Google, Kodak, and Disruption
In 1975, a Kodak engineer created the first-ever digital camera.
This early model captured a black-and-white image in 23 seconds, storing it on a cassette tape, which could then be viewed on a television screen.
Though rudimentary, the technology showed promise. However, since digital cameras posed a risk to Kodak’s profitable film photography operations, the company’s leadership chose to abandon the innovation.
At its peak, Kodak dominated the industry as the leading camera manufacturer and held nearly 90% of the film market.
Most of Kodak’s profits came not from cameras, but from film and photo processing, where they enjoyed hefty gross margins of around 70%. Their business model resembled the classic “give away the razor, sell the blades forever” strategy.
By 2001, digital cameras were supplanting traditional film. Although Kodak remained the top digital camera vendor, the profit margins were thin and lacked the recurring revenue that film generated.
The launch of the iPhone in 2007 marked a turning point, as smartphones with integrated cameras began to challenge Kodak’s core business.
Kodak managed to survive until 2012, when it ultimately filed for bankruptcy.
Looking back, some critics blame Kodak’s leadership for being slow to embrace digital photography. However, this perspective misses the complexity of the situation.
Kodak’s choice to shelve its digital camera project and postpone development was actually rational, given the significantly lower profits compared to film.
These kinds of technological disruptions are highly intricate. Large corporations often struggle to maintain dominance and compete with agile startups when revolutionary innovations arise.
Presently, Alphabet (Google) faces a comparable challenge. Although they pioneered the technology behind modern AI models, AI now poses a threat to their foundational search business.
Google’s Digital Camera Moment
In 2017, eight researchers at Alphabet/Google published a landmark paper titled “Attention is All You Need.”
This research established the groundwork for today’s sophisticated AI systems by introducing the transformer, a new technology essential for developing large language models (LLMs).
Google may now regret releasing this paper publicly. They might have benefited more by suppressing the innovation and delaying the inevitable disruption, much like Kodak did with their digital camera.
Google effectively laid the foundation for OpenAI’s groundbreaking ChatGPT models. Now, Google is scrambling to secure a share of the rapidly expanding AI market.
Currently, OpenAI controls approximately 80% of the AI sector, while Alphabet holds only about 10%.
Technologically, Google is closing the gap. The debut of Google’s Gemini Pro 3 model is highly impressive. Coupled with Google’s exclusive AI hardware, the company is well-positioned to compete and perhaps lead in artificial intelligence.
However, Google still trails behind in terms of usability and consumer adoption. ChatGPT remains more user-friendly for both individuals and businesses and benefits from stronger marketing.
Google’s Smart Diversification
Kodak notably faltered in diversifying its business. For instance, while smaller rival Canon expanded into semiconductors, Kodak failed to seize similar opportunities.
Google, by contrast, has avoided this error. From early on, Google/Alphabet has strategically expanded into various markets.
Take Youtube, which Google purchased for $1.65 billion in 2006; it has grown into an enormous enterprise. In 2024, Youtube’s revenue exceeded Netflix’s, reaching over $42 billion, and it may soon surpass Disney in revenue—a truly remarkable feat.
Alphabet’s investment in autonomous vehicles via Waymo has also proven to be a wise bet. Since 2010, Google has heavily invested in self-driving technologies, which are now bearing fruit. The company conducts over 450,000 driverless taxi rides weekly and is rapidly scaling up operations.
Few tech firms have the foresight to invest heavily for 15 years before seeing substantial returns—Google is among this select group.
Additionally, Google operates a mobile network (Google Fi), competes with Microsoft via Google Workspace, runs a leading robotics division, and manages more than a dozen other innovative ventures.
Although AI presents a risk to Google’s core search engine revenue, they have made remarkable strides recently and successfully diversified to a degree that losing in AI wouldn’t spell disaster. It would be a serious setback, but not a fatal one.
Google continues to employ some of the brightest AI experts, and there is a solid possibility the company could surpass OpenAI and Anthropic eventually. They are actively working to integrate search with AI, which might prove successful.
In summary, Google/Alphabet is unlikely to fail like Kodak. Its leadership has cultivated a well-diversified business and the company retains a real chance to compete in AI. Artificial intelligence poses both significant challenges and opportunities.
Predictions of Google’s downfall remain premature. The company is positioned to endure for decades to come, if not much longer.
Alphabet is not Kodak. Should a major tech downturn occur, Google will be one of the top contenders worth investment.
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