Case: Kadak and Digital Revolution

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3. Evaluate Kodak’s response to Sony’s introduction of the Mavica in 1981. Was it appropriate? Kodak’s business model was to sell cameras at low prices and profit from consumable products such as film. When Sony launched Mavica, a camera that used floppy discs instead of film, it signaled the forthcoming death of analog photography. Kodak refused to acknowledge that print photography was a dying business largely because margins for print (film, chemicals, and processing) were high as 60% versus 15% for digital products. Kodak recognized the threat and invested in digital imaging in the 1980s and 1990s but the move wasn’t fast enough. The Management launched some research into digital photography, but at that time believed the technology was not feasible and will not be affordable. They did not make a big move into the space until early 2000s. Kodak responded to competition threats (from Fuji and Polaroid) by diversifying throughout the 1980s. It got into medical imaging, mass memory, bioscience and lab research firms, pharmaceuticals, batteries and even digital imaging. Chandler abandoned the policy of vertical integration, funded extensive research and established centers to develop image acquisition, storage systems, software and printer products. Film-based digital imaging also took hold. Kodak executives stuck to current film strategy in spite of detailed analysis of threats posed by digital photography. They found it hard to ignore the fact that film and traditional processing provided for majority of the revenue stream. They underestimated the significance of market changes and the disruption that was coming. Digital technology also eliminated the huge recurring revenue stream that came from film and reprints. The economics of the new model don’t measure up to the economics of the old. It was hard for Kodak executives to believe the end of print technology.

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