Kodak sharpens its digital focus

Eastman Kodak made a pair of moves Tuesday to keep its image from fading as digital photography gains ground on traditional picture processing.

The company said that it will make an equity investment in San Francisco-based PhotoAlley.com, a Web site for photo enthusiasts, and provide digital printing tools through Print@Kodak, its new Internet photo-finishing service.

Kodak also has struck a deal with Richmond, Va.-based electronics retailer Circuit City to offer consumers buying digital cameras a companion CD that explains digital photography and includes photo album software, as well as $50 worth of prepaid digital photo-finishing services through Print@Kodak.

The moves are the latest by the world's largest photography company to shift its traditional business to the Internet and digital devices and services. The online photo-finishing market is expected to generate $1.4 billion in annual sales by 2003, according to InfoTrends Research Group.

Rochester, N.Y.-based Kodak said recently that it expects half its sales to come from digital products by 2005.

Kodak's stock suffered a sharp decline last month after the company said third-quarter earnings would fall below its forecasts. The company blamed the revised expectations on lower-than-expected sales of film and digital products in September.

Gartner analyst James Lundy says Eastman Kodak's purchase of a piece of digital-photography site PhotoAlley.com and its CD deal with Circuit City are encouraging signs that Kodak is getting serious about digital. see commentary

Kodak will have to make more moves like Tuesday's if it wants to stop losing favor with Wall Street, according to analysts.

"For Eastman Kodak to become a stronger investment, it has to make a seamless transition from its analog photography to digital photography business," said Gary Schneider, an analyst at Bear Stearns. "I haven't seen it make a smooth transition yet, but we have to take individual projects like these today and group them into their whole strategy" before changing the forecast for the company.

As part of its deal with PhotoAlley, Kodak will provide the Web site with photo processing, scanning and uploading services through Qualex, a Kodak subsidiary in the photo-finishing market.

Can Kodak go digital? Nancy Carr, Kodak Digital and Applied Imaging VP

The decision to partner with Web sites aimed at photography enthusiasts could be a profitable one for Kodak. InfoTrends estimates that some 10 percent of home Internet users this year will try services that process film and post digital images to a Web site for sharing.

Kodak's other partners include BET.com, Ememories.com, MyFamily.com, Nuwave Technologies, PhotoAccess.com, PicServe and Weave Innovations, the maker of a "digital photo frame" that can share pictures over the Internet via a built-in modem.