07/07/97 WHAT KODAK IS DEVELOPING IN DIGITAL PHOTOGRAPHY

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WHAT KODAK IS DEVELOPING IN DIGITAL PHOTOGRAPHY

Eastman Kodak Co. holds a commanding lead in the photography market. But in the Digital Age, not even the mightiest companies are safe. Kodak Chairman George M.C. Fisher, recruited in 1994 from Motorola Inc., knows that all too well. He's pushing the $16 billion company to act more like a Silicon Valley startup. How? By rolling out new digital products every six months. With sales of high-tech gear such as digital cameras and scanners already at $1.5 billion and surging 25% last year, he's pumping nearly half of Kodak's annual $1.1 billion research and development budget into the digital future. Says Fisher: ''There's a tremendous opportunity to expand the whole [photography] category.''
You bet. And, by the way, Hewlett-Packard Chairman Lewis E. Platt thinks so, too. But Fisher and Platt could hardly be further apart on their images of the future. Sure, HP is going head-to-head against Kodak with digital cameras, scanners, and Internet services. But Platt thinks Hewlett-Packard's printer technology will snatch a major share of the emerging digital markets from traditional film providers. Fisher, on the other hand, thinks HP's printer, along with a wide array of new digital photography products and services from Kodak and others, will spur sales of Kodak film and boost Kodak's profits by at least 10% a year.
Is the printer going to replace the photo lab, a fixture of daily life for more than 100 years? Nonsense, says Fisher. HP, he suggests, ''is probably caught up in the hype of the industry.'' Still, with the mid-May launch of its $499 PhotoSmart printer, HP attacked Kodak at a potentially vulnerable spot: the market for photo-quality home printers. Kodak makes products for nearly every segment of the photo market save this one.
But Fisher isn't worried. He has Kodak engineers working to produce a steady flow of new products for consumers, retailers, and professionals that offer a wide array of options for organizing, viewing, improving, and sharing pictures. Kodak's vision includes everything from cameras, printers, scanners, software, and paper to turn the home PC into a digital darkroom, to digital services that can be accessed at home or in retail stores. ''The advantage we have,'' says Fisher, ''is we touch everybody's pictures.''
If Fisher has his way, the same will be true in cyberspace. Later this year, the Kodak Picture Network will debut. For $4.95 a month, consumers will be able to download family photos scanned at home or at a retailer and manipulate them using either off-the-shelf software such as Adobe Photo Shop, or Kodak software, including a program for eliminating red-eye that can be downloaded and used for a fee. Consumers can then either print the pictures out at home or have high-quality prints made by sending them electronically to a local photo shop or a central Kodak lab.
By the turn of the century, predicts Kodak, all 75 billion photos taken annually will be digitized at local photofinishers, and consumers will receive traditional prints and, for a small extra fee, electronic access to their pictures. Indeed, Fisher maintains that consumers will continue to take the majority of their snapshots using traditional film because it will remain the lowest-cost and highest-quality method of taking pictures for the next decade.
Still, the digital world is coming, even for the computer-wary. Kodak execs say consumers won't need a PC to reap the benefits of high-tech photography. Kodak has already installed 10,000 Image Magic Print Stations at retailers and plans to install another 20,000 by next year. That way, relatives who live far away can go to an Image Magic station, use the Kodak Internet service to call up an image on the Web, fiddle with it to their liking, and print it on the spot.
Even the digital cameras are being improved upon. Today Kodak sells a wide range of these gizmos, priced from $199 to $20,000, netting the company a 25% share of the market. Now Kodak is exploring a range of new gear, including cameras that can send pictures over cellular phones and photo-quality fax machines. ''Digital technology is going to create a whole new way of taking pictures,'' says Robert Unterberger, president of Kodak's Digital & Applied Imaging unit.
Still, analysts say it will be years before home photo printing becomes as easy, inexpensive, and high-quality as traditional photo processing. The reason: Manipulating photos on a computer may be convenient, but it's also time-consuming. ''The real question,'' says Steven Hoffenberg, director of the digital photo advisory service at Lyra Inc., a Newtonville, Mass., consulting firm, ''is whether people prefer to make their own prints at home or drop off negatives and memory cards at retailers.'' His view: Kodak is primed to play both sides of the market.
But as Fisher understands, in the digital age, advantages can disappear in a flash.
By Geoffrey Smith in Rochester, N.Y.

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