Kodaks printing business

Kodak’s New Printing Business

11 Sep 06

“And then I got to thinking about it… Kodak still exists? Even seeing its name makes me feel like I’m at a garage sale. I bet they stopped hiring young people in 1997.”

20-something Ethan Jarlewski, a character in Doug Coupland’s 2006 novel, JCube

Kodak still exists, of course, and its struggle for survival serves as a canonical example of the effects of disruptive technologies on company performance.

A quick recap: Steven Sasson, a researcher in Kodak’s R&D labs, prototyped the first digital camera in December, 1975. The resulting patents on digital imaging technology have allowed Kodak to collect royalties on every digital camera sold.

Even though Kodak pioneered digital imaging, the company was a late entrant into the digital photography business itself. It is currently struggling to make profits in this very competitive market. At the same time, digital technologies are rapidly killing the company’s huge film business, which once had profit margins of sixty percent.

Kodak’s stock hit an all-time high of $92 a share in 1997. It trades today at around $21, and most analysts see it heading even lower.

Three years ago, the company slashed its dividend by 72 percent and announced that it was going to be investing this cash in new technologies for commercial printing. Now these new technologies are beginning to come to market.

Kodak VersaMark Continuous Inkjet Printer

Kodak is using some disruptive technologies of its own to enter and change the commercial printing business. Its continuous inkjet process, code-named “Stream,” sprays ink onto paper like a machine gun. This allows commercial printers to run at the speed of offset printing presses, which are used for newspapers and magazines. The inkjet process allows every page to be customized, however. For example, different magazine subscribers could receive the same magazine with different ads.

“[Kodak’s] technology could prove nearly as important an evolution in printmaking as movable type -- allowing for mass customization on unprecedented scales.”

BusinessWeek, 4 Sep 06

The business is shaping up to be a competitive one, however. Xerox is already working on similar kinds of technologies, and Hewlett-Packard is thinking of entering the business as well. Kodak has put together an integrated solution, buying a set of companies that can go from plates to press with its Stream technology, and the company may emerge as a leader in this next revolution in printing. Kodak’s CEO Antonio Perez expects the Graphic Communications Group to have operating margins of 9 percent by 2008, well above the 5 percent margins he forecasts for Kodak’s digital photography business.

What’s next for Kodak and its continuous inkjet printing? Here are three possible scenarios:

The optimists see Kodak’s commercial printing venture as one success that paves the road to many others. The expertise in technology management that Kodak has demonstrated across many of its businesses generates a series of additional new businesses in which Kodak’s patent position and technology savvy give it profitable positions. Bill Miller of Legg Mason, who is currently Kodak’s largest shareholder, sees the stock going to $45 by 2008 on the strength and momentum of the printing business.

The “middle of the road” view sees a successful printing business that does little to address the other pressing issues at Kodak. Even while he praises the progress in printing, Kodak CEO Antonio Perez must also deal with the dramatic decline in the company’s film business and its lack of profitability in digital photography. In this view, the printing business becomes a profitable spinoff of Kodak in several years, rather than a core part of Kodak’s business.

And then, of course, there are the pessimists who doubt the ability of the business to succeed at all. Kodak has the lead in a technology race with Xerox and HP, but large-scale commercialization is still some time away. The technology cannot yet substitute for offset printing, because it still doesn’t perform at the quality levels required. Innovation history is filled with many promising new technologies that failed in the transition from the lab to production.

Kodak’s printing ventures represent an example of the “move the needle” problem common in corporate innovation. Large companies faced with declining sales and profits in their core businesses must find opportunities that are substantial enough so that success “moves the needle” in a relatively short timeframe. The problem is, the larger the opportunity, the more attention it gets from competitors. To be successful with its Stream technology, Kodak will have to sell it into an established industry with a number of existing competitors. This is a tough challenge for a company facing a range of other critical concerns and intense profit pressure.

More Information:

In October, 2005, I wrote an Update on Kodak and digital cameras. That’s here.
BusinessWeek’s recent story on Kodak and printing, available to subscribers, is here.
Doug Coupland’s Novel JPod, about Generation X-ers working in a videogame company, is available here at Amazon.com.
For more on the Kodak printers, here’s a link to Kodak’s description, from a May 2006 Trade Show.

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