Evolve or die: From controlling 90% of the market and $16 billion in revenues to bankruptcy – has Artificial Intelligence already begun the death of your business?

Will Artificial Intelligence do the same for you? Following are excerpts from The Center for the Study of the Legal Profession at the Georgetown University Law Center and Thomson Reuters Peer Monitor 2016 Report on the State of the Legal Market. The report is focused on the legal profession but seems appropriate for a myriad of industries and the answer to the question is: without a doubt, entire industries are facing a dilemma, adopt or die.
In the annals of American business, few firms were as successful for as long as the Eastman Kodak Company. Founded by George Eastman (the inventor of roll film) in 1880, Kodak introduced its first camera in 1888 with the memorable slogan: “You press the button, we do the rest.” For a century thereafter, Kodak dominated the market for cameras and film in the United States and much of the world. It revolutionized society by making it possible for ordinary people to record the key events of their lives – events later even rebranded as “Kodak moments” – by removing photography from the exclusive domain of professionals.
By 1976, Kodak controlled 90 percent of the film market and 85 percent of the camera market in the U.S. Until the 1990s, it was regularly rated as one of the world’s five best known and most valuable brands. In 1988, at its peak, Kodak employed over 145,000 workers worldwide. Its annual revenues peaked at nearly $16 billion in 1996 and its profits at $2.5 billion in 1999.
The strategy that propelled Kodak to its long-term success was the “razor blade” business model. Just as Gillette makes money on the blades and not the razors, Kodak sold cheap cameras and relied on customers buying lots of expensive film. That strategy worked fine in the age of print photography when Kodak could control 80 percent of the market for the chemicals and paper used to develop and print photos. But it was not a strategy for success in an age of digital photography. In the 1990s, Kodak dragged its feet on entering the digital market in a serious way. When it did decide to get into the game, it was too late, having lost key market advantage to more nimble competitors like Sony and Canon.
History, of course, has many examples of well-established companies being blindsided by technological developments that oust them from their positions of market leadership. And if that were the whole story with Kodak, it would be just another sad though familiar tale. In the case of Kodak, however, the story is much more interesting because the new technology that ultimately destroyed the company was invented at Kodak itself! In the mid-1970s, Steve Sasson, a young electrical engineer working at Kodak, assembled a system of electronic components that could capture an image and display it on a screen. In December 1975, Sasson and chief technician Jim Schueckler conducted the first successful test of a digital camera in Kodak’s labs. While the first camera was fairly crude by today’s standards, its technical significance was plainly understood by the company.
Nonetheless, management response was tepid. As Mr. Sasson put it, “They were convinced that no one would ever want to look at their pictures on a television set. Print had been with us for over 100 years, no one was complaining about prints, they were very inexpensive, and so why would anyone want to look at their pictures on a television set?” In addition, it was not lost on company management that pursuit of digital photography would, of course, seriously undercut Kodak’s lucrative film business, and that digital photography itself would not be as profitable. As a consequence, Kodak essentially chose to ignore the fundamental shift in its market – until it was too late. Today, the first digital camera made by Mr. Sasson in 1975 is on display at the Smithsonian’s National Museum of American History. President Obama awarded Mr. Sasson the National Medal of Technology and Innovation at a White House ceremony in 2009, and three years later, Kodak filed for bankruptcy.
This story of the demise of Kodak is an important cautionary tale for law firms in the current market environment. Since 2008, the market for law firm services has changed in significant and permanent ways. Clients who previously deferred to their outside firms on virtually all key decisions regarding the organization, staffing, scheduling, and pricing of legal matters are now, in most cases, in active control of all of those decisions. Increasingly, clients are demanding more “value” in return for their legal spend, and by value they mean greater efficiency, predictability, and cost effectiveness in the delivery of legal services. What once was a seller’s market has now clearly become a buyer’s market, and the ramifications of that change are significant. Clients today are more willing than ever before to disaggregate matters, combining the services of several different service providers in order to achieve increased efficiencies. They are more open than ever before to utilizing non-traditional service providers (including non-law firms) to provide a wide range of services previously obtained almost exclusively from law firms. And clients are far more likely today to retain work in-house, bringing their outside counsel in only where needed to supply specialized expertise or to handle matters on a discrete project-by-project basis.
Access the Georgetown University Law Center and Thomson Reuters Peer Monitor 2016 Report on the State of the Legal Market here…