I felt like a dose of liberal propaganda last night driving home, so turned on NPR. I was amused to hear — in an inappropriate, childish and totally irresistible way — that Kodak are laying off 15,000 people. They have also finally noticed that the future of their business doesn’t lie in overpriced paper and delicate chemical emulsions. Digital has destroyed the consumables business. Bits replicate a effectively zero cost. (Perhaps I should join a consultancy and charge $5,000 a day for these revelations…)
It so reminded me of the telco business. If you’re an investor or analyst, you should be asking just two questions of the senior execs of every telco you might loan your money to. How will you make money in a world of end-to-end IP connectivity? And what processes have you out in place to align your company with that destiny? Everything else is fluff.
You can bet that Kodak haven’t been measuring every product and investment decision against how it will take them towards an all-digital world. Even if — and that’s a big IF — they truly believed all-digital was the way of the future.
This is just like telcos, who are hanging on in disbelief and denial. The proven century-old business model for voice service is going to last, isn’t it? Surely we can retreat somewhere? Won’t wireless be a safe refuge? Won’t the government save us? Err, no. Just picture Kodak for a view of your own future.
Go on, ask them. Demand to know what the plan is. Look for proof that there is action to match the words. Trust me, you don’t want a sense of schadenfreude when coming to review your own investments.
UPDATE: Interview with Kodak CEO on going digital. Note how he’s assuming that what people want is more quality. It’s the cameraphone issue all over again. I’m sure many people would settle for a machine always within arm’s reach that would print out a little VGA-quality sticker you can give to your kids, than a heavy desktop printer with super luminescent ink. Classic innovator’s dilemma stuff: move to digital is making convenience and availability the purchase criteria, not quality or speed.
UPDATE: More from the Economist here.
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Actually, genuine silver halide photo paper from Kodak or other manufacturers (black and white, the only kind directly available to consumers, the kind that lasts centuries) is considerably cheaper than inkjet photo paper, while also being much stiffer and durable.
Unfortunately, it will go the same way as charcoal pencils and paint, i.e. a niche market for artists. Did you know inkjet ink costs 8 times as much, ounce for ounce, than sterling silver?
Posted by: at January 23, 2004 04:58 PMA victim of progress, I agree - but this can also adversely affect people I know. For example, my friend Sean at Digiteyesed.com argues well that there are some things that digital cameras just can't do (yet?) that physical cameras can.
I'm no photographer, but I suspect that the people who enjoy using electromechanical cameras will not be too pleased. Myself? I'm not sure.
Consider that most of the world doesn't use Digital Cameras.
Posted by: at January 24, 2004 08:38 PMI think you're seriously underestimating the depth of the telcos. Telecommunications is not just about 'the telephone'. The electronic communications infrastructure that permeates our world is so vast and no amount of end-to-end IP is ever going to able to relpace it.
Reminds of a show I saw a few years ago where the internet TV guys were predicting that they were going to be the end of plain old landline TV's.
Well, in the past two weeks I made about 5 hours of Skype calls to family in Europe. At an average of 10 cents/minute on Vonage, that means I've sucked $30 out of the telecom industry. And that's just $30 from the disintermediator -- it would have been more than $30 without Vonage. (I don't have a regular landline phone.) So the effect is real. I'm a high margin customer who just disappeared off the metered telephony radar.
The telcos have a lot of valuable assets, physical and otehrwise. But the industry will have to go through a period of restructuring to come out viable in an end-to-end IP world. Those who rescue the stranded value of the telcos will make a lot of money.
Posted by: at January 26, 2004 02:33 PMMike, the point is not what will replace the telecos, its that the telecos will never be able to reap the revenues they are counting on.
The Kodak CEO says 'quality'??? This guys is still smoking crack.
Japen is just now getting 2mpixel phones. Thats good enough for 99% of the market.
Martin, can I assume you for a teleco in Overland Park?
You know the really sad thing is that some of these companies have failed to acknowledge that the technologies they actively advocate are really driving them out of business. Albeit slowly. I'm talking about CDMA.
CDMA capacity improvements are producing more Erlangs than any carrier can absorb. Thus oversupply. Oversupply by a factor of 2, or by a factor of 10 or even 100, machs nix, its still oversupply, and that changes EVERYTHING.
The bottomline is that all these companies need to buy a vowel, get a clue, and realize that technology is not relevant to their current dilemma.
The challenge in many of these markets is one of business models, and how current value chains will morph into the fairly obvious future.
Posted by: at January 27, 2004 01:11 AMIt seems to me that the photography and telephony businesses are more closely related than just one serving as a cautionary lesson for the other. Over the past century, a central part of both businesses has been providing tools for making sense of friends and family. See Section Section V (pp. 113-138) of "Sense in Communication," at www.galbithink.org. While technology, network structure, products, and services will change, the value of this business is likely to endure.
Posted by: at January 29, 2004 01:44 PM