PhotoCD-A Lesson In Business

In the late 1980’s I was a member of a six person team chartered with developing the Photo CD format and the applications that would use it. We were the advanced development team in Kodak’s Digital Imaging Research Labs.

I was a database expert and spent my research time studying and developing early digital imaging databases based on PhotoCD's multi-resolution format. It was a great job that allowed young engineers to dream, build new products, and follow them into production at what the time, was a Fortune 15 company.

Kodak had a cash-cow in silver-halide film. Silver-halide film is special because the process to make that very film all of us used to use in our cameras is carcinogenic. The process includes the use of methlene-chloride, an extremely toxic substance. Kodak used to recover nearly 99.999% of that methlene chloride during the manufacturing process. The .001% they did not recover violated EPA standards. The loss was due to evaporation through the walls of the machines.

Dangerous stuff that film and all the more reason to promote digital imaging.

Now even the concept of digital imaging at that time was heretic at Kodak. Kodak had a near monopoly on film since 1885 and the film cost very little to make on a per roll basis by 1985. I remember being told that it cost $.03 per roll to make when the retail price of that same roll was over $5.00.

“A picture is worth a thousand words”, “Kodak Moments” and Paul Simon’s “Please don’t take my Kodachrome away” were all metaphorical evidence of the addictiveness of this carcinogenic product.

We used to shoot early versions of a digital imaging camera at my hockey games. It was a Nikon F5 with a custom-made back that costs $25,000 in 1990 dollars. This put digital imaging into the realm of the professional photographer. This is how Kodak saw the future at that time. A perfect fit for PhotoCD. Why target consumers when Kodak film was known and loved even in the most remote corners of the world? At that time, you could walk down the street in every country of the world and see Kodak signs. Kodak and Coca-Cola.

PhotoCD was a very good digital imaging format. They would use a “base” image and then through interpolation and extrapolation algorithms, they would shrink and expand the base image into other images that would be stored on the disk. You could view high-resolution images on both the screen and in large print versions, all from the same CD.

Eventually, enough customer interest arose to compel us to ask the Kodak Board of Directors for additional funding. I remember being around 26 years old and walking into the board room in Kodak’s Rochester, NY headquarters. The large oak table was a long “V” shape, approximately 20 feet long. Along the walls were pictures of all the dead presidents of Kodak. There had only been about eight at that time and they were big and almost gothic in proportion. At the end of the table sat the current Chairman and CEO of Kodak. The experience was overwhelming and there was a sense of change in the air throughout the presentation.

We did our pitch and at the end of the presentation, he said “what we do is very simple”, in the way of a man that had a monopoly of 100 years of profitable business behind him. “We fund anything that costs a dime to make, a dollar to sell, and is additive”. We got our money but with a stipulation. We couldn't hurt the church of film. Preserve the monopoly. Create a false economy.

Kodak film, Coca-cola, religion and later entries such as that put out by the cocaine cartel and that of Microsoft are all examples of this profound business axiom.

How true this wisdom was and how short-sighted Kodak was in the pursuit of that wisdom. See Kodak, in trying to preserve it’s cash cow, forced the wonderful digital imaging format of PhotoCD into a “hybrid” format. Buy the film, take a picture, pay for development and paper. The traditional film lover’s proposition. Added to that, you now had to: scan the negative, buy the CD and buy the CD player (from Kodak). A false economy and it eventually killed the advanced PhotoCD format.

A dime to make, a dollar to sell, and it has to be addictive. Like money.