I was at a mobile payments conference this week and more than one speaker raised the issue of disruption. The example people keep giving is Kodak. I’ve devoted a couple of chapters of Shift to disruption so I weighed in with my views on that topic but also on Kodak. Is the real Kodak story the one you know and love?
I’ve always been skeptical of the view that digital cameras sank Kodak. Yes, Kodak’s management made errors of judgment but none of us could see the real disruptor coming – mobile phones.
If you are looking for a technology that made wet film redundant and expanded the market for photography it was the phone, particularly the smartphone and feature phone.
Kodak in fact was a player in phone display technology. Not many people who retell the Kodak story actually get into this. Kodak was a leader in what was to become a huge differentiator in smartphones. This is where it placed the wrong bets. In mobile, phones are either variants of LCD (Liquid Crystal Display – like Apple’s iPhone) or Organic Light Emitting Diode displays. They are of course flat panel displays and that is what allows them to be miniaturized and, because they are miniaturized, we have smartphones.
Interest in these flat display technologies goes back to the early post war years. German technologists gave up on it; the US TV production industry died, and it was left to the Japanese to commercialize LCDs.
Fast forward to today and displays are where the majority of people enjoy their photographs. Actually they are also where people take photographs. Photography is one of our most common activities online but it is also feeding our current desire for more rapid communications. I picked up this visual from the Next Web. It explains some of the why:
I think Kodak could have been more astute at how to anticipate digital cameras but I doubt anyone could have guessed what mobile phones would have done to our photography habits and from there the new ways we communicate – and the frequency of communications: Users on Facebook upload 350 million new photos each day; users on Snapchat upload roughly the same number, and most of that is via mobile.
YET! Kodak was there too.
It devised the basic technologies for OLED displays now used in mobile and then tried to license that intellectual property (IP). In the management tradition of the day this was the right move. Kodak’s mistake lay in setting too high a price for its IP according to one observer in the business.
There are many ways Kodak has suffered from the way it framed its IP strategy. The first was that licensees such as Samsung set about creating patent workarounds from the very early days of OLED technology. They wanted to be in the business but not at Kodak’s price.
The second was that no ecosystem of suppliers emerged around Kodak’s brand because they were priced out. Companies like Universal Display Corporation, for example, made compounds for Kodak licensed florescent OLED technology while investing heavily in making an alternative phosphorescent compound, which Samsung happily bought.
Many of the Kodak patents now belong to LG, Samsung’s Korean competitor and display technology leadership now lies in Korea not America (nor in Japan which dominated LCD technology in the 2000s).
The disruption process here is simple enough to understand. Kodak overpriced its patents and Samsung, which funded hundreds of R&D projects to make OLED a reality, circumvented them where it could. In the process old fashioned R&D investment and high cost manufacturing facilities gave us OLED. But American companies had been schooled not to make those investments. Instead America was going to be the creative force licensing IP to the world.
It didn’t work for Kodak. Was Kodak disrupted by low cost digital camera makers? I think it was disrupted by the mobile phone, as were MP3 makers. Was Kodak sunk by cheap digital cameras? I think it was sunk by its unwillingness to make the investments that Samsung and LG made and by not realizing how important it is to have partners who are equals.
Disruption though is as diverse as the average cupcake shelf. It comes in many flavors. In this case disruption stemmed from errors of judgement and huge capital investment costs. Those are not classic disruption vectors but they still matter. Shift covers many more type of disruption and with GigaOm I’ll be looking at several of them later in the month and again in January.