Monday, December 27, 2004

Kodak Updates Its Brownie to Compete in a Digital Age Michael J. Okoniewski for The New York Times

Kodak Updates Its Brownie to Compete in a Digital Age Michael J. Okoniewski for The New York Times
Kodak's LS 753 digital camera, on an EasyShare dock that prints photographs without a personal computer.


Published: December 27, 2004

Michael J. Okoniewski for The New York Times

Ten years ago, Kodak manufactured the first digital camera aimed for sale to retail consumers, the $749 QuickTake 100, sold by Apple Computer. But by 2000, Sony had muscled in as the leading digital camera maker and Kodak was hovering near 5 percent of the market, a dire position, while the film business -which it had dominated for a decade - was starting to collapse.

Kodak called in anthropologists and other social scientists, who observed camera users in an effort to learn how taking and printing pictures fit into their daily lives. They also followed prospective camera buyers into stores to understand how they chose certain models from the crowded shelves.

The research was part of Kodak's effort to reorganize its digital camera product line by transforming product design, manufacturing and marketing. The company's big decision was to focus on low-priced, easy-to-use cameras that would appeal to women, who take the majority of snapshots, rather than Sony's forte - shiny toys for gadget-loving men.

That strategy paid off as digital cameras moved into the mass market. This year, Kodak's EasyShare brand has almost 19 percent of digital camera sales in the United States, a very close second to Sony and ahead of Canon, according to IDC, a technology research firm.

"Kodak is up because they are really committed to ease of use and they communicate that very well," said Michelle Slaughter, the director of digital photography trends at InfoTrends/CAP Ventures, a market research firm. "Kodak tends to excel at the touchy-feely side of the market that tends to appeal to first time buyers and mainstream consumers, especially woman," she said.

Kodak certainly needed a success. Since selling its pharmaceutical and chemical divisions a decade ago, the company has shed a third of its jobs and has seen its revenue fall from $15 billion in 1995 to $13 billion last year. Now the company expects to eliminate as many as a quarter of its remaining 64,000 jobs over the next three years.

Sales of film and other traditional products were down 20 percent in the third quarter, even more than expected. But digital products-consumer and professional cameras as well as printing systems sold to drug stores and the like-were up 39 percent. (The company recently stopped selling reloadable film cameras in the United States.)

Profitability in digital products has been harder to achieve than sales. Kodak has said that 2004 will be the first full year in which its digital camera division would be profitable. And it will say only that the line is profitable when its high-margin accessory sales are included.

To the great relief of camera manufacturers, buyers have not yet pressed for lower prices, as they have in some markets, like DVD players. The average price has remained just under $300, but consumers expect that the makers will continuously provide more features-especially megapixels of resolutions and zoom capacities-at those prices. Any maker with a model that doesn't match up to its rivals is forced to liquidate at a loss.

"The lifetime of digital cameras is measured in months, while the life of a film camera is years," said Elliot Peck, a vice president for sales at Canon. "Someone always has overstocks, and that disrupts the market."

Mr. Peck said that Canon's camera business, which has concentrated on more technically sophisticated buyers by offering digital single lens reflex cameras and the unusually small and sleek Elph line, is also profitable. And Sony, which charges a premium for its unusual designs, also makes money in digital cameras, although the company does not break out figures for the business.

Four years ago, it was not so clear that Kodak would have any credibility in the digital world, despite its place as a photography pioneer and its 1,000 digital photography patents. So Kodak's engineers developed a system meant to streamline the process of moving pictures off of the camera, onto a computer and then to either a printer, Kodak's Ofoto online printing service or e-mail.

This involved new cameras, new software and an optional dock that cradled the camera, allowing it to recharge its batteries and transfer pictures to the computer at the same time. The working name for the system was "Dock and Go," but Pierre Schaeffer, who had just taken over as marketing directors for digital cameras, did not like phrase.

"We had been trying to play catch up with Sony while we were trying to see what Canon was going to do," he said. "We needed something crisper that we could own and push forward with confidence."

After several brainstorming sessions, he came up with the EasyShare brand, which captures what the company hopes differentiates its line from competitors.

"The reason people buy a Canon is not fundamentally ease of use, and the reason they buy Sony is not ease of use," Mr. Schaeffer said. It was a position that resonated with the history of Kodak, which popularized the Instamatic camera, and long before that, the Brownie, which had the slogan "You push the button and we do the rest."

The EasyShare brand was named a month before the first products were announced in early 2001. When they were introduced, Kodak's designers were criticized that the first generation of products were not as stylish as their Japanese competitors.

Balancing these demands was Paul Porter, Kodak's director of design and usability. "We want something that looks really new," Mr. Porter said. "Because if it is new, people think it is more sophisticated, faster or may allow them to do things that others cameras don't allow."

One innovation that did pass the test was a "share" button, which allows users to select pictures as they take them that will later be printed or e-mailed as soon as the camera is returned to the dock.

"There is an emotional moment at the time of capture," said Gregory R. Westbrook, Kodak's vice president and general manager of its digital and film imaging systems unit. "The button lets the consumer express that emotion."

Mr. Porter also supervised the staff of anthropologists and cognitive psychologists who studied how to make the cameras easier to use. And Mr. Porter made the idea clear: When there are conflicts, as there inevitably are, "the usability tests will win out."

One of their first insights is that Kodak's target market was annoyed and sometimes intimidated by the need to use a personal computer in order to print pictures. Many women, the anthropologists found, wanted the center of their picture taking and viewing to be the kitchen rather than the home office.

So in 2003, Kodak introduced what would become the signature technology of its camera line: a printer dock that housed the camera directly - no computer needed - to print four-by-six-inch glossy photos using a dye sublimation printing process.

Kodak sold a million printer docks in the first year. Printers have the potential to be far more profitable than cameras, because customers are locked into years of buying ink and paper. Even more important, the printer dock helped Kodak's cameras stand out in crowded electronics stores, as Kodak convinced many retailers to put its printers right in the aisle that sold cameras, not in the printer section.

"The dock just resonated with consumers," Ms. Slaughter said.

Of course, innovations do not remain exclusive for very long in the electronics world. Canon, for example, added the equivalent of the share button to its Elph line. And Sony, which is promoting its own four-by-six-inch printer, has been fighting back with a refreshed product line. Sony's T-1 model is even thinner than the Canon Elph and features a 2.5 inch display, larger than those of its rivals.

Still, Sony is losing market share. In the first nine months of the year, Sony had 20.8 percent of the digital camera market in the United States, according to IDC, down from 21.7 for all of 2003. Kodak is up to 18.8 percent of the market from 17.9 percent. Canon is now the No. 3 digital camera player, with 15.2 percent.

Kodak is hoping that the company will stay competitive with new technology that permits better pictures in low light. But there are many more innovations in the marketplace: Canon is trying to create more hybrid digital still and video cameras. Sony has technology it says reduces the lag between the time when a photographer presses the shutter and when the picture is taken. And all of the makers are offering cameras in a rainbow of colors besides silver.

"At times we have had 30 or 40 competitors," Mr. Westbrook said. "Only the strong survive, but it takes time."

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