What FAANG could learn from Kodak
Ingenuism Weekly 34
“Study hard what interests you the most in the most undisciplined, irreverent and original manner possible.” –Richard Feynman
MEDIA
Inventing the Future - Keith Schacht and Don Watkins
How do you spot tomorrow’s trends and opportunities—and how do you turn them into viable businesses? Don Watkins discusses that and much more with serial entrepreneur Keith Schacht.
2021 Year In Review - Silicon Valley Examined 23
In this episode of the Silicon Valley Examined podcast, Don Watkins and Yaron Brook discuss the most important progress-related stories of 2021.
INSIGHT
What FAANG could learn from Kodak
Don Watkins and Robert Hendershott
Given all of the antitrust discussions about FAANG companies, it’s as if the world has forgotten that dominant companies have a habit of going bankrupt.
But how does that happen?
Spoiler alert… Different ways! But one underappreciated way is via what you can call stealth businesses. Stealth businesses are disruptive in the sense originally meant by Clayton Christensen, the Harvard professor who coined the term “disruptive technology.” They offer a new product or service that has serious flaws, but which has a meaningful advantage to a market niche. It gains a foothold in that niche and uses that foothold to grow out of its flaws, evolving into something that eventually captures the broader market.
It was stealth technology that dropped the bomb on Kodak. You remember Kodak, right? The photography company used to be one of the biggest businesses and most valuable brands in the world.
But then…
Well, then it created the technology that would be its undoing. In 1975, Kodak engineer Steve Sasson invented the first digital camera. But as Sasson later said, “it was filmless photography, so management’s reaction was, ‘that’s cute—but don’t tell anyone about it.’”
What you have to keep in mind is that Kodak thrived by selling the “blades” in the so-called razor and blade business model. Rather than focus on selling cameras at, well, razor thin margins, it sold the consumables—film and related supplies—at far higher profit margins. The film, in short, was where the money was. So why even consider cannibalizing it?
Why indeed. Early digital cameras were awful! Sasson’s original, for example, was eight pounds, the size of a printer, and took black and white photos you could only look at with a special screen.
The early marketable digital cameras were not that much better.
Canon launched the first analog electronic camera to actually go on sale, the RC-701, in 1986. That pro model was followed by a consumer model, the RC-250 Xapshot, in 1988. The Xapshot was called Ion in Europe or Q-Pic in Japan. It cost $499 in the US, but consumers had to haul out another $999 on a battery, computer interface card with software, and floppy disks.
These kinds of cameras never really took off, however, due to poor image quality and prohibitive cost. Their ability to transmit images meant they were mainly used by newspapers to cover events such as the 1984 Olympics, the Tiananmen Square protests of 1989 and the Gulf War in 1991.
So digital cameras existed, but they appealed to a tiny niche, so who cared? Not Kodak.
But starting out with a flawed niche product is a stealth path to market dominance. Pretty soon a few things clicked in to place that would start digital camera technology on a cycle of rapid improvement.
JPEG and MPEG standards were created for digital image and video files in 1988. Digital Darkroom became the first image-manipulation program for the Macintosh computer in 1988, and Adobe PhotoShop 1.0 arrived in 1990.
Mosaic, the first web browser that let people view photographs over the web, was released by the National Center for Supercomputing Applications in 1992. That year also saw the Kodak DCS 200 debut with a built-in hard drive. It was based on the Nikon N8008s and came in five combinations of black-and-white or color, with and without hard drive. Resolution was 1.54 million pixels, roughly four times the resolution of still-video cameras.
That’s the story of the 1990s. Digital camera technology is improving; the market is starting to grow. So what was happening at Kodak?
It’s wrong to say that Kodak was ignoring digital. As far back as 1981, Kodak developed an internal report that concluded digital had the potential to replace Kodak’s existing business, and that the company had about 10 years to prepare for the shift in the market. Spot on.
And in many respects, Kodak did prepare. During the 1990s, it spent billions on digital R&D. The Kodak DCS 2000 was a potentially transformative product. The problem: Kodak was focused on what they wanted, not what their customers wanted. Kodak’s digital efforts all aimed to preserve their film business.
The choice to use digital as a prop for the film business culminated in the 1996 introduction of the Advantix Preview film and camera system, which Kodak spent more than $500M to develop and launch. One of the key features of the Advantix system was that it allowed users to preview their shots and indicate how many prints they wanted. The Advantix Preview could do that because it was a digital camera. Yet it still used film and emphasized print because Kodak was in the photo film, chemical and paper business. Advantix flopped. Why buy a digital camera and still pay for film and prints? Kodak wrote off almost the entire cost of development.
Later, they made similar mistake.
[Kodak] made big investments in quality printing for digital photos. Long before social media and digital media was popularized, Kodak made a purchase, acquiring a photo-sharing site called Ofoto in 2001. Instead of making Ofoto a pioneer of a new category where people could share pictures, Kodak used Ofoto to try to get more people to print digital images.
Kodak, in short, didn’t ignore digital. Instead, it ignored how consumers would embrace digital once the technology was able to address its flaws. This gave its competitors plenty of time to learn, improve, and create technology and business models geared towards what consumers wanted: all digital photography.
That’s the power of stealth business models based on disruptive technologies. Their strength is actually in their weaknesses. Or, rather, it’s that they have enough of a strength to gain a foothold with a niche, but enough weaknesses that they aren’t threatening to incumbents. But as the product improvement cycle takes off, they’re able to overcome their weaknesses and take the incumbents by surprise.
Even, as with Kodak’s case, when it should be no surprise at all.
Quick Takes
Time’s person of the year: Progress
Elon Musk, actually. But same difference, right? As former Ingenuism guest James Pethokoukis points out in the article, what’s distinctive about Musk is that he rejects today’s tribal political lines in favor of a view that filters everything through the question: will this promote or hold back progress? (That’s not to say we agree with all of Musk’s answers to that question.)
James Pethokoukis, an economic analyst with the conservative-leaning American Enterprise Institute, thinks Musk does have a coherent politics, whether or not he articulates it. “The reason it’s confusing is it’s not on the traditional left-right spectrum,” he says. “It is a politics of progress.” At a time when segments of the right and left alike champion protectionist populism — from Republican Senator Josh Hawley’s hostility to free trade to Bernie Sanders’ redistributionism — this puts Musk at odds with both. “It is a view that says the solution to man’s problems is growth and technological progress and maximizing human potential,” Pethokoukis says. “It’s not a view fully represented by either side in this country.”
Musk is the first entrepreneur to win person of the year in more than a decade. That’s a hopeful sign for the culture.
Iron grants
We’ve talked about the fast grants program created by Tyler Cowen and Patrick Collison. Someone else just got into the game, and if I gave you a thousand tries you would never guess that it’s freaking Robert Downey, Jr. From a piece Downey co-authored explaining his new project:
Funding risky research first requires bets on risky new models. To help stop the leaks on the scientific talent funnel, our team is launching a new program: the FootPrint Coalition Science Engine.
We are in the business of supporting entrepreneurial scientists and we are in agreement that the major impediments are the obvious limitations of decision-making by committee. We’re trying something different. FootPrint Coalition is funding early research in brand new environmental fields, and doing it under the direction of esteemed Science Leads who can move quickly and fund at their discretion. The FootPrint Coalition Science Engine builds off suggestions made in the Funding Risky Research paper. It operationalizes the “loose-play funding for early-stage risky explorations” but doesn’t bind it to universities.
That sounds pretty Ingenuist! But there are signs that their model is geared mainly toward funding trendy political correct ideas rather than spotting promising but high risk ideas. Here’s the first project they say they’re funding:
Indigenous knowledge holds the keys to rebuilding humanity’s relationship with the natural world, and Dr. Keolu Fox is funding Indigenous futures projects to empower the Indigenous researchers and innovators who are asking the right questions and bringing that knowledge into action.
I love that people have taken inspiration from Cowen and Collison. I just wish that inspiration was being channeled in a more scientific way.
“No one beats up my little brother except me”
The Biden administration is upset that Europe wants to do to Big Tech what the Biden administration wants to do to Big Tech.
U.S. Commerce Secretary Gina Raimondo made waves in Washington when she criticized Europe's planned regulations of tech companies, despite the White House's interests in reining in the sector at home. . . .
The incident reveals the balancing act the Biden administration performs as it weighs talking tough on Big Tech while standing up for U.S. firms abroad.
Look, I’m happy someone is standing up for America’s leading innovators. I only wish they would do it consistently.
No pilot’s license? No problem!
This story is wild. It’s about a startup, Skyryse, that designed a flight system so easy to use you don’t have to be a pilot to use it.
The flight was short but remarkable. After all, I am not a pilot.
The helicopter was equipped with new technology meant to simplify and automate the operation of passenger aircraft. I flew using two Apple iPads and a joystick mounted inside the cockpit. I could take off, turn, swivel, accelerate, climb, dive, hover and land with a tap of the screen or a twist of the stick, much as I would when flying through the digital space of a video game.
The real cash value is that this will allow us to dramatically scale one of the main limiting factors on flying cars: pilots.
Backed by billions of dollars in funding, a number of start-ups are building what are commonly called “flying cars.” Like helicopters, these vehicles can take off and land without a runway. Unlike today’s aircraft, they are completely electric. Many believe these aircraft can provide a quicker, cheaper and greener way of commuting across urban areas.
But this will require far more pilots than the 360,000 flying today. The total could climb to a projected 590,000 over the coming decade as new kinds of aircraft are deployed in U.S. cities, according to a study from McKinsey and Company.
Spoiler alert: as the article points out, the main limiting factor on flying cars isn’t pilots. It’s regulators.
Do you take this avatar?
Well, that didn’t take long. The world’s first metaverse wedding just took place.
Traci and Dave Gagnon met in the cloud, so it only made sense that their wedding took place in it. On Labor Day weekend, the couple — or rather, their digital avatars — held a ceremony staged by Virbela, a company that builds virtual environments for work, learning and events.
I mean, cool? Honestly, I can understand why someone would want to have the first metaverse wedding. What I can’t understand is why anyone would want to have the second, third, etc.
But I thought this was pretty funny:
“There’s no limitations,” said Sandy Hammer, a founder of Allseated, which creates digital planning tools for weddings.
I don’t know. I can think of a few.
Until next time,
Don Watkins
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[YB1]Kodak didn’t really do cameras much. There was a well developed, competitive market for those (with very small profit margins).
Would help to define FAANG for the layman.