Vertical integration at its best.

The rapid demise of Kodak, which filed for bankruptcy protection in 2012, is well known. So much so that it is a Harvard Business School case study. While hindsight tends to be 20/20, it was Kodak, through its scientist Steven Sasson, who invented the very cause of its demise, digital imaging. “There will never be a time where film does not have dominant market share”, a board member opined. Kodak was in such deep denial that months before its demise it was still proclaiming the superiority of film in full page ads in the Wall Street Journal.

But for most of the 125 years leading up to its death, Kodak did almost everything right.

Was there ever a more accurate advertising jingle?

From its earliest days, Kodak’s business model was focused on vertical integration. They wanted to own every step of the process, from camera manufacture to film manufacture to the making of the print. Indeed, those early Kodak ads which proclaimed “You press the button …. we do the rest” could not have been more accurate, as you bought the camera pre-loaded with film then handed in the whole thing at the photo store to get the film developed and printed with the results returned to you with a newly re-loaded camera. Brilliant. Kodak succeeded in demystifying the arcana of chemistry and process in exchange for a one-stop shopping experience, devoid of techno mumbo jumbo.

Kodak always concentrated on keeping things simple. When competitors came up with reloadable film cameras Kodak saw to it that the required roll film came wrapped in a lightproof leader along with a like trailer, allowing the camera to be loaded and unloaded in daylight. Yes, Kodak was there to invent the 35mm film cassette in 1934 making small cameras reloadable in daylight. And Kodak’s focus on simplification was never greater than with the introduction of the Instamatic in 1963.

The first Instamatic.

Cleverly named, there was no film to load. Instead the film came installed in a cartridge, along with an integral pressure plate, which was simply dropped into place, the camera back then snapped shut. It took less time to do than to write about. And while, as a student working photo retail to put myself through college, I witnessed many attempts, even the most cack-handed gave up trying to force the cartridge into the body the wrong way around as there was no way it would fit, though they did try. While the camera had a face only a mother could love it was probably the most sold brand of camera until smartphones came along in 2007 with the iPhone. In seven short years Kodak sold over 50 million Instamatics. Capitalizing on its success Kodak introduced the even smaller Pocket Instamatic in 1972, promptly selling another 25 million. And, as always, you pressed the button and Kodak did the rest. They made the cameras, the film, the chemicals, the lab gear and the printing paper. Total vertical integration.

No big, dominant company survives in the long term. Look at GE. It went bankrupt early in its life being kicked out of the (then) Dow 20, and today is a fraction of its peak size having been kicked out of the Dow 30, lost without direction and a mess of unrelated parts. One day, Apple will follow suit, suffering the same pattern of a brilliant founder followed by a bunch of MBA automaton managers to whom fresh ideas are alien and for whom political correctness trumps innovation. Eastman, Edison and Jobs do not repeat.

So while Kodak as we knew it is no more, it would be churlish indeed to deny its business genius in the era of film.

No disclosure needed.

In the 1980s Toyota realized that their well deserved reputation for reliability could and should compete with Mercedes and BMW, both plagued by poor quality control and egregious repair costs. But lacking a powerful V8, it was not until 1989 that they entered the market with a jewel-like 4 liter V8 in the LS400 sedan. Putting out close to 300hp and reliable as a hammer, a new nameplate was required to distinguish the new car from the hoi polloi trucks and small sedans which had made its name, so Toyota came up with ‘Lexus’. This was a smart play on ‘luxury’ and ‘US’, and the price of $35,000 with no options seriously undercut the Germans’ offerings. Two early customer complaints about defective wiring saw Lexus deliver a new loaner to each of the first 8,000 buyers while they fixed the issue. Toyota recalled all cars sold and secured brand loyalty for generations. A model of how these things should be done. Once the Germans got their hands on the car a BMW engineer was heard to remark “What are they trying to do? Kill us?”. BMW and Mercedes quality control had received a well deserved kick in the pants.

Not to be upstaged, Nissan decided to emulate Toyota, making and even more powerful V8, throwing in a lot of race bred technology and christening their offering the Infinity Q45. Arguable a better vehicle than the LS400 the car failed spectacularly in the US market, selling hundreds to Lexus’s hundreds of thousands. The reason? A disastrous advertising campaign which has become a business school study. Infinity decided that their product was so great, so ethereally superior, that they omitted showing it in TV ads. Instead they opted for the now infamous images of swaying fields of wheat with a voice over. A disaster from which the brand never recovered.

The maker of the finest mechanical watch, Patek Philippe, was not so much taking a leaf (sheaf?) out of Infinity’s book as it was recognizing that its brand power was and remains unique. Not only do they frequently omit showing the product, they know all too well that only Patek owners and aspiring owners would immediately recognize the brand from the images, without bothering to read the fine print. Because the imagery in this now long running campaign focused one thing and one thing only, the class of the wearers.

I found the above ad in issue three of the Patek Philippe magazine which has been published for many years now. Patek’s magazine is the ne plus ultra of what we horribly call ‘lifestyle’ magazines and while all others have fallen by the wayside, Patek continues putting out two or three annually. So proud are they of this production that they recently offered three free back numbers to Patek owners and I snapped up #s 1, 3 and 6. The above image is from #3. All you have to do to get yours is buy the timepiece.

And yes, my daily driver is a 2000 LS400, last of breed and, no, it’s not for sale. My son wants it.

No cigar.

Capitalists share two traits. First, they want to eliminate competition for nothing is worse for margins. Second, they seek out annuity income streams because it’s less work and risk keeping what you have than creating something new.

The greatest exemplar of both traits was John D. Rockefeller who managed to accrue 91% of US crude oil refining capacity in the late 19th century, and had a like monopoly on the sale of one of the refined products, kerosene, which was used for lighting. He became the richest person the world has seen, absent maybe the murderous thug in the Kremlin. Congress for once did its job and broke up his Standard Oil Trust just as the gasoline byproduct, heretofore thrown away as useless, met Henry Ford’s Model T. At the same time demand for kerosene was falling off a cliff, thanks to Edison, Westinghouse and electricity. Rockefeller thus displayed the third trait of great capitalists, luck.

If the people at Apple read history they must be very slow readers for even your first grader will tell you that Apple has been milking the iPhone cow to the point of market saturation for several years now. They are compounding the lack of diversification with the naïve belief that they command pricing, so we get the lunacy of $1200 cell phones when $600 does the trick at the upper end. But, give them credit. Having monopolized the upper end of the cell phone market, they are now seeing revenue growth disappearing and have started making strenuous efforts to annuitize the income derived from services – music, movies, apps, books (good luck with that) and, yesterday, news.

Their enhanced news offering, Apple News +, comes with the usual hype stating that tens of thousands of dollars in monthly charges can be sidestepped by just handing Apple $10 a month for a consolidated news feed. The fact that no one actually reads all of the hundreds of magazines whence that ridiculous statistic emanates is lost on the hype merchants in Cupertino. Apple’s arrogance has them seeing their customers as dolts.

Apple News +. A glossy front for very poor content formatting and accessibility.

Nonetheless, Apple knows how to present information so I signed up for a free one month subscription to Apple News + yesterday. This dictates an OS upgrade (but of course) on iOS devices, and the use of Mojave OS 10.14 on laptops and desktops. Just be sure not to update to Mojave from something earlier if you use an Nvidia GPU later than the GTX680 (which is ancient) in your Mac Pro as Nvidia has not released OS X drivers for later cards, is unlikely to do so and your screen will go black.

It’s more important to realize what you do not get with Apple News + than with it. The two finest newspapers in the world, the NYT and the Washington Post, are not in the ecosystem, meaning you have to pay for your subscription, even if you elect to read content using the Apple News + app. What you do get is the spokespaper for cockroaches and oligarchs, the Wall Street Journal, and the Los Angeles Times, which hardly qualifies as a newspaper any more. And if you want more than 3 days’ archival content from the WSJ (though why anyone would want anything from the Dirty Digger’s toilet paper beats me) fughedaboutit, because it ain’t there. What other paid content is included in the $10 monthly subscription? The New Yorker, which you would think is great at $18 a month for a subscription. But load a page and you get silly tiny print not easily enlarged unless you are into ‘pan and scan’, and an index page which has zero hyperlinks. You have to page through until you find what you want. Scientific American is also included in the Apple News + subscription, but with the same limitations as The New Yorker. So you get a shiny, clean précis of headlines and then zero effort to make the contents readable. Apple has somehow managed to sacrifice random access to sequential access on the altar of sloth. A sham. I prefer reading both free at my local library, the hard copies allowing me to jump to any page of choice.

Photography? Yes, there’s a news channel but it beats me how the content is selected. And the best photography news site, DP Review, is naturally missing because, you know, that nasty Mr. Bezos owns it. Pass.

But, worst of all, and this is a disabling issue for me, none of your ad blockers will work on content delivered through Apple News +. So if you like articles interspersed at seemingly every paragraph break with ads for your scummy banker or insurer, have at it. Read those stories on the papers’ web sites with the ad blocker enabled and you get a lovely blank space where your soon to be foreclosed mortgage is otherwise advertised as the bargain of the year.

Apple has learned little from John D. Rockefeller. They forgot to annuitize their revenue streams, placed all their eggs in one basket and I’m afraid it’s way too late for them to fix all of that. A shining example of what astronomers call a white dwarf. A star whose brightness has peaked and is waiting to die.