The Real Lesson of Kodak

KodakIt is hard not to feel at least somewhat sentimental watching Kodak exit the world’s business stage in such a sad state after such a storied run. You have to feel sorry for the employees, especially those likely to lose retirement benefits after long careers of loyal service. It is also hard to feel sorry for the company, particularly its management. Kodak had the solution to its own ills and chose to submarine it. The lesson: if you don’t cannibalize your own business, count on a competitor to do it for you.

A timeline of “Kodak’s Key Moments” recently appeared in the Wall Street Journal, and what is too easily forgotten is that Kodak developed the first digital camera as early as 1975, but chose not to bring it to market for fear of cannibalizing its hugely popular film business. That’s an easy enough Monday morning quarterback call, but how many companies right now know they are on a path to their own obsolescence, have a pretty good idea what the long-term answer to their ills may be, but are ceding alternative paths to their competitors for fear of short-term pain or possibly looking stupid? The answer: more than you think.

In a subsequent article entitled Avoiding Innovation’s Terrible Toll, the Journal further noted that in a study of more than six million firms, only a tiny fraction made it to the ripe old age of 40. The authors of that report, Charles I. Stubbart and Michael B. Knight, reflect that “…despite their size, their vast financial and human resources, average large firms do not ‘live’ as long as ordinary Americans.” We have just seen this of late with the beloved Borders Books, and now we are watching Barnes and Noble try to pull off a comeback around its initiatives with Nook. Other companies like Apple, Johnson & Johnson, IBM, and General Electric have steered their ships across longer journeys. It is possible to go the distance, but it requires an openness to change that is so uncommon in business, you almost have to shake people physically to get them to see how to save themselves. Generally speaking, corporate people don’t like to be shaken, even if it’s good for them.

Creative destruction as most commonly defined by Joseph Schumpeter is real and unavoidable. It is also reasonably easy to argue that despite the pain it causes in transition, it is a positive force of social evolution that drives us forward and replaces inefficient procedures with new technology, updated methodology, and even new financial opportunities for investment and return. My dear friend Kermet Apio, a wonderfully successful standup comedian, captures the essence of Creative Destruction in a 90 second bit where he compares the joy and simplicity today of clicking on a song you might want to hear versus trying to find it on a cassette tape, which might take you so long you’d almost certainly abandon the task unfinished, or worse, try using your pinkie on the internal reels to queue up the precise starting spot. There’s a touch of nostalgia here, and we do find ourselves laughing very hard at what was our norm not so long ago. Click on the link above to see how Kermet tells the tale, the chuckle makes the point.

But no one is laughing at Kodak’s headquarters in Rochester, and no one should be. Kodak had the first digital camera in 1975, and while admittedly neither they nor anyone else knew what to make of this at the time, they had a much more important mandate on their mind: Protect Film. Kodachrome was not only iconic, it was hugely profitable. So was motion picture film processing. So were all their other traditional film developing technologies, not to mention the sale of retail supplies, equipment repairs, and patent licensing. Kodak was a beloved company and a global brand that made the same wrong decision so many other short-life companies make—they worried too much about cannibalism, and not enough about what happens if they don’t cannibalize their own markets.

It doesn’t get any easier to understand than this—if you don’t cannibalize your own markets, someone will do it for you. The choice is that simple: do it to yourself for your own good, or be the victim of outside attack. No form of technology is forever, and any trend you’re surfing is going to break flat on the beach. In Kermet’s bit, he talks about the Sony Walkman. Everyone had one. It was great. Then came the CD, Sony had a piece of that technology, so far so good. Then came Apple with the iPod, not the inventor of portable digital music playback, but the “perfector.” By the time Sony responded, they were on defense instead of offense. Too late. The cannibal is here, it came from elsewhere and did what you feared it would. You knew it would happen, you couldn’t stop it, but you could have been it. That’s the choice. Not will it come, but from where will it come.

That is the real lesson of Kodak: no one can stop the march of innovation because it is inconvenient or upsetting. No company can duck cannibalism by refusing to acknowledge that current markets have to be sacrificed for new markets to be built. If you’re young and just getting into business, get used to this, and get used to your bosses telling you all the reasons why they have to protect what you have today, that the hit to earnings to attack your own hugely successful lines of business with nascent replacement ventures is just too painful. If you’ve been doing this a few decades, remember back on all those long and awful bureaucratic meetings where you wished someone would have pounded the table and screamed, “To Hell with cannibalism, we’re doing this—keep the cannibal in the family!” There were meetings where that happened. Those are the companies with the 100 year brands.

If you are at CES this week wandering the endless aisles of new stuff and you see something that could eat your lunch, ask yourself, why didn’t we think of that? And if we did, would we have had the courage to launch it? Let’s hope this lesson gets easier to recite so we don’t see loyal employees lose their benefits because political correctness forced a gag order or management failed to act when time was on their side. Manage the product life cycle, but don’t be afraid to leave a little money on the table. Get the new products out there before someone does it for you. The real money is in longevity, which means innovation, which means playing offense against yourself.

Fleeting Moments in iHistory

Why don’t internet brands make comebacks?

myspaceWith the recent attention on onetime market leaders AOL, Yahoo, and MySpace to inject new creativity into their platforms, I have been talking with a number of people about why this notion isn’t business as usual, with the expectation that success is much more probable than unlikely. We are so quick in the internet age to exchange snarky remarks about last year’s fading nameplates, as if it were all but inevitable that a fallen giant cannot get up and march on. Why?

Well, aside from our gossipy predisposition to critique, there is a good reason we take a skeptical point of view about internet brands that have seen better days—in almost all cases, those were their best days. Major turnarounds don’t seem to be the norm. Sadly, they don’t seem to be out there much at all. We can point to several works in progress where noble efforts are underway, but we can’t really write a business school case study on a revamp that is making history and ripe for the textbooks.

Although this is reality, it does not make sense, certainly not good business sense.

Most traditional brands go through life cycles: they are cool for a while, then something inevitably goes wrong—operational mishaps, disruptive entrants, or market forces—then visionary management attacks the problem and turnarounds do happen, sometimes monster turnarounds. Think about what happened with the rise and fall and rise of Disney, the same but even more so at Apple, the customer win back at Coke after the public rejection of new-Coke, multiple cycles up and down at Sony, the same to a lesser extent at MTV. All of these instances gave management—often new management—a starting point for the very real consideration of turnaround plans. Management carries out the traditional SWOT (Strengths-Weaknesses-Opportunities-Threats) analysis, and the discussion centers around how probable the turnaround plan under consideration might be, not a passive discussion of should we bother. You always bother.

Look at what happened at the Wall Street Journal—newspapers have been pronounced on their way to the graveyard, but the brand has never been stronger and circulation is growing on multiple platforms. That is giving the New York Times hope, the Los Angeles Times as well. You always try because the asset you have is too valuable not to try. CBS, NBC, ABC, HBO, they all have good and bad seasons, but you don’t think about walking away after a bad season. Look at MSNBC, how it struggled out of the gate, now it has an identity. Sticking with an established beachhead can work, surely not all the time, but there are so many examples where the uphill effort is proven to be worth it.

Like internet brands that have enjoyed success, non-internet brands once in the limelight come to the outset of a turnaround with some remaining loyalty, mass reach, measurable unaided awareness, and some core value proposition. The fact that tastes have changed or tactics have failed doesn’t mean you have lost everything; you just have a lot less of it. You have something to work with, so you don’t walk away. Your investors would not be pleased with those kinds of write downs.

Let’s think about the dotcom bubble and all the brands it birthed, starting with the portal wars—Excite (then Excite @Home), Lycos, Looksmart, Infoseek (then Go.com)—they all had huge followings! Now they are answers to trivia questions. What about Friendster, eToys, Netscape, NeoPets, Encarta, GeoCities, Pets.com, Webvan? These were all massively attended internet destinations, great names with tremendous followings built on innovation and creativity. Was there really nothing better to do with their identities than turn away?

I started to wonder whether our relationship with brands today is somehow different from our relationship two, three, four decades ago. Were we somehow more willing to give brands a second chance then that we are not now? Is this generation of consumers somehow wired differently? Have we come to a new understanding of inertia so that once cold something must stay cold? That would have been an easy answer, but one trip to the Apple Store will change your mind quickly. Spend a little time in the store with the other customers and you will soon be reassured how much a once loved, then dismissed, then reinvented brand can be loved anew. Ask tweens about Disney Channel, which they never would have been caught dead watching a generation ago, but now it too has been reinvented to become a trendsetter.

Brand laws may evolve, but they haven’t died.

What seems most ironic to me is that when you look at the giants of brand reinvention, the core turnaround strategy is not financial engineering, but rediscovery of the company’s roots in innovation. Disney expanded its theme parks, its own hotels, rebuilt its animation efforts, created the Disney Store, and rode a wave of home video before acquiring ABC and later Pixar and Marvel. Upon the return of Steve Jobs, Apple pioneered the iMac, then iTunes, then the iPod, then the iPhone, then the iPad, all the while building out the Apple Stores. Microsoft from a standing start entered the entertainment world with Xbox, as Sony had done prior to that with PlayStation. Clearly these involved massive investments, but they were bets on products and services, new ideas from talent and passion within the company.

Can we imagine a day when Google, Amazon, eBay, or Facebook are no longer top of mind with consumers? What about Netflix, LinkedIn, or YouTube? If history is a guide, it is entirely likely one of these or another equally strong internet property will fall out of favor. Are we likely to see it left to harvest? I would bet 100% the answer is no. Reinvention will be the order of the day, and revitalization will follow with new products, new services, and creative marketing to support those initiatives, no different from the offline world.

Internet brands are born of talent and passion—they are the very picture of innovation. So why if they can be invented with innovation can they seldom seem to be reinvented with innovation? Is the answer to be found in independence vs. acquisition by an umbrella company, where founding talent departs and corporate bureaucracy takes over? Possibly, but that seems more like an observation to me than a fait accompli. Just because a young company is bought on the way up or down doesn’t mean it cannot survive a downtown. The question has to be what is being done to address the downturn. If the downturn is being addressed through a product strategy with talent and passion, there is every reason to believe a new vision can have success. Just because it hasn’t happened doesn’t mean it won’t happen. We all have reason to want it to happen, because that creates more opportunity for the industry and sends the right message to customers, that we do listen to them and change can happen when we are serious about it.

Optimism as a driving force is always good. The change that happens in the analog world will translate to the digital world. When a once adored brand is down, root for reinvention.