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TheStreet Open House

Kodak: The End of an American Moment

Stock quotes in this article: EK, AAPL, EMN, BBRY

To say that Kodak tucked the digital camera away in order to avoid the inevitable would be misleading, Sasson says. Executives didn't kill the concept. They patented the camera in 1978 and poured significant resources into R&D on digital.

What bothered the employees working on the digital projects through the 1980s and 1990s is that they didn't receive the attention of a huge breakthrough that the employees of the film segments did. Kodak never mentioned the projects in annual reports. The company didn't even authorize Sasson to reveal he had invented the first digital camera until 2001.

Part of this may have been that management had difficulties coming up with a consumer plan for digital photography, another issue was Kodak's highly secretive culture. The company didn't want ideas being spread to competitors, so it tightly guarded research and development.

Robert Shanebrook, a former employee who worked for more than 30 years in photographic film, "touched every camera that went to the moon" and authored the only book that describes the entire process of Kodak's filmmaking, says that if Kodak had to transport an emulsion formula for a film process to another manufacturing plant, management would separate the formula into two packages and carry each half on different routes bound for the same location. That wasn't secure enough, so each group had its own alphanumeric labels for components in the package.

"This confidentiality was necessary," says Shanebrook, who worked and remains friends with Sasson. "Kodak had spent literally billions of dollars perfecting silver halide film manufacturing process technology starting in 1880. In some cases parts per million and even parts per billion of material added to photographic emulsion can have a dramatic influence on a film's performance."

Larry Matteson, a former senior vice-president at Kodak and now a professor at the University of Rochester's business school, says a reckless dive into the digital space had its drawbacks.

For starters, it was difficult for management to justify a transition to the 3% to 4% margins of a consumer electronics business when it had been producing 70%-to-80% profit margins from photographic film sales for 100 years.

Second, Kodak's earliest digital cameras were expensive, which meant that the only consumers were the government or large corporations that could afford the $15,000 to $25,000 price tag in the 1980s and early 1990s.

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