As someone who gets lost almost daily, I felt it was time to get a GPS device. I asked around for suggestions - almost everyone recommended that I get a smartphone (like an iPhone) with a GPS application. I was surprised that no one recommended purpose-built GPS devices from Garmin or Magellan. Later in the day, I came across "When Tactics Become Strategies: Lessons Learned from the Kodak Camera Exit" (Christopher Chute, IDC, February 2012). This research note describes why Eastman Kodak decided to exit the digital camera market after nearly a decade of investment and patches of market success. The dynamics of many device markets are changing rapidly as exemplified by GPS devices and by Kodak. Intelligent device manufacturers would be well-advised to re-think business models and strategies to survive and thrive as we discuss below.
Before we go on, some background on Kodak. Kodak invented the digital camera in 1975. In the past decade, Kodak powered digital camera innovations. Kodak EasyShare was an "inexpensive digital camera with a docking station that would drive a simple PC application once plugged in, allowing consumers to store, email, print, or upload images to its Kodak Gallery online service" (Source: IDC). EasyShare One was among the first WiFi-enabled digital cameras with a touch screen. Kodak also drove price points below $100. These innovations made Kodak the top-selling US digital camera brand in 2005.
How is it possible that Kodak went from such heights to exiting the business in February 2012? IDC's article provides some clues. Kodak focused almost exclusively on compact digital cameras (or "Built-In Lens Cameras"), which account for 87%[1] of digital camera shipments. Compact digital cameras are a mass-market product compared to "Interchangeable Lens Cameras". Cheap cameras were part of Kodak's DNA. In fact, Kodak had invented "throwaway cameras" decades earlier and had sustained that business through photo printing and film roll sales. Kodak had banked on digital cameras driving growth of photo printing equipment and services where Kodak dominates. However, consumers, as it turned out mostly shared (via social media and mobile phones) rather than print digital photos. This meant that the promise of photo printing volume and revenues never materialized. Combine that with cameras under $100 by themselves being not too profitable and Kodak had no choice but to exit the market.
While the full story is probably far more complex, we believe that Kodak has important lessons for all device manufacturers. One trend that all manufacturers should be aware of is the increasing preference for multi-function devices over purpose-built devices. In fact, growth of compact digital cameras, which Kodak focused on heavily, is being stunted by camera-enabled smartphones (which also facilitate consumer's desire to share images). At least some consumers prefer a multi-function smartphone over purpose-built digital cameras. Not surprisingly, CIPA[2] notes that unit shipments for compact digital cameras in 2012 will decline compared to 2011.
The only way to cope with multi-function devices is to become a part of that ecosystem. What if Kodak had come up with a way to deliver digital camera capabilities as pure software that could be embedded into smartphones? Besides addressing its profitably issues, such a strategy would have opened up a much larger market. The implication of multi-function devices is that device manufacturers need to stop thinking about the device form factor as the only way to deliver value and think of ways of expressing device capabilities as software. Forward-thinking device manufacturers are already doing this in both the consumer and industrial device markets. Garmin and Magellan sell GPS capabilities as devices as well as iPhone and Android apps in the consumer market. Citrix NetScaler is an early example of a datacenter device that is also available as pure software.
A software-based strategy, such as the one implied by multi-function devices, also requires device manufacturers to re-think business models. Kodak seems to have fixated on selling cameras and related equipment and services as the only way to make money. In our experience, manufacturers similar to Kodak are re-vamping their monetization approach as well. For example, a maker of cameras used for industrial applications (e.g. building security) charges for analytics enabled by their cameras. For example, their software can alert building security if there is sudden activity in a given area of the building. They also charge more for High Definition features compared to Standard Definition features.
Other articles in this blog cover more strategies to drive a software-driven transformation of intelligence device manufacturers.
[1] Source: "2012 Outlook on the Shipment Forecast by Product-Type Concerning Cameras and Related Goods", Camera & Imaging Products Association (CIPA).
