Eastman Kodak: Picture ImperfectBy David F. Carr | Posted 2004-09-01 Email Print
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Kodak bet that Ofoto would funnel huge quantities of digital images to its photo printing factories. But the online service has not turned a profit. Now, the snapshot pioneer has bigger plans: Establishing standards that will make it easy for shutterbugs
Kodak bet that Ofoto would be its funnel for feeding huge volumes of digital images to its photo factories. But the online service has not turned a dime of profit.
Now, the snapshot pioneer wants to create technical standards whose success, it hopes, would favor its own factories, retailers and services. And if that fails, it just might ditch the consumer and concentrate instead on commercial printing and medical photography.
It's a midsummer morning at San Juan Photo & Digital in San Juan Capistrano, Calif. Mike Mortensen is installing a wireless network that will allow his customers to print digital images from their laptops while sipping coffee at tables and benches sprinkled throughout the Vons Shopping Center where the store is located.
Mortensen, the shop's only technical employee, envisions customers sending in files of images pulled off their hard drives or grabbed off the Internet, as casually as they read news on Web sites or leisurely check their stock portfolios. Then, when finished with their lattes, they can walk into his store and pick up their finished 5x7s at $3.99 a pop.
San Juan Photo & Digital hopes to become an all-digital enterprise while still keeping a foot in the industry's profitable past, where print-making delivered unending profits.
"I think that most retailers think like we do that an enormous percentage of digital pictures will be printed at retail,'' says Eastman Kodak chairman and chief executive officer Daniel A. Carp. But, he adds, "None of us know.''
The fundamental challenge for Kodak is replacing the high-margin film and film processing business that made it a Wall Street darling with a digital business that has murky profit margins and technical complexities that strong brand recognition alone can't solve.
To Mortensen, the promise is anywhere, anytime ordering of prints by customers. But making it as easy as ordering a latte on the go is still a dream.
"That's the goal,'' he says. "But it's going to take a while before it happens that easily."
The linking of San Juan Photo & Digital to an invisible web of always-on digital customers is important not just to Mortensen; it will be replicated nationwide and globally, outlet by outlet, to Kodak's $13-billion-a-year photo processing business.
The shift from film in rolls to digits on networks means the photography giant has to find a whole new series of services to provide retailers and other business partners, if it is to survive and thrive as a digital enterprise.
This is not a problem Kodak alone is facing.
Music companies, publishers, movie makers and communications conglomerates all are battling to maintain profitability as their products become streams of digits, easily shipped worldwide over the Internet in an instant by people who may or may not any longer be their customers.
The heart of Kodak's digital strategy for serving the everyday snapshot artist has been Ofoto.com, an online company that Kodak acquired in June 2001 for $58 million.
The service, which stores photos for free forever and then charges for making and mailing out prints, had 1.2 million customers when Kodak bought it, and has surged to 13 million members.
Digital photographers, however, take scores of images but make few prints. Meaning: The company still doesn't know when it will turn a profit with Ofoto.
"As soon as possible,'' Kodak president Antonio Perez said in April when the company announced earnings.
Or as Kodak spokesman Michael McDougall puts it: "Ofoto.com is still in investment mode. People can make of that what they will."
Kodak has been in "investment mode" since at least 1990. Since then, Kodak has invested almost $7 billion in developing digital cameras, digital printing and other digital businesses.
Last September, Kodak cut its dividend to invest an additional $3 billion in efforts to capitalize on digital businesses that it estimates will grow 26 percent a year, while its traditional film business shrinks.
To put itself at the center of its new digital universe, the film giant for the past two years has been trying to entice photo-making rivals, computer companies, camera makers and retailers to back a set of technical standards that establish a common method of swapping and printing digital images.
Carp is still waiting for either Ofoto or the standards effort to bear fruit, a.k.a. profit.