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Kodak Bankrupt? An Iconic Innovator Swamped by Digital Revolution

The digital revolution has claimed another victim: Reports on Wednesday said that Eastman-Kodak, the venerable film company that pioneered film and cameras as consumer products, may be forced to file for bankruptcy protection in the coming weeks if they cannot sell a trove of digital patents.

Entering Chapter 11 would open a new, and perhaps final, chapter in the company's long history, which saw it go from a start-up in Rochester, New York, in the late 19th century, to global brand and popular culture icon in the mid-20th century, and then to struggling turnaround candidate in the early 21st century.

The company's history begins with self-starting tinkerer George Eastman, who saw great potential for the existing technology of capturing images on film. By developing easier to use devices and film, he believed he could turn the camera from a tool of professionals into a plaything for amateurs. "The idea gradually dawned on me," he later said, "that what we were doing was not merely making dry plates, but that we were starting out to make photography an everyday affair." His goal, as he later described it, was "to make the camera as convenient as the pencil."

Eastman-Kodak developed easy-to-use cameras, and paired them with the film on which the photos could be printed. As Gillette later did, it effectively sold both the shaver (the hardware) and the razor blades (the supply associated with the hardware) and turned profits on both.

Throughout the 20th century, the world of photography was in constant flux. Eastman-Kodak managed to weather several transitions quite well — from mechanical cameras to electric ones, from still photography to video, from black-and-white to color. At each stage, Eastman-Kodak rolled out new products that built on its original, strong market position in old-school still photography. The company's sales hit $1 billion in 1962, and its growth helped make Rochester, which was also home to Xerox, a high-tech hub. Like Xerox was for copying, and like Google is today for search, the name of the product became integrated into common usage, and into popular culture. (Take a listen to Paul Simon's Kodachrome.)

In the past 15 years, many businesses and industries that survived multiple waves of change have found it difficult to weather the digital revolution -- not just newspapers and magazines, but video rental chains, retailers of all stripes, and the manufacturers of analog products.

The company didn't take the digital revolution lying down. But in hindsight, it was almost destined to fall. In the past decade, Eastman-Kodak invested heavily to develop and manufacture digital printers and digital cameras, which it first introduced in 1995. Its products worked. But the company didn't have a competitive advantage, and it was going up against a lot of tough competitors. All sorts of other people were making digital cameras — Sony and Panasonic, but also Dell and Hewlett-Packard. And profit margins in electronic hardware were much smaller than they were in traditional film.

But the real problem was that the definition of a camera and film were changing in ways that were disadvantageous to Eastman-Kodak. Increasingly, cameras were being placed into computers, tables and phones — markets in which Eastman-Kodak didn't have a foothold or the ability to compete. Why buy a standalone digital camera when your iPhone or Lenovo laptop already came with one?

To aggravate matters, the same shift that rendered traditional cameras less desirable was also reducing the need for traditional film. Eastman-Kodak suffered a digital double whammy. When images could be captured on digital devices, and stored and distributed online, and printed on good paper at home or at the office, a company that relied in part on selling film was finding itself in the same position as a vinyl record manufacturing in the age of the compact disc.

Some established manufacturing companies have tried to deal with large-scale change by getting out of the commoditized hardware businesses and branching into higher-margin services. This strategy has proved the salvation for IBM. Realizing that it would be increasingly difficult to wring profits out of its personal computer business, IBM sold it off to Lenovo. In recent years, it has increasingly focused on providing technology-related services for business and government. Figuring out ways to leverage the brand to offer services associated with photography might have helped Eastman-Kodak. But that's a tough task to pull off. Many of the innovations in ways to manage, share and manipulate images online come from software companies, or entrepreneurs, or the Internet world — not from companies in upstate New York with research-heavy cultures. For services like Flickr, or Shutterfly, which gained scale and established themselves quickly, it was more important to be tied into social media and Internet businesses than to be tethered to a hardware company. Eastman-Kodak's service offerings didn't gain much traction in the marketplace.

Eastman-Kodak remained a well-known brand. In last year's hit song "Give Me Everything," the rapper Pit Bull urges: "Better yet, take a picture of that with a Kodak." But the overwhelming majority of people today don't need a Kodak product to take pictures; they use smart phones and digital cameras. And they don't need Kodak film to share them; they use social media or online services.

In many ways, George Eastman would be enthusiastic at the democratization of film. Cameras today are as easy to use as pencils. Everyone is a photographer and can afford the devices and tools necessary to capture life on their own terms. But here's the irony: In a culture in which every instant of life can easily be filmed or captured in pictures, there may no longer be room for Kodak.

Daniel Gross is economics editor at Yahoo! Finance.

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.