Kodak Launches a Printer Offensive

CEO Antonio Perez wants to grab market share from Hewlett-Packard with less expensive ink and long-lasting color

by Steve Hamm

Antonio Perez left the inkjet printer business seven years ago, after he lost out to Carly Fiorina in a bid to run Hewlett-Packard. But it has never been far from his mind. That's why, a few weeks after he joined a struggling Eastman Kodak as president on Apr. 2, 2003, he was peering into a microscope in a lab in Building 82-A on Kodak's sprawling Rochester (N.Y.) campus. Perez was amazed at what he saw: droplets of a new ink produced by Kodak scientists that could yield photo prints with vivid colors that would last a lifetime. "It was the Holy Grail of inkjet printing, and they had it here," recalls Perez.

Since then, Perez and Kodak (EK) have been working on a top-secret plan, code-named Goya, to make a big entrance into the consumer inkjet printer business. For the past year, a Kodak development team has been putting the finishing touches on printer technologies in a nondescript building across the street from HP's inkjet printer lab in suburban San Diego. On Feb. 6, it becomes clear what they were up to when Perez, now Kodak's chief executive, announces a new product line of multipurpose machines that not only handle photographs and documents but make copies and send faxes.

The new Kodak printers are designed first and foremost to print high-quality photos: The ink is formulated so prints will stay vibrant for 100 years rather than 15. But the printers are also intended for standard document printing—and copy and fax, as well. Most impressive of all, replacement ink cartridges will cost half of what consumers are used to paying.

Disrupting the Industry

If Kodak pulls this off, it could pose a huge challenge to the $50 billion printer industry, which relies on a bait-and-hook strategy, often discounting the machines and making most of its profits on expensive replacement cartridges. "We're very proud that we're coming to market 20 years late," Perez says with a devilish grin. "We think it will give us an opportunity to disrupt the industry's business model and address consumers' key dissatisfaction: the high cost of ink."

In particular, Kodak's strategy is an assault on the profit engine of industry leader HP (HPQ). Printing supplied 60% of HP's $6.56 billion in operating earnings last year. Still, Perez claims he has no malice toward his former employer. "I spent my life there. I respect them," he says. "I'm doing this for Kodak."

The new printers will arrive in stores starting in March, priced at $149 to $299. Kodak is targeting consumers who print loads of photos and are willing to pay full price for high-quality printers. Black ink cartridges will cost $9.99, color $14.99. Kodak's bet is that if its ink is much cheaper than that of the competition, consumers will buy it and print more pictures—and, of course, they will print with Kodak printers and Kodak ink. "It's really a revolution of thought in how to bring the price of printing down and encourage people to print more," says David Morrish, senior vice-president of merchandising for Best Buy (BBY), which has an exclusive on the product for three months.

From Roots to Results

Even with such low ink prices, Perez expects inkjet printing to produce Kodak's best profit—in double digits after a three-year investment phase. He predicts it will become a multibillion-dollar business. It's a crucial piece of Perez' turnaround plan for Kodak, which is suffering a rapid decline of its traditional photo-film business. In the fourth quarter, the company posted its first profit in two years—a reflection of cost cuts, not rising sales. Reversing the revenue slide will depend in part on the success of new products (see BusinessWeek.com, 2/1/07, "Kodak's Turnaround Keeps Developing").