Kodak to balance between old and new technologies

Andrea Orr

PALO ALTO: It felt almost like a flashback to 1999 this week, when a leading

firm from what was once dismissed as the Old Economy, came to Silicon Valley to

outline its strategy for the Internet, even suggesting that it could make money

from online ads.

Eastman Kodak Co. has been criticized periodically for not moving more

aggressively into newer technologies like digital cameras and online photo

sharing, even as it has poured resources into those technologies. On Tuesday, it

said it would do more.

The Rochester, New York, company, which set up a venture capital branch here

late last year, said it would expand that operation, investing up to $100

million annually in just the sort of companies that could threaten to displace

its own core film business.

"The world has changed," said Ted Lewis, director of digital

business development at Kodak, before stepping aside so others from the venture

group could speak about the new revenue streams they hoped to capture from

advertising and transactions on online photo sites.

But Kodak's Silicon Valley push is not as retro as it first appears. While

the company does count among its venture investments a number of newbie consumer

services that have not had the easiest time making money, it is also pinning its

future to its own past, including some of the core film products dating back to

the 19th century.

In an interview, Lewis shrugged off talk of digital cameras killing film

altogether and said he believed a large portion of consumers would continue to

prefer film. More importantly, the company said that, along with investing in

high-tech startups, it would mine its own internal research and manufacturing

facilities to help expand its business in "info-imaging." Kodak coined

that term to describe the convergence of digital technology with old-fashioned

film.

Bill Cockayne, director of incubation at Kodak's venture division, suggested

the company's sprawling manufacturing facilities could become one of its

strengths at a time when so many other companies want only to be nimble.

"No one in Silicon Valley wants to build plants anymore," said

Cockayne. "And yet (high-tech outsourcing) companies like Flextronics and

Solectron are doing really well because they're building things for other

people."

Kodak says the incubation business that nurtures young in-house technologies

will be as key to its future as its Silicon Valley-based venture branch, which

has invested in startups such as the online photo sharing service Snapfish.com,

and the online video library iFilm.com.

If Kodak has learned anything in the years since the Internet redefined

business, it is probably a sense of balance. Its business, whose profits fell 48

per cent in the latest quarter, is clearly in need of an overhaul, yet forays

into newer technologies have not always provided a quick fix.

A decade ago, Kodak said its future was in digital imaging. But today its

business manufacturing digital cameras remains a money loser, and overall

adoption rates are below most forecasts, with only about 3 percent of U.S.

households owning a digital camera. And, for all the popularity of online photo

sharing, most photo sites are struggling to make money. One of them, Zing.com,

closed up shop only last week.

On the other hand, Kodak continues to sell the majority of all the film

purchased by US consumers. "Film is not going to go away," Lewis

insists. Perhaps the best sign of Kodak balancing old and new technologies is

its latest venture investment, in YesVideo Inc., a San Jose company that

converts old videotapes into CDs or DVDs.

After looking at a number of different ways to help people convert old film

themselves, Kodak ultimately went with a company that does it all for them. All

the consumers have to do is drop off their old tapes, the same way they would

drop off a roll of film.

"It is very similar to photo finishing," said YesVideo chief

executive Sai-Wai Fu. "Many firms have tried to sell equipment so people

could convert their own tapes on a computer, but that requires a very

sophisticated person, and even then it would take about two weeks just to figure

it all out."

(C) Reuters Limited 2001.