7 ms·

Bankrupt Kodak sells off patents to investors for $525M

50 points by dan1234 14y ago

colkassad 14y ago
So what mistakes did they make? It's obvious they are some sort of textbook case of failing to adjust to change in technology. There was a time when Kodak was synonymous with photography. Sad.
- w1ntermute 14y ago
  Their entire business model was based on selling film canisters at outrageous prices, so they didn't want to pursue digital cameras, since it would cannibalize their primary revenue source. The execs probably comforted themselves by saying that digital cameras would never become as cheap, as good, or as easy to use as film, yada yada yada. And while they were sitting on their hands, Sony, Nikon, and Canon ate their lunch.
- michaelt 14y ago
  Many people attribute this to "the innovator's dilemma" [1] - Kodak had a lead in digital camera technology, but they weren't as enthusiastic as they should have been to push digital as it would have made their chemical photography business obsolete. When you've got a big, profitable film business, lots of film business employees and factories and machines, people right up to the boardroom who have dedicated their lives to building up the film business, and lots of customers like photo development firms who are saying they think film is just great - it's difficult to decide to consign all that to the scrap heap. And by the time you don't have a profitable film business any more, you've lost the headstart you once had. [1] https://www.google.co.uk/search?q=innovators+dilemma+kodak https://www.google.co.uk/search?q=innovators+dilemma+kodak
  - bane 14y ago
    The idea of cannibalizing your existing business is always one that seems to drive business leaders crazy. But I've always looked at it this way, if you aren't going to cannibalize your own business, a competitor will. Only when it happens, you'll be out of business instead of still up and running. In the startup world I think we'd say that Kodak failed to pivot. I've seen a great many mature company lose their way when it comes to pivoting into a new and obvious line of business that will probably one day kill off their old business. But some manage to do it pretty well. I'd probably give the obvious example of Apple effectively killing a lot of their iPod business with the iPhone, but they weren't scared and proceeded to grow their business into entire new territories that way (while also getting their old customers to give them more money to upgrade to an iPhone). But another example might be IBM. IBM sold typewriters and other mechanical office machines, and even though the advent of computers would eventually kill off that entire industry, they managed to turn into a computer company and then into a services company and are doing quite well. There's others, but I think the main lesson to be learned from this is that you shouldn't be afraid to cannibalize yourself if you do it right. Kodak should own the digital imaging business by now. Everything from their own consumer cameras to the optics and sensors used in every mobile phone sold should have been theres. But they proceeded out of fear and this is where they've ended up.
    - michaelt 14y ago
      Yes, I've heard a (possibly fictional) quote attributed to Sony president Akio Morita: "My job is to make our products obsolete before our competitors do" Of course, I'm sure an ipod factory/engineering team/customer base could switch to the iphone more easily than a chemical film factory/engineering team/customer base could switch to digital sensors - so I'd be hard pressed to claim I could have done a better job of managing Kodak!
      - reinhardt 14y ago
        I've heard a (possibly fictional) quote attributed to Sony president Akio Morita: "My job is to make our products obsolete before our competitors do" Fictional or not, that's a great quote; bookmarked.
- arscan 14y ago
  They actually invented digital cameras. But fundamentally, they were a chemical company. They simply couldn't adjust to the new business model that digital cameras introduced. In fact, they didn't want to, until it was too late.
- potatolicious 14y ago
  > "It's obvious they are some sort of textbook case of failing to adjust to change in technology." I don't think that's obvious at all. Kodak I think is more of a story of distracted noncommittal execution combined with the standard woes of dramatically changing the primary competency of a large company to something entirely different. Contrary to popular belief, Kodak didn't stick its head in the sand while digital ate the world - they were there right at the beginning. Kodak literally invented the digital camera in 1975, though obviously it was wildly impractical at the time. More importantly, they were first to market with a DSLR all the way back in 1993: http://en.wikipedia.org/wiki/Kodak_DCS_100 http://en.wikipedia.org/wiki/Kodak_DCS_100 Yeah, get a load of that backpack you needed to carry ;) They continued releasing DSLRs until 2004, when they were obviously hopelessly outgunned by Canon and Nikon. Beyond cameras, they were, for a long time, the only people working on digital sensors at all (besides Canon), and they supplied many of Canon's competitors. The sensors themselves were no slouches technically either - they were highly competitive for their time. Perhaps most famously, Kodak supplied the sensors in the Leica M8 and M9, both of which were known at the time for their incredible image quality, and optical achievement (i.e. microlensing to reduce the flange-focal distance). In fact, for a short time Kodak supplied Canon themselves. OEMs abandoned Kodak in droves only in the last few years, when their financial troubles made the prospect of building an entire product around their sensors questionable. This, obviously, did no favors for Kodak. The rise of other medium format sensor companies also ate their top end market for lunch - Phase One and Leaf (now Mamiya-Leaf) being most notable. So all of this sounds pretty rosy, so why did Kodak die? It's really hard to say. I suspect a large part of the problem was that becoming the world's digital imaging sensor vendor would not have financially supported a company the size of Kodak, even if they had committed to that path, and the company was loathe to downsize and reorganize the workforce to something that they would barely recognize. So they branched into many other lines of business that were, even at the time, poor bets. They targeted low-margin markets (HP style!) and went hardcore into digital photo frames and various cheapo consumer knick-knacks that you might find at Sharper Image. IMO this was a large distraction that never should have been pursued in the first place. They even tried to copy HP by going in on the printer-ink business. That failed too. Their stance in the digital imaging aspect of their business was always a bit noncommittal. IMO Kodak would have survived if they trimmed their business down and became the image sensor R&D company of the world. Their work force was too large and committed to the wrong lines of business all the way to the end. Interesting note: Kodak's film business is actually profitable.
- jdechko 14y ago
  It's also where traditional print media is failing. Rather than embrace the digital age of publishing, they've used digital as a crutch to prop up print. Love or hate Apple, they aren't afraid to cannibalize themselves in order to progress. The iPod-killer everyone was waiting for came in the form of the iPhone, and iPads have overtaken Mac sales. Not sure who said it exactly, maybe Marco, Gruber, John Siracusa or someone else, but one of them made a comment that disruption rarely comes from big players (entrenched players), but from the small-time players/ newcomers. Even though Apple was a big company, they were new to the cell phone market. Like it or not, the iPhone disrupted the entire smartphone/ cellphone industry. We're all better off because of it.
- lostlogin 14y ago
  I use their medical imaging software daily, and its so awful. It requires IE6 and is a bug ridden usability nightmare. I hope no one has bought this part of the company, although I suspect Carestream Health or some such crown have.
- cmbaus 14y ago
  It was non-trivial for Kodak to replace the $16B in revenue they had from film. Having been a student in Rochester during Kodak's peak revenue, I have no doubt they saw digital coming, but what to do about it was less than obvious. If Kodak could have been Adobe, Flikr, and Instagram all rolled into one, they still wouldn't have same revenue they had in the 90s. I wrote about this before here: http://baus.net/will-there-be-a-third http://baus.net/will-there-be-a-third
macavity23 14y ago
IV and RPX are so-called "patent aggregators" which dedicate themselves to buying and then licensing out patent rights. should be: IV and RPX are so-called "patent trolls" which dedicate themselves to buying patents and then extorting money from genuine innovators while creating zero value themselves.
- andrewcross 14y ago
  Exactly what I thought when I read that.
- rayiner 14y ago
  The value created by IV and RPX in this situation is of the same character as the value created by any transactionary middle-man: they create liquidity. They enable "genuine innovators" to quickly cash out their invention in a single transaction instead of either litigating themselves, or waiting to sell the patents piecemeal to someone who will "actually use them." In this case, Kodak isn't going to continue as an ongoing entity. It's better for Kodak, the original inventors, to sell the patent to an aggregator than to drag out the bankruptcy selling the patent portfolio piecemeal to companies that will "actually use it." In turn, IV and RPX aren't doing anything Kodak, the original inventors, couldn't already do. They are just taking advantage of Kodak's need for expediency, hoping to make a profit on the discount Kodak is willing to take in order to complete the transaction quickly. Also, the use of the phrase "genuine innovator" is more than a bit editorial. Who is to say that they aren't just opportunists seeking to take advantage of the fact that Kodak can no longer practically enforce its rights? Kodak isn't a software company--the probability that IV and RPX will just be going after "innocent" third parties that just happened to stumble on the same invention is lower than it would be in say the software patent context.
  - angersock 14y ago
    Their patents are ideas, though--I can't imagine something with much more liquidity. Better to have simply found some way of assigning the patents to the public domain or somesuch. How can you do much better for improving business than releasing the things to everyone to try and build a business on, instead of having to license or fight in court?
dbrian 14y ago
Why do patents need to be transferable at all? The whole idea is to give the inventor time to bring her invention to market. Once the original innovator is out of the picture, what’s the point to granting a monopoly on the technology?
- rayiner 14y ago
  Because it facilitates division of labor, and competition based on competitive advantage. A product is more than just one piece of technology, and inventors should be focused on technology, instead of getting mired up in everything that is involved in developing a product.
- danielweber 14y ago
  If a friend and I invent something, it's in both our interests to assign it to a company we own, rather than trying to figure out which "half" he owns and I own, or if we own it in joint, or any other a thousand other crazy ways. Or, what rayiner said.
robomartin 14y ago
The Innovators Dileamma. As far as I am concerned, required reading for every entrepreneur, manager and executive today. http://www.amazon.com/The-Innovators-Dilemma-Revolutionary-Business/dp/0062060244/ref=sr_1_1?ie=UTF8&qid=1355939138&sr=8-1&keywords=the+innovators+dilemma http://www.amazon.com/The-Innovators-Dilemma-Revolutionary-B...
- mark-r 14y ago
  It's bigger than that. In the film era, they were collecting a tax on every single picture taken. What part of the digital imaging process could they have taken over that would have replaced that entire revenue stream? I'm taking 100x the pictures I took 15 years ago because the incremental cost has all but disappeared. They were doomed before they even started, and I doubt there's a management decision that could have prevented it.
arbuge 14y ago
IV? RPX? So Google and Apple are in bed with the patent trolls now.
- prodigal_erik 14y ago
  "Those who beat their swords into plowshares will be forced to plow for those who don't." All tech companies with deep pockets now find themselves on a battlefield with very perverse incentives enshrined in law.
psykotic 14y ago
This is why, as an employee, you shouldn't buy a company's line on defensive patenting. Heartfelt as it may be, if the company's financials ever go sufficiently south, none of that will count for anything, least of all in the event of outright bankruptcy when vultures come to pick apart the corpse. This argument applies with proportionately greater force to businesses whose survival odds are slim. Like startups.
- danielweber 14y ago
  Why do you say "as an employee"? I understand the rest of your comment without that clause.
  - psykotic 14y ago
    Because a dilemma often faced by programmers is that their employers want to patent their ideas for defensive reasons. It's a situation in which you as an employee might have leverage, so your stance isn't mere armchair ideology.
- robrenaud 14y ago
  Do you think that twitter's innovators patent agreement fails at addressing your concerns about defensive patents? > The Innovators Patent Agreement (IPA) is a new way to do patent assignment that keeps control in the hands of engineers and designers. It is a commitment from a company to its employees that patents can only be used for defensive purposes. The company will not use the patents in offensive litigation without the permission of the inventors. This control flows with the patents, so if the company sells the patents to others, the assignee can only use the patents as the inventor intended. And the agreement text: https://github.com/twitter/innovators-patent-agreement/blob/master/innovators-patent-agreement.md https://github.com/twitter/innovators-patent-agreement/blob/...
  - psykotic 14y ago
    That looks like a great initiative! My biggest concern is how individual employees are supposed to enforce this kind of agreement if the patent owner reneges. A random programmer is not going to have the financial means or a strong enough incentive to pursue violations.
deleted 14y ago
[deleted]

50 points by dan1234 14y ago

So what mistakes did they make? It's obvious they are some sort of textbook case of failing to adjust to change in technology. There was a time when Kodak was synonymous with photography. Sad.

w1ntermute 14y ago
Their entire business model was based on selling film canisters at outrageous prices, so they didn't want to pursue digital cameras, since it would cannibalize their primary revenue source. The execs probably comforted themselves by saying that digital cameras would never become as cheap, as good, or as easy to use as film, yada yada yada. And while they were sitting on their hands, Sony, Nikon, and Canon ate their lunch.
michaelt 14y ago
Many people attribute this to "the innovator's dilemma" [1] - Kodak had a lead in digital camera technology, but they weren't as enthusiastic as they should have been to push digital as it would have made their chemical photography business obsolete. When you've got a big, profitable film business, lots of film business employees and factories and machines, people right up to the boardroom who have dedicated their lives to building up the film business, and lots of customers like photo development firms who are saying they think film is just great - it's difficult to decide to consign all that to the scrap heap. And by the time you don't have a profitable film business any more, you've lost the headstart you once had. [1] https://www.google.co.uk/search?q=innovators+dilemma+kodak https://www.google.co.uk/search?q=innovators+dilemma+kodak
- bane 14y ago
  The idea of cannibalizing your existing business is always one that seems to drive business leaders crazy. But I've always looked at it this way, if you aren't going to cannibalize your own business, a competitor will. Only when it happens, you'll be out of business instead of still up and running. In the startup world I think we'd say that Kodak failed to pivot. I've seen a great many mature company lose their way when it comes to pivoting into a new and obvious line of business that will probably one day kill off their old business. But some manage to do it pretty well. I'd probably give the obvious example of Apple effectively killing a lot of their iPod business with the iPhone, but they weren't scared and proceeded to grow their business into entire new territories that way (while also getting their old customers to give them more money to upgrade to an iPhone). But another example might be IBM. IBM sold typewriters and other mechanical office machines, and even though the advent of computers would eventually kill off that entire industry, they managed to turn into a computer company and then into a services company and are doing quite well. There's others, but I think the main lesson to be learned from this is that you shouldn't be afraid to cannibalize yourself if you do it right. Kodak should own the digital imaging business by now. Everything from their own consumer cameras to the optics and sensors used in every mobile phone sold should have been theres. But they proceeded out of fear and this is where they've ended up.
  - michaelt 14y ago
    Yes, I've heard a (possibly fictional) quote attributed to Sony president Akio Morita: "My job is to make our products obsolete before our competitors do" Of course, I'm sure an ipod factory/engineering team/customer base could switch to the iphone more easily than a chemical film factory/engineering team/customer base could switch to digital sensors - so I'd be hard pressed to claim I could have done a better job of managing Kodak!
    - reinhardt 14y ago
      I've heard a (possibly fictional) quote attributed to Sony president Akio Morita: "My job is to make our products obsolete before our competitors do" Fictional or not, that's a great quote; bookmarked.
arscan 14y ago
They actually invented digital cameras. But fundamentally, they were a chemical company. They simply couldn't adjust to the new business model that digital cameras introduced. In fact, they didn't want to, until it was too late.
potatolicious 14y ago
> "It's obvious they are some sort of textbook case of failing to adjust to change in technology." I don't think that's obvious at all. Kodak I think is more of a story of distracted noncommittal execution combined with the standard woes of dramatically changing the primary competency of a large company to something entirely different. Contrary to popular belief, Kodak didn't stick its head in the sand while digital ate the world - they were there right at the beginning. Kodak literally invented the digital camera in 1975, though obviously it was wildly impractical at the time. More importantly, they were first to market with a DSLR all the way back in 1993: http://en.wikipedia.org/wiki/Kodak_DCS_100 http://en.wikipedia.org/wiki/Kodak_DCS_100 Yeah, get a load of that backpack you needed to carry ;) They continued releasing DSLRs until 2004, when they were obviously hopelessly outgunned by Canon and Nikon. Beyond cameras, they were, for a long time, the only people working on digital sensors at all (besides Canon), and they supplied many of Canon's competitors. The sensors themselves were no slouches technically either - they were highly competitive for their time. Perhaps most famously, Kodak supplied the sensors in the Leica M8 and M9, both of which were known at the time for their incredible image quality, and optical achievement (i.e. microlensing to reduce the flange-focal distance). In fact, for a short time Kodak supplied Canon themselves. OEMs abandoned Kodak in droves only in the last few years, when their financial troubles made the prospect of building an entire product around their sensors questionable. This, obviously, did no favors for Kodak. The rise of other medium format sensor companies also ate their top end market for lunch - Phase One and Leaf (now Mamiya-Leaf) being most notable. So all of this sounds pretty rosy, so why did Kodak die? It's really hard to say. I suspect a large part of the problem was that becoming the world's digital imaging sensor vendor would not have financially supported a company the size of Kodak, even if they had committed to that path, and the company was loathe to downsize and reorganize the workforce to something that they would barely recognize. So they branched into many other lines of business that were, even at the time, poor bets. They targeted low-margin markets (HP style!) and went hardcore into digital photo frames and various cheapo consumer knick-knacks that you might find at Sharper Image. IMO this was a large distraction that never should have been pursued in the first place. They even tried to copy HP by going in on the printer-ink business. That failed too. Their stance in the digital imaging aspect of their business was always a bit noncommittal. IMO Kodak would have survived if they trimmed their business down and became the image sensor R&D company of the world. Their work force was too large and committed to the wrong lines of business all the way to the end. Interesting note: Kodak's film business is actually profitable.
jdechko 14y ago
It's also where traditional print media is failing. Rather than embrace the digital age of publishing, they've used digital as a crutch to prop up print. Love or hate Apple, they aren't afraid to cannibalize themselves in order to progress. The iPod-killer everyone was waiting for came in the form of the iPhone, and iPads have overtaken Mac sales. Not sure who said it exactly, maybe Marco, Gruber, John Siracusa or someone else, but one of them made a comment that disruption rarely comes from big players (entrenched players), but from the small-time players/ newcomers. Even though Apple was a big company, they were new to the cell phone market. Like it or not, the iPhone disrupted the entire smartphone/ cellphone industry. We're all better off because of it.
lostlogin 14y ago
I use their medical imaging software daily, and its so awful. It requires IE6 and is a bug ridden usability nightmare. I hope no one has bought this part of the company, although I suspect Carestream Health or some such crown have.
cmbaus 14y ago
It was non-trivial for Kodak to replace the $16B in revenue they had from film. Having been a student in Rochester during Kodak's peak revenue, I have no doubt they saw digital coming, but what to do about it was less than obvious. If Kodak could have been Adobe, Flikr, and Instagram all rolled into one, they still wouldn't have same revenue they had in the 90s. I wrote about this before here: http://baus.net/will-there-be-a-third http://baus.net/will-there-be-a-third

macavity23 14y ago

IV and RPX are so-called "patent aggregators" which dedicate themselves to buying and then licensing out patent rights. should be: IV and RPX are so-called "patent trolls" which dedicate themselves to buying patents and then extorting money from genuine innovators while creating zero value themselves.

andrewcross 14y ago
Exactly what I thought when I read that.
rayiner 14y ago
The value created by IV and RPX in this situation is of the same character as the value created by any transactionary middle-man: they create liquidity. They enable "genuine innovators" to quickly cash out their invention in a single transaction instead of either litigating themselves, or waiting to sell the patents piecemeal to someone who will "actually use them." In this case, Kodak isn't going to continue as an ongoing entity. It's better for Kodak, the original inventors, to sell the patent to an aggregator than to drag out the bankruptcy selling the patent portfolio piecemeal to companies that will "actually use it." In turn, IV and RPX aren't doing anything Kodak, the original inventors, couldn't already do. They are just taking advantage of Kodak's need for expediency, hoping to make a profit on the discount Kodak is willing to take in order to complete the transaction quickly. Also, the use of the phrase "genuine innovator" is more than a bit editorial. Who is to say that they aren't just opportunists seeking to take advantage of the fact that Kodak can no longer practically enforce its rights? Kodak isn't a software company--the probability that IV and RPX will just be going after "innocent" third parties that just happened to stumble on the same invention is lower than it would be in say the software patent context.
- angersock 14y ago
  Their patents are ideas, though--I can't imagine something with much more liquidity. Better to have simply found some way of assigning the patents to the public domain or somesuch. How can you do much better for improving business than releasing the things to everyone to try and build a business on, instead of having to license or fight in court?

dbrian 14y ago

Why do patents need to be transferable at all? The whole idea is to give the inventor time to bring her invention to market. Once the original innovator is out of the picture, what’s the point to granting a monopoly on the technology?

rayiner 14y ago
Because it facilitates division of labor, and competition based on competitive advantage. A product is more than just one piece of technology, and inventors should be focused on technology, instead of getting mired up in everything that is involved in developing a product.
danielweber 14y ago
If a friend and I invent something, it's in both our interests to assign it to a company we own, rather than trying to figure out which "half" he owns and I own, or if we own it in joint, or any other a thousand other crazy ways. Or, what rayiner said.

robomartin 14y ago

The Innovators Dileamma. As far as I am concerned, required reading for every entrepreneur, manager and executive today. http://www.amazon.com/The-Innovators-Dilemma-Revolutionary-Business/dp/0062060244/ref=sr_1_1?ie=UTF8&qid=1355939138&sr=8-1&keywords=the+innovators+dilemma http://www.amazon.com/The-Innovators-Dilemma-Revolutionary-B...

mark-r 14y ago
It's bigger than that. In the film era, they were collecting a tax on every single picture taken. What part of the digital imaging process could they have taken over that would have replaced that entire revenue stream? I'm taking 100x the pictures I took 15 years ago because the incremental cost has all but disappeared. They were doomed before they even started, and I doubt there's a management decision that could have prevented it.

arbuge 14y ago

IV? RPX? So Google and Apple are in bed with the patent trolls now.

prodigal_erik 14y ago
"Those who beat their swords into plowshares will be forced to plow for those who don't." All tech companies with deep pockets now find themselves on a battlefield with very perverse incentives enshrined in law.

psykotic 14y ago

This is why, as an employee, you shouldn't buy a company's line on defensive patenting. Heartfelt as it may be, if the company's financials ever go sufficiently south, none of that will count for anything, least of all in the event of outright bankruptcy when vultures come to pick apart the corpse. This argument applies with proportionately greater force to businesses whose survival odds are slim. Like startups.

danielweber 14y ago
Why do you say "as an employee"? I understand the rest of your comment without that clause.
- psykotic 14y ago
  Because a dilemma often faced by programmers is that their employers want to patent their ideas for defensive reasons. It's a situation in which you as an employee might have leverage, so your stance isn't mere armchair ideology.
robrenaud 14y ago
Do you think that twitter's innovators patent agreement fails at addressing your concerns about defensive patents? > The Innovators Patent Agreement (IPA) is a new way to do patent assignment that keeps control in the hands of engineers and designers. It is a commitment from a company to its employees that patents can only be used for defensive purposes. The company will not use the patents in offensive litigation without the permission of the inventors. This control flows with the patents, so if the company sells the patents to others, the assignee can only use the patents as the inventor intended. And the agreement text: https://github.com/twitter/innovators-patent-agreement/blob/master/innovators-patent-agreement.md https://github.com/twitter/innovators-patent-agreement/blob/...
- psykotic 14y ago
  That looks like a great initiative! My biggest concern is how individual employees are supposed to enforce this kind of agreement if the patent owner reneges. A random programmer is not going to have the financial means or a strong enough incentive to pursue violations.

deleted 14y ago

[deleted]