I get this simple question a lot: How can Kodak possibly succeed against the behemoths who dominate the consumer inkjet business?

I have the answer. But first, a story.

One of my favorite books is The Hobbit, by J.R.R. Tolkien. And in that book, my favorite scene is the one where Bilbo Baggins has to solve a series of riddles or else become the dinner of that menacing creature Gollum. Bilbo makes it through the first few and then gets stumped on the final riddle:

This thing all things devours;
Birds, beasts, trees, flowers;
Gnaws iron, bites steel;
Grinds hard stones to meal;
Slays king, ruins town,
And beats mountain down.

Bilbo is panicked. He doesn't know the answer, and Gollum is anticipating a nice meal for himself. Desperate to keep Gollum at bay, and needing more seconds to come up with a solution, Bilbo issues an appeal to Gollum that inadvertently provides the answer to the riddle. He breathes one word: "Time."

Time, and timing, is key to understanding Kodak's consumer inkjet business. Time has weakened the behemoths, and our timing has allowed us to come up with a breakthrough technology solution that benefits consumers.  Here's why.

Kodak's value proposition directly addresses the top three unmet needs of the consumer when it comes to inkjet printing. The first is that ink costs way too much. The second is that the quality isn't good enough. And the third is that inkjet printers aren't easy enough to use. When we got to work designing our system, I remembered all the times that my customers, friends and family would complain to me about the cost of ink, among other things. I vowed to provide the consumer a better experience in each of those categories.

The business model for thermal inkjet printers that the market leaders use nowadays is 20 years old. A lot of time has passed since people first thought this business model was a good idea, and its weaknesses are starting to show.  It is a model that makes sense for the manufacturer but not for the consumer. It is a model that reflects what technology allowed 20 years ago, but not what technology can do, and is doing, today. I know this well because I was part of it. And it is beyond time to change it.

First, they lure the consumer by pricing the printers really low, sometimes even giving them away, so they can hook you with astronomically expensive ink. The consumer has been trained, to the manufacturers' benefit, to focus on the price of the printer at retail and to ignore the fact that over time replacement ink can cost them a lot more than the printer itself.

The market leaders pull this off because in most cases they install one of the most expensive and critical components of an inkjet system - the printhead - on the ink cartridge. Every time you buy their ink, you're really buying an expensive new printhead whose life cycle should be far longer than the ink in that cartridge. That's like replacing your engine every time you need to refuel your car - that would be insane, yet that's what you do when you buy their ink cartridges.



At Kodak, we said it's time to change that model. We incorporated a uniquely-designed printhead as an integral component of our printer, and we charge a little more than our competitors for a printer that includes this printhead. We think that's fair. What's more, you don't have to recalibrate the printer every time you swap out ink cartridges because the printhead is installed as part of the printer rather than as a part of the individual ink cartridges. The previously unmet need of ease of use has now been met - by Kodak.

But the real benefit comes with the ink. We can say with utmost confidence that Kodak offers the lowest total ink replacement cost in the industry.  With Kodak's printers, consumers who print 1,500 documents a year enjoy an average savings of $110 a year on ink compared to leading consumer inkjet printers. Kodak's inkjet business model is an idea whose time has come. The previously unmet need of lower-cost ink has now been met - by Kodak.

And it just can't be beat. The market leaders have constructed an entire industry on the lure of low-priced printers and high-priced ink. They simply cannot change this, overnight or even over time, unless they change first the system architecture, that is, designing a high-quality printhead incorporated in their consumer thermal inkjet printer, thus eliminating the need for "throw-away" printheads in the cartridges. Most of their profit - for the entire company - comes from high-priced ink, so simply cutting the price doesn't work. They can't afford it. Their profit margins would plunge, as would their corporate profits, taking stock prices along for the ride. All they can do is to keep trying to push further and further the old business model and hope the consumer will come along. 

Kodak, on the other hand, plays it straight with our business model, and the consumer is embracing it. At a time when the entire $50 billion industry is declining because of the recession, we're growing in double-digits and taking market share. Time is on our side.



So is technology.  On top of the uniquely designed printhead architecture, at Kodak, we use pigmented inks. Our competitors mostly use dye-based inks. Why should you care? Pigmented inks offer outstanding image quality and permanence - and, when using Kodak media, they are instantly dry to the touch. That means that you can immediately enjoy the documents and pictures you print with Kodak, and they will last longer and look better well into the future.

Here again, the market leaders can't beat us. They would love to use pigmented inks, but they couldn't figure out a way to do it. Pigmented inks are really hard to work with and refine, so they decided to stay with dye-based inks. Of course, with dye-based inks you have to make a choice between image quality or instant dry prints. Instant dry prints yield lower quality images and optimizing for quality means that prints come out of the machine slightly wet - even a wet finger can smudge one of their prints. With Kodak's pigmented inks, you can pour a cup of coffee over a high-quality picture fresh off the printer with no damage to the print. Don't try that at home with dye-based ink. Plus, there's no comparison when it comes to image permanence. Most dye-based inks fade over time under typical home conditions. Documents and photos printed with a Kodak All-in-One Printer will last a lifetime. The previously unmet need of better photo quality has now been met - by Kodak.

Kodak, of course, has been a leader in materials science for more than 100 years. Remember that making film requires us to spread up to 14 layers of complex emulsions on a relatively unreceptive plastic substrate at high speed, and we do it in the dark because film is light sensitive. If we can do that with film, then spreading ink on paper in daylight isn't a huge leap for us. We've figured out how to mill pigmented inks in such a way that they are usable in a consumer device, and our competitors have difficulty matching that on a thermal inkjet device. 

So we've got the right business model and the right technology. But we have one more thing on our side - timing.

The market leaders did us a huge favor. During the past 20 years, they created this huge infrastructure to source, manufacture and ship printers and ink. This supply chain was just sitting there for us. Instead of spending hundreds of millions of our own capital to build a supply chain, we simply took advantage of the existing supply chain created by our competitors to manufacture our products. And this is what I mean by timing being critical. In this case, entering the market 20 years later is an advantage. We get to benefit from the work of others at much lower cost to us. Sometimes, being second helps.

Why didn't our competitors do what we've just done?

Fundamentally, they were culturally incapable. These are large companies that have developed complicated systems, processes and expensive machine tools uniquely designed to manufacture their present throw-away cartridges (whose value is depreciating slowly on their books and would have to be written off if they change to an integrated printhead), whose natural tendency financially and otherwise is to preserve the original vision that started more than 20 years ago. (I detail this in my blog posting titled, "Notorious Decadence." ) The second reason is that to come up with a technology breakthrough like this you need to have both the technology know-how and the vision and desire to create it.  They lacked both. 

This is why our strategy is so hard to beat. We've got a value proposition for consumers that our competitors can't match without first developing a printhead incorporated into their printer architecture and, second, without risking serious financial hardship.  We've got a technology in pigmented inks that our competitors can't match because they don't have more than 100 years of experience, as we do, in materials science and complex chemistry. And we've got access to a supply chain that they paid for.

With the installation of more printers comes lots of very profitable revenue on ink sales, even at prices that are a fraction of the competition, because we target those customers who do not want to limit their printing because of expensive ink. These are the people who are most appreciative of our approach, and demonstrate that appreciation by buying the most ink. The best proof point that our value proposition is working is the fact that our printer hardware and ink sales have been growing by double-digits for the past year, while the industry overall has been declining.  That's strong evidence that Kodak has been successful in addressing the top three unmet needs of the inkjet consumer.

The riddle says that time slays kings. Time is on our side.

Abraham Lincoln, born 200 years ago, is enjoying today another run of fame.

New biographies of our 16th president continue to earn a place on this newspaper's list of best sellers. Our politicians praise Lincoln's model of bipartisanship, even if they don't always follow it. And President Barack Obama used the Lincoln Bible to take his oath of office.

Perhaps no president has been scrutinized as much as Lincoln. Yet for all this scrutiny, what is less known about the great man is his active support for one of the vital underpinnings of our economy: The protection of intellectual property in the service of innovation.

Lincoln loved patents. In fact, he remains the only president to earn one: Patent No. 6,469, granted on May 22, 1849, for "a device buoying vessels over shoals." Long before he became president, Lincoln worked on the Mississippi River, ferrying merchandise and getting stuck in the mud. To fix that, he hand-crafted a wooden flatboat outfitted with a series of inflatable bellows to allow the vessel to sit higher in the water.

Stuck on a sand bar, could Lincoln have ever imagined that one day intellectual property would be celebrated around the globe?

Perhaps not, but April 26 is that day.  That date marks World Intellectual Property Day, which was established in 2000 by the United Nations to increase the awareness and understanding of how patents improve life and why patent protection encourages creativity and innovation.

Patents, copyrights and trademarks are often taken for granted. But try to imagine a world without innovation and its necessary protection. We would be deprived of life-saving drugs, life-altering communications, and life-enriching computing and imaging technology.

These technologies emerge because their inventors are confident that they will be singularly rewarded by the market - for a time - for their ingenuity. Absent a patent system, there is little to be gained for all the effort that innovation requires.

According to the U.S. Chamber of Commerce, intellectual property in the U.S. is valued at more than $5 trillion - itself more than the gross domestic product of any other country except the United States. Intellectual property is also the force behind more than half of all U.S. exports, driving 40% of U.S. economic output. At a time when the U.S. is looking for a way to jump-start the economy and maintain our competitive advantage, fostering and protecting innovation through a robust patent system is vital.
 
The numbers associated with the theft of intellectual property are just as staggering. Again from the U.S. Chamber of Commerce: Intellectual property theft accounts for more than $500 billion in lost sales globally each year, or 5-7 percent of world trade - an amount equal to the GDP of a nation the size of Switzerland. 

The lack of respect for intellectual property leads to such frightening situations as counterfeit drugs and airplane parts, to name just two examples. According to the OECD, up to 15% of the world's drug supply is counterfeit. These include life-saving therapies such as HIV/AIDS treatments, insulin, cancer and cardiac drugs, and even over-the-counter pain and allergy relievers. The Federal Aviation Administration estimates that 2 percent, or 520,000, of the 26 million airplane parts installed each year are counterfeit.

Lincoln, of course, understood the value of innovation and the need to protect it. He cited patent laws as one of the three most important developments in the entire history of the world, the other two being the discovery of America and the perfection of printing.

Ten years after receiving his patent, he gave a lecture before college students in which he extolled the benefits of a strong intellectual property protection. Prior to the advent of patents, Lincoln said, "any man might instantly use what another had invented; so that the inventor had no special advantage from his own invention. The patent system changed this; secured to the inventor, for a limited time, the exclusive use of his invention; and thereby added the fuel of interest to the fire of genius, in the discovery and production of new and useful things."

The U.S. Congress has once again taken up the issue of patent reform, which reminds us that even a creation as great as the U.S. patent system can be improved upon in order to achieve the appropriate balance of rights. In its deliberations, Congress should take to heart Lincoln's perspective: our strong patent system is meant to protect the inventor and further the production of new and useful things. The system should be updated but in a way that builds upon the strengths inherent in our system.  The patent system must further innovation to benefit U.S. leadership in the world, not by favoring or penalizing any one business model but by deterring abuse of the system that serves as a drag on innovation.

By improving and building upon our strong patent system, we can continue to feed Lincoln's "fire of genius" for the benefit of all.
 

A few days ago I was in a meeting and the topic turned to market disruption. Thoughts formed in my mind from the years of successes and failures, big and small, so I started writing them down on a whiteboard. As my colleagues listened, they said that people beyond that room might like to hear what I have to say.

So now I'm a blogger. Here goes.

While disruption seems to have become a popular business term, too often it is talked about in theory and combined with a phrase--technology innovation. But the fact is, those of us in the business world that have to deal with the reality of disruption understand very well that true disruption is hard to achieve. It requires "leaps of faith" difficult to take, and actually demands strong backbone, determination and stamina to make money from it.

In my experience, there are three key elements in the path to disrupt a mature, well-established market--meaningful technology breakthrough, significant supply chain management improvement and valuable business model innovation. The more elements you bring to the table the bigger the disruption and the easier it will be to make money from it.

However, before any of the above will have any meaning whatsoever you need to find out the most important part of the recipe--that is the existence of "opportunity," or what I call Notorious Decadence.

We all know that there is at least one dark side to success. One tends to first get comfortable, then complacent and finally sloppy. What starts as a vision whose only objective is satisfying customer needs becomes an entity by itself and, if successful, an integral part of your way of life as a company or an industry. The more successful you become the more interdependence gets created with the rest of the company. You develop strong self-defense antibodies and the continuous evolution and improvement of the original vision begins to conflict with maintaining the status quo.

Thousands of examples abound, both with companies as with individuals and nations. It is not that you don't realize that it is going on, it's that the only real solution conflicts severely with the very core of your present, comfortable existence. To make it more complicated, there are many constituencies that will be judging you in the process.

Notorious Decadence is hard to swallow, and it's an opportunity for the non-incumbent challenger.

Once the opportunity exists, you still need to find:

Meaningful Technology Breakthrough

For example, on a big scale, until Johannes Gutenberg disrupted the fundamentals of printing by inventing moveable type, manuscripts were produced on woodblocks or handwritten by monks. By taking moveable pieces, oil-based ink, and a wooden printing press much like a wine press, and combining them into a practical system, Gutenberg's disruption revolutionized the well-established world of bookmaking.

On another scale, Kodak's introduction of a low-cost, permanent inkjet head that works efficiently with pigment-based inks represents a meaningful technology breakthrough as it provides the print quality and permanence that inkjet users have been seeking for the last fifteen years.

Significant Supply Chain Management Improvement

A second path to disruption is through efficient supply chain management. Taking advantage of a better supply chain may not sound as sexy as a technology breakthrough, but it can be just as effective.

Throughout much of history vertical integration and packed warehouses in multiple locations gave businesses a feeling of safety, security, and predictability. I don't have to tell you how much of a liability that infrastructure can be today and how hard it is to disassemble internal processes so you can take advantage of someone else's assets, expertise and capital without losing control of your overall business process and end-to-end quality. Dell Computer is an example of a company that took a fresh look at supply chain innovation to disrupt a market. Today, smart companies take advantage of existing supply chains created by the first entrants into an industry.

As it turns out, it's not so bad coming late to the party, after all! The ability to freely design Kodak's new inkjet head architecture in order to take advantage of the new sophisticated semiconductor industry technology--using off-the-shelf tools that did not exist ten years ago instead of those that are custom-made--is a huge supply chain advantage with significant implications on working capital needs, capacity planning efficiency and process scalability.

Valuable Business Model Innovation

Either of these approaches is enough to cause disruption. Yet an even bigger disruption occurs when you introduce a value proposition created to satisfy long awaited customer needs.

I wrote a paper on innovation years ago that included ten must-do concepts that lead to valuable innovation. The first one was

Start with the customer and work back

Envision the future through the eyes of your customer and don't be afraid of what you see. Then, apply technology to satisfy customer needs and dreams. That's innovation.

The cost of ink has been the biggest dissatisfaction of inkjet customers for the last fifteen years. In fact, in terms of customer dreams, this has been a true nightmare for many. Finding a path to satisfy that need is a bigger disruption by itself in the eyes of our customers, than any technology breakthrough or supply chain improvement. After all, as somebody said many years ago, the customer is always right.

The Main Ingredient

Still more powerful disruption occurs when all three conditions converge at the same time--meaningful technology breakthrough, significant supply chain management improvement, and valuable business model innovation.

But the most important ingredient of all is Notorious Decadence. When that condition is present, and an industry environment beckons you forward, the opportunity to achieve real market disruption must be seized.

Stay tuned.