What was Polaroid Thinking?

Polaroid went from ubiquity to obsolescence as digital photography replaced the print. But as early as the 1960s, Polaroid had been doing research into digital imaging. Did mistaken assumptions keep the company from making the transition to the digital world?

Polaroid was one of America's early high-tech success stories. Founded in 1937 by scientist Edwin Land, the company built its initial business during the interwar period, prospered as a defense contractor during World War II, and then found new success as an innovator in the post-war boom years.

In 1948, in response to a question from his young daughter, Land invented a camera that produced finished photographs in minutes. The invention was an immediate success, and over the next two decades, the instant camera became widely used both in the consumer market and in the business market for such purposes as driver's licenses, crime reports, and real estate advertising.

By the 1960s and early '70s, Polaroid held a monopoly in the instant photography market, and its sales accounted for about 20% of the overall market for film and 15% of the U.S. market for cameras. At its peak the company employed 21,000 people.

The basis for the instant camera was a chemical process that mimicked the darkroom. However, Polaroid was not unaware of the progress of electronic imaging; on the contrary, the company was involved in developments in the field early on. During the mid-1960s, Polaroid took out some of the first patents on electronic shutters. Then in 1981, an official electronic imaging group was set up to develop a "printer in the field," an instant camera that would produce a film-based print from a digital image.

By 1989, 42% of Polaroid's research and development funding was being spent on digital imaging. By the late 1990s Polaroid was a top seller of digital cameras.

However, the company was unable to capitalize on this success. As digital cameras flooded the market, Polaroid began losing some of its big customers in the real estate, insurance, and photo identi-fication businesses. Film sales plummeted, and in October 2001, Polaroid filed for bankruptcy.

Why was Polaroid unable to make the transition to digital photography? The key may have been some fundamental assumptions that did not allow top management to adjust to new market realities.

First, Polaroid leaders believed that customers would always want a hard-copy print. In his 1985 letter to stockholders, CEO I. MacAllister Booth reasoned, "As electronic imaging becomes more prevalent,there remains a basic human need for a permanent visual record. Whether that record fulfills an emotional requisite in the visual diaries of amateur photography or provides practical data in an industrial or scientific setting, the universal insatiable appetite for visual communication and portable information will be constant, reflecting a continuing need for instantly available, high-quality print media."

Through the 1990s, Polaroid executives continued to believe in the importance of the paper print. Gary DiCamillo, CEO from 1995 to 2001, said in a 2008 interview at Yale, "People were betting on hard copy and media that was going to be pick-up-able, visible, seeable, touchable, as a photograph would be."

When customers abandoned the print, Polaroid was taken by surprise. "It's amazing, but kids today don't want hard copy anymore," said DiCamillo. "This was the major mistake we all made: Mac Booth, Gary DiCamillo, people after me…. That was a major hypothesis that I believed in my marrow that was wrong."

Even though it performed thorough market research, Polaroid was unable to foresee that the photo album would be replaced by the digital slide show.

A related mistaken belief was that the Polaroid Corporation would always be able to make money through developments in chemistry, especially photographic chemistry. In spite of its early research in digital photography, the company culture had a bias against electronics that went back to the days of Edwin Land. According to former vice president Sheldon Bucker, Land was skeptical about investing in electronics:

From his point of view, instant photography was going to be his legacy. It was going to last forever. And the idea that there was some kind of fancy new technology from the physics side, in contrast to instant photography, which was heavily founded in chemistry, that was going to displace the creation of his genius was not a pleasant thought. Another former Polaroid executive, Hugh MacKenzie, recalled that Polaroid researchers resisted the whole idea of making money on hardware: "The culture of the leadership was chemistry and media first. It had little respect for hardware…. They had a considerable amount of fear from the chemical and film people about what would their job be if we got into electronics."

The sheer profitability of film sales created another obstacle to thinking about new business models. When sales began to decline, Polaroid was on the horns of a dilemma. As former CEO DiCamillo remembered, "We knew we needed to change the fan belt, but we couldn't stop the engine. And the reason we couldn't stop the engine was that instant film was the core of the financial model of this company. It drove all the economics – not instant cameras and not hardware or any other product; it was instant film…. So we knew that we had to watch the film and its rate of decline or erosion, and we had to replace it with something that was equally profitable or approximately as profitable. And instant film had gross margins well in excess of 65%. So if you're dealing with a media change, how do you replace that with something that's almost or probably as profitable as instant film?"

When Edwin Land first invented his camera and film, he imagined that instant photography would change people's lives. He said that the camera should "go beyond amusement and record-making to become a continuous partner of most human beings... a new eye, and a second memory."

Land did not realize how right he was. When he wrote those words, the camera was a bulky appliance, and the print was stored in a heavy album. Today the camera and hundreds of images, which are produced instantly, can be carried in one lightweight device. Now that the camera has been joined to the cell phone and other handheld devices, it is truly "a continuous partner of most human beings." Ironically, the fulfilling of Land's vision led to the end of his company.

This article has been reproduced with permission from Qn, a publication of the Yale School of Management http://qn.som.yale.edu