machines capable of manufacturing them. In 1892, Eastman’s Kodak products first enter the market with the slogan, “You press the button, we do the rest.” And with that, a new era in photography was born. Writer Alecia Swayze—

ALECIA SWASY: Well, he literally invented what became mass market photography in his mother’s kitchen sink. Because he made the technology smarter. Because it used to be a very cumbersome process of using gelatin coated glass plates. You can imagine, that’s not real convenient. And so then he was the one who came up with the idea of rolls of film.

But he also understood that you had to appeal to the broad consumer market. And so doing things like partnering with Edison to make a motion picture film was very important. It got his name out there. Just like getting connected with financing Walt Disney’s early movies. And then each time they invented a new camera, it became another American icon.

Eastman had proved beyond a shadow of a doubt that by creating a company with core values of constant technological improvement, the Kodak company was here to stay. Sadly, though, Eastman himself was not. He began suffering from chronic back pain and became depressed. When he couldn’t see it becoming any better, on March 14, 1932, Eastman took his own life with a single gunshot bullet through his heart. The note he left behind simply read, “To my friends, my work is done. Why wait?”

Despite Eastman’s loss, Kodak continued its rise throughout the early part of the 20th century. Simply put, Kodak had become a giant. At its peak, Kodak owned 70% of the market for film-related products. Products that also had very attractive gross margins of 70%. Kodak was making a ton of money.

In the early 1960s, its US sales surpassed $1 billion. And by 1996, it was ranked as the fourth most valuable brand in the United States, behind only Disney, Coca-Cola, and McDonald’s.

The funny thing about the name Kodak is that it’s completely meaningless. Eastman and his mother made it up. They started with the letter K. Eastman always liked K’s. He felt that they were letters of strength. As well, he wanted a name that was easy to pronounce. Not too long, and not confusable with any other brand name out there.

It was a naming strategy that clearly paid off. Not only was Kodak of photography company, it had become a technology company as well. One of the most powerful technology companies in the world. One with an incredible appetite for innovation. At its peak, Kodak held patents from many of the technological processors that can still be found in products around the world today.

In 1975, the company launched a brand new R&D project. One that on its surface sounded painfully unexciting. They were trying to find a practical use for charge-coupled device, a device that had the potential to turn an electrical charge into digital value.

The task of figuring this out fell to a 24-year-old engineer named Steve Sasson. Sasson was only two years into his career at Kodak. And he approached the task with unbridled energy.

STEVE SASSON: I constructed this odd looking device, about the size of a toaster, with an odd lens assembly on top. And what this was basically what we call today a digital camera. Now I didn’t call it a digital camera back then. Actually, I called it an electronic still camera. And the reason I did– and this might sound odd today– but if I called it a digital camera, people really thought it was a very, very esoteric and distant thing. And I didn’t really want people to react to it that way. I wanted people just to consider it an alternative form of photography that may happen in the future.

WALTER ISAACSON: Steve Sasson’s camera weighed eight pounds, took 23 seconds to capture a photo, and could only capture images at a resolution of a tenth of a megapixel. For point of reference, the tiny camera on your brand new cell phone can take photos with a resolution of about 120 times better than that.

The images on Sasson’s camera were recorded on cassette tapes, which were then displayed in black and white on a television screen. Sasson thought that he had stumbled onto something great. And once a prototype was done, it was showtime.

STEVE SASSON: I made many presentations to management describing this and demonstrating it, actually. It was actually a pretty effective demonstration. It’s one thing when you describe a new idea to people using charts and diagrams, another when you take their picture and their face is staring at them from the screen. It creates a whole different impression.

And that’s exactly what I did. I would walk into the conference room where the managers would be assembled. And whoever was sitting on the right side toward the front, I would just lean forward and I would take a head and shoulders shot of that person.

And then my tape would start to move. That means I’m recording my information. And during the 20 seconds or so that it took to record the image, I would be describing to the assembled people there what exactly this thing was.

And after about 30 seconds the image would pop up on the TV set. And the pictures were quite recognizable. They were black and white, of course. But they were quite recognizable. And this created a lot of conversation. You, know obvious questions like, when will this be possible for consumer photography?

How are people going to store their images? What’s an electronic photo album going to look like? See, there wasn’t any personal computers at the time. There was no internet at the time. And so the infrastructure that we’re used to today, of course, was not really in the thinking in the 1970s.

WALTER ISAACSON: The reaction to Sasson’s prototype was underwhelming. None of the executives that witnessed the demo so any real potential in this fuzzy new image. Kodak had claimed its stake based on physical film. And their thinking was that a product like digital photography would do nothing for their current business.

STEVE SASSON: I’ll tell you one conversation I actually had with one of the executives. They said OK, Sasson, let me get this straight. So for $1,100, you’re going to give me worse pictures than I get from a Instamatic camera that I can buy for $25. Tell me why we’re listening to this.

And I didn’t have an answer. I didn’t have an answer. I simply said, well, all I can say is that with improvements in technology, this potentially could impact the way people would take images in the future. In fact, I wrote that in the technical report.

I remember sitting at my desk, and I thought long and hard about the first sentence. And I said, with improvements in technology, this approach to photography could substantially impact the way people take pictures in the future.

WALTER ISAACSON: Kodak invented digital photography 25 years before it became popular. They had a 25 year head start that they then did nothing with.

But like all business decisions, it needs to be examined within the context of the time. No matter how interesting Sasson’s boxy-looking camera might have been, that pivot would have been a massive undertaking. Kodak had become a huge machine. And like many huge machines, they had one goal in mind– protect their core business at all costs. Steve Sasson—

STEVE SASSON: A lot of people at Kodak were interested in it. But you got to understand that if you’re the master of one technology, and then you sort of see a new, emerging technology, you are constantly comparing it to your home technology or master technology. And so for probably the next 15 years, we had many debates about whether it would ever get good enough to compete with film. They were always reluctant to displace an existing technology that was profitable with one that was less profitable.

WALTER ISAACSON: Willy Shih was senior vice president at Kodak from 1997 to 2005.

WILLY SHIH: I think Kodak is mischaracterized as not having recognized the impending onset of digital technology. Because that’s the easy thing to think about when a company runs into trouble. Oh, management must not have understood what was coming.

In fact, management was well aware of the impending digital transition. And they’ve been very conscious of it probably for about 25 years. All the way going back to the early 1980s. So I think it mischaracterizes the situation to say management was not aware of the transition coming.

The difficulty of the transition was a different question, however.

WALTER ISAACSON: The filmless age truly began on August 25, 1981, when Sony demonstrated the first camera to bear the name Mavica, as in magnetic video camera. It stored pictures on two inch floppy disk called Mavi packs that could hold up to 50 color photos. Customers were intrigued.

The introduction of the Mavica was also noticed by one of Kodak’s largest retail photo finishers who one day approach Kodak’s head of market intelligence, a man named Vincent Barabba. The retailer asked him whether they should be concerned about digital photography. Barabba and Kodak’s CEO commissioned a huge research project that showed them that yes, digital photography did in fact have the potential to replace Kodak’s established film business. But the report said the news wasn’t all that bad. Kodak would still have a decade to deal with the transition.

But rather than prepare for the time when digital photography would replace film, Kodak instead chose to use that time to double down. Instead of becoming a leader in digital photography, they decided to concentrate their effort on using digital technology to improve the quality of their film and silver halide– those light sensitive compounds that were used to make Kodak’s prints so vivid.

Kodak’s former head of market intelligence, Vince Barabba—

VINCE BARABBA: One of the things that happens is what I sometimes refer to as the zone of discomfort. That is the people who have made a career out of doing it the old way have real questions about what will happen to them and to their skills if they approach it in that way. And that zone of discomfort was really quite strong. Because these were people who grew up– their whole life was spent doing it one way.

Now, what’s interesting is we look back at the history of George Eastman– you know, if George Eastman was still around, there’s no question in my mind that Kodak would have moved to become a digital photographic company.

WALTER ISAACSON: Kodak was in trouble. And despite having the solution in their very lab, they chose to stay the course. It was a choice that would ultimately cost them. Kodak corporate biographer, Alecia Swasy—

ALECIA SWASY: The running joke about Kodak in the 80s was what’s the difference between Kodak and the Titanic. And the punchline is the Titanic had an orchestra.

The other problem you had was the fact that all of the boards of directors of General Motors, Procter and Gamble, Eastman, Kodak, and all the other titans of industry, they all served on each other’s boards. And it literally was the old boys’ club. Frankly, because there were no women.

And one of the problems that became apparent when things got tough was the boards of directors didn’t have any skin in the game. A lot of these guys didn’t hold very many shares in the company that they’re representing as a director. Yet they’re getting paid handsomely to show up at a meeting every now and again.

WALTER ISAACSON: Early digital camera sales figures clearly signaled that a revolution was afoot. But it wasn’t just companies like Sony that were setting the stage. There was another piece to the puzzle– a home appliance that would change the way we interact with the world.

That appliance, of course, was the personal computer. No longer would people have to display images on a TV screen, as seen in Sasson’s demo to the Kodak executives in the 1970s. Now pictures could be taken with a digital camera, downloaded to a personal computer, and shared with the world. Convenient, yes. But certainly not the be all and end all– yet.

Former Kodak senior VP, Willy Shih.

WILLY SHIH: One of the technologies that Kodak came out with early on that was digital was something called Photo CD. And Photo CD was high resolution digital images that were comparable to the quality of film. They were, I think, typically 18 megabyte files. And Kodak came out with the technology in the early 1990s. And it required very sophisticated scanning equipment. So there wasn’t really the infrastructure for handling that type of digital imaging technology at the time.

So the criticism of Kodak then was maybe they invested a little too much, too early. And short changed their existing business at the time.

WALTER ISAACSON: The quality of 18 megabyte Photo CDs was amazing. And for a while, consumers took to it. But then Nokia launched something that would leapfrog over this marriage of photography and personal computers. Something where the quality of the images may have been vastly inferior, but the experience was incredibly convenient.

In early 2002, the cell phone giant Nokia launched a new cell phone. It was called the Nokia 7650. And it changed everything. The reason? Built right into the phone was something revolutionary– a camera.

It may have not been the first cell phone with a camera– Sharp had released something similar two years earlier. But that camera never made it out of the Japanese market. And by all accounts, was considered a flop. The new model from Nokia– this was the one that would change everything.

But in order to understand the story of this revolutionary camera phone and the company behind it, we need to jump back in time once again, this time to 1868. We’re in Finland, on the banks of the Nokianvirta river. A mining engineer named Fredrik Idestam, and his friend and partner, Leo Mechelin have just purchased their second pulp mill, and have decided to formally start a business together.

They decide to name their business after the town nearest to their second mill. The name of that town– Nokia.

Over the next 90 years, Nokia expands their business from pulp mills to a whole line of products and services. Everything from power generation to producing products as varied as rubber boots and toilet paper.

But by the late 1980s, they had divested themselves of everything except for telecommunications. A focusing strategy that worked. Because by 1998, Nokia had become the largest mobile phone maker in the world. In 2002, they launched their newest phone along a clever ad campaign to tie it in with Steven Spielberg’s futuristic movie, “Minority Report.” The appropriately futuristic looking phone was the first from the company that included a built in camera. Some tech reviewers wond ered why anyone would ever need a camera built into their phone, particularly one that took such poor pictures. But the Nokia 7650 tapped into an unmet and unexpected consumer need, and the phone quickly became a hit.

And for cell phone cameras, that first Nokia model was only the beginning. The inventor of the digital camera, Steve Sasson—

STEVE SASSON: Cell phones cameras came along and knocked out the low end of the digital camera market. And they took away from the low end point and shoot cameras. And the reason they’re great is because she can share things right away. People were using those cameras because they wanted to capture that image and share it right away to somebody. You know, and social networks, Facebook, and things like that.

All these things came along. And they were not really– we hadn’t put all that together. I don’t think anybody did. And so consequently, people were buying cameras that took inferior images. But they were using for different purposes. And so the way people use photography changed. I think it expanded. But it changed.

WALTER ISAACSON: By 2003, more camera phones were being sold worldwide than standalone digital cameras. By 2005, Nokia had become the world’s most sold digital camera brand. And by 2008, Nokia was selling more camera phones than Kodak was selling film based cameras. Becoming the biggest manufacturer of any kind of camera in the world.

Using your phone to take photos may have seemed like a crazy idea before this. But customers took to this new behavior incredibly quickly. By 2010, Kodak had slipped to seventh place in the US market, with traditional cameras continuing to bleed huge market share to smartphones.

And as better and better camera phones hit the market, things only got worse for Kodak. Kodak was now trailing badly in a market that they had once dominated. So badly, in fact, that in 2012, Kodak filed for bankruptcy. Kodak had not only bet on the wrong horse when it came to the future of photography, but they had fundamentally misunderstood the social forces that were coming to surround it.

It’s a textbook case of a giant that wasn’t nimble enough to keep up with market forces that were transforming the world that they had once dominated. And once it became clear just how disruptive digital photography , was it was too late. Kodak was unable to make

the pivot. A great lesson on just how agile companies need to be in the digital age.

After selling off its digital patents to dig themselves out of financial trouble, a year after they declared bankruptcy, Kodak was back. And this time, with a new plan. The company that had been built on everyday consumers was now going to focus largely on commercial customers instead. Kodak bet on commercial printing, and has quickly become a leader in that field.

Recently, however, Kodak has also started getting back into the consumer game. At the 2017 consumer electronics show in Las Vegas, the company announced a number of new products, including an updated super 8 movie camera, the reintroduction of their famous Ektachrome color reversal film, a new photography app, as well as a new smartphone– a phone which claims to be a camera first phone for the serious photographer. While this could be considered a comeback, the jury’s still out on the results.

And as for Kodak digital camera pioneer, Steve Sasson, his 1975 prototype now sits on display in the Smithsonian’s National Museum of American History. And in 2009, President Obama awarded Sasson with the National Medal of Technology and Innovation.

And what about Nokia? Their reign continued until consumer behavior changed once again. Despite being an innovator of handsets, once its competitors introduced touch screens, sales of Nokia handsets dropped. It took Nokia three years to fully respond.

Their response? A touch screen that was even better than the competition. You could swipe even if you had gloves on. But it was too late. In the world of technology, whether it’s Kodak’s inability to see the value in digital photography or Nokia’s slow adoption of touch screen technology, it’s not just the quality of your product that decides your future. It’s also your timing, and your ability to remain agile. The potential for digital disruption is always lurking behind every door. It’s those who can either predict the future or pivot quickly that survive.

I’m Walter Isaacson, and you’ve been listening to Trailblazers, an original podcast from Dell Technologies. If you want to find out more about the ways the world of photography has been shaken over the past century, be sure to visit DellTechnologies.com/trailblazers2.

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