Why did Kodak Cannibalize Itself?

In the late 20th century, as the digital revolution stormed industries like an unstoppable wave, many companies faced a simple choice: evolve or be left behind. Some embraced the future with vigor. IBM, once synonymous with hardware, foresaw the coming commoditization and boldly reinvented itself as a services and consulting powerhouse. Apple, in what could only be described as a resurrection, put everything on the line with the launch of the colorful iMac and the now iconic iPod, setting the stage for its future dominance in consumer tech. Nokia, at the forefront of mobile telecommunications, aggressively pursued new technology like it was a race against time, ensuring they weren’t outpaced by competitors.

Then there was Kodak, a company that didn’t just have a front-row seat to innovation—it invented the future. The irony? While the world raced to digitize, Kodak held onto the past like a precious family heirloom. Despite pioneering the technology that would eventually kill film—the digital camera—Kodak’s leadership made the baffling decision to protect their film business at all costs, fearing that embracing digital would cannibalize their cash cow. As companies like Canon, Sony, and eventually Apple raced to take over the digital landscape, Kodak hesitated, seemingly hoping that digital photography was just a passing fad. It wasn’t, and Kodak's failure to adapt sealed its fate in one of the most iconic corporate downfalls of all time.

The Innovation Kodak Feared

It’s hard to imagine a company rejecting its own revolutionary invention, but that’s exactly what happened at Kodak. In 1975, a Kodak engineer named Steven Sasson developed the very first digital camera—a crude device by today’s standards, but a monumental leap forward in photographic technology. The camera took black-and-white images at a 0.01-megapixel resolution and stored them on cassette tape. In essence, Kodak had built the future of photography.

However, when Sasson presented the digital camera to Kodak’s leadership, their reaction was telling: “That’s cute—but don’t tell anyone about it.” Kodak had invented the disruption that would eventually dominate the photography industry, but they were afraid to unleash it. Why? Because, in the minds of Kodak’s executives, digital photography wasn’t an opportunity—it was a threat. A threat to the company’s hugely profitable film business, which accounted for 70% of Kodak’s revenue at the time.

In one fateful moment, Kodak made the decision to suppress its own innovation, out of fear that digital cameras would destroy its film empire. It’s a classic case of loss aversion—the psychological phenomenon where people are more afraid of losing what they already have than they are excited about the potential to gain something new. Kodak feared the cannibalization of its film sales more than they believed in the future of digital.

Clinging to Film: The Cost of Status Quo

Kodak’s refusal to embrace digital technology wasn’t just about numbers; it was about mindset. The company had enjoyed decades of dominance in the film industry and had built an empire on the back of that success. Kodak wasn’t just a brand—it was the gatekeeper of photographic memories. The company’s leadership had grown comfortable in their role as market leader, and they weren’t keen to rock the boat.

This reluctance to change can be explained by status quo bias—the cognitive bias that leads people to prefer things as they are, resisting change even when it’s clearly necessary. For Kodak, the status quo was comfortable and profitable. Film was reliable. Consumers were loyal. Why mess with a system that worked?

As other companies, like Canon and Sony, began making significant investments in digital photography, Kodak dug in its heels. Canon saw the shift coming early, investing heavily in digital camera technology and securing a dominant position in the new market. Meanwhile, Kodak clung to film, believing that the transition to digital would be gradual and that there would always be a place for film-based photography.

This belief was not only misguided—it was dangerous. The world was changing faster than Kodak could anticipate, and by the time they realized the full scope of the digital revolution, they were already too late.

The Rise of FOMO: Kodak’s Late Response

As the digital photography market began to explode in the late 1990s and early 2000s, Kodak’s Fear of Missing Out (FOMO) started to kick in. After years of resisting the digital wave, Kodak finally entered the market—but it was far behind its competitors. Companies like Canon, Sony, and Nikon had already cemented their positions as leaders in digital photography, and Kodak’s attempt to catch up felt desperate.

In the early 2000s, Kodak made a significant push into digital cameras. They invested over $1 billion into their digital transformation, launching a range of digital products. But despite this massive investment, Kodak’s digital cameras failed to stand out. The company, which had once led the world in film-based photography, was now struggling to compete in the digital arena.

Compounding their problems, the rise of smartphones further disrupted Kodak’s strategy. By 2007, the launch of the iPhone had begun to blur the lines between phones and cameras. Consumers no longer needed a separate device to take pictures—now, they had a camera in their pocket at all times. Kodak’s late entry into digital, driven by FOMO, wasn’t enough to save the company from the tidal wave of change.

The Downfall: A Case of Self-Inflicted Wounds

By the time Kodak filed for bankruptcy in 2012, the damage was done. The company that had once been worth $31 billion had seen its stock price plummet to mere cents, and its market value had shrunk to a fraction of what it once was. Kodak had, quite literally, cannibalized itself—by refusing to embrace the very technology it had invented, they allowed competitors to swoop in and take the lead.

Kodak’s leadership wasn’t unaware of the shift happening around them; they simply made a conscious decision to protect their existing business rather than lead the charge into a new era. It’s the classic story of the innovator’s dilemma, where successful companies fail to adopt new technologies because they fear disrupting their profitable core business. Kodak had all the tools to succeed, but their fear of cannibalizing their film business, combined with a late and reactive digital strategy, proved to be their undoing.

What If Kodak Had Embraced Digital Early?

At CEO Bias, we always ask: What if they didn’t behave this way? What would have happened?

Imagine if Kodak’s leadership had fully embraced digital photography back in the 1970s, when Steven Sasson first developed the digital camera. Instead of burying the technology, Kodak could have led the charge into the digital era, phasing out film gradually while building a dominant position in digital cameras.

With its global brand power and technological lead, Kodak had the potential to be the world’s go-to company for digital photography. It could have been Kodak, not Canon or Sony, setting the pace for the digital revolution. Maybe Kodak would have even been the company to develop the first smartphone cameras, leveraging its expertise to partner with tech giants like Apple or Google.

Had Kodak taken that bold leap and cannibalized its own film business, they might still be a household name today, known for innovation rather than missed opportunities. But Kodak chose comfort over change, and in doing so, they cannibalized not just their film sales—but their entire company.

Conclusion: Fear as the Ultimate Enemy

The story of Kodak is not one of ignorance, but of fear. Fear of cannibalization. Fear of loss. Fear of change. While their competitors were willing to risk everything to innovate, Kodak chose to protect what they had, clinging to their film business even as the world shifted around them.

The lesson is clear: in the face of disruption, the greatest risk a leader can take is not taking a risk at all. Kodak’s fear-driven decisions led to their downfall, proving once again that in business, the only constant is change—and those who refuse to embrace it, even when it’s uncomfortable, are doomed to be left behind.