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Digital Transformation – Disruptions

The drop in Kodak stock value as Digital Transformation took over making film cameras obsolete. Source: CNN

The Digital Transformation with its resulting loss of value (it opens up newer value creation opportunities, as well, and I will consider those later) disrupts business affecting incumbent players and opening the doors to new ones.

Disruptions can have different roots that may be difficult to pinpoint. Sometimes it may be clear that a disruption is on the making and yet established companies may find it difficult to take countermeasures to save their business.

Usually, the problem is that their business is very profitable and moving to a new one would endanger their existing one. As shown in the “loos of value” it is typical to see a business increasing its revenues and then all of a sudden losing most of them. Predicting where that point will be reached is difficult, since it relates to several intertwined aspects, a bit like seeing the stock market raising and although you know very well that sometimes in the future there will be a down spiral you don’t know when to sell your shares, waiting a day more to further increase their value but risking being hit by the fall?

Even by looking back it is sometimes difficult to see why the market changed trends at that particular time although it is easy to explain why.

Sometimes, however, the disruption is brought forward by one single cause and it gets easier to analyse it, like in the case of the Digital Transformation sweeping over the photographic world where disruption was a consequence of tech evolution and it happened in three phases:

  • Analogue to Digital Camera
  • Digital Cameras to Smartphones
  • Digital Photography to Computational Photography (ongoing)
The decline of film based cameras was relatively quick, less than 10 years from the peak to bottom up. Image credit: Technology Review

Analogue to Digital Cameras

As shown in the graph the film market kept increasing (surpassing 86B$) till the turn of the century, then all of a sudden it took a plunge leading to its (basic) disappearance in a decade (the marginal market for film photography was sustained by some industrial applications, like medical radiography that is now also disappearing shifting to digital).

The disappearance, and the disruption it brought to the companies, like Kodak, that produced film, was the consequence of the uptake of digital photography (see right side of the graph). Notice how the downslope of film market matches the downslope of the analogue camera market and is a mirror image of the uptake of digital cameras.

The uptake of digital photography was fuelled by tech evolution in three areas:

  • The improved resolution of digital sensors to capture the image (from 30,000 pixels we have now over 10 million pixels in the mass market, my camera has 56 million pixels…)
  • The improved processing capacity that supports the conversion of the data produced by the digital sensor into an image
  • The improved storage memory capacity that has been matching the increased resolution, with the size of a photo moving from some 100kB of the year 2000 to the 50 MB that I usually get with my camera (a 500 fold increase).

On the consumer side the shift to digital meant cheaper photos (no need to buy film nor to print them out, you could decide later on what you would like to print or opt to keep them in a digital form and look at them on a screen) and the possibility to look at your photo immediately. It also meant the possibility to duplicate at zero cost the photos and send them to your friends in a blink of an eye.

Notice also some side effects of this:

  • The possibility to look at your photo immediately made learning how to take better pictures easily. You can experiment, change the settings and immediately see the result
  • The zero cost of taking a photo has multiplied the number of pictures we take and this has also helped in making us better photographers
  • The immediateness of taking a photo and looking at it has developed a new culture for images and new habits. Now we take a photo as we would have taken a note in the past. We are moving more and more to a visual world (and we are “visual animals”).

The impact on the business was dramatic. On the one hand it displaced those companies that were basing their business on film production (Kodak went bankrupt, Fuji survived because its business was not based on film only).

It is particularly interesting to notice the analyses on the survival of Fuji where it was pointed out that shifting the company to the digital world only would not have covered for the loss in the film roll market: the latter generated much more revenues (and margin) than the digital roll (remember: the Digital Transformation LOWERS the value of the market!) hence they undertook a business re-engineering that changed the fundamentals of the company, something that is very difficult to do in general and they did that when their business in the analogue photography was still very good.

On the other hand it created the market of digital cameras that went way further than replacing the analogue camera market, it actually expanded those market as digital cameras became cheaper (and the cost of developing went down to zero!).

To be continued…

About Roberto Saracco

Roberto Saracco fell in love with technology and its implications long time ago. His background is in math and computer science. Until April 2017 he led the EIT Digital Italian Node and then was head of the Industrial Doctoral School of EIT Digital up to September 2018. Previously, up to December 2011 he was the Director of the Telecom Italia Future Centre in Venice, looking at the interplay of technology evolution, economics and society. At the turn of the century he led a World Bank-Infodev project to stimulate entrepreneurship in Latin America. He is a senior member of IEEE where he leads the New Initiative Committee and co-chairs the Digital Reality Initiative. He is a member of the IEEE in 2050 Ad Hoc Committee. He teaches a Master course on Technology Forecasting and Market impact at the University of Trento. He has published over 100 papers in journals and magazines and 14 books.