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February 22, 2008

Pulling the Plug: Polaroid and Toshiba

Rita Gunther McGrath
Associate Professor of Management
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Some of the most difficult, but essential, decisions to make in today’s hypercompetitive markets are those that involve shutting things down. It is heartbreaking — every product, every line of business and every bright idea always has teams of committed, hopeful individuals supporting them. Saying goodbye is a mournful matter.

My heart went out to two companies who had to make those painful decisions. In one case, that of Polaroid, the decision was to stop making instant film, a product deeply linked to the company’s identity. They have just announced that they plan to close factories in Massachusetts, Mexico and the Netherlands that make instant film. They’ve stopped making instant cameras for some time now. The other, even sadder case is that of Toshiba, whose high-definition DVD format has now lost out in the standards war and will be discontinued.

Fans of the instant-film format are howling, but the relentless realities of declining sales and the relegation of instant film to a footnote in the photography industry leave Polaroid with few options.

The good news is that perhaps a smaller company will license the rights to manufacture the instant film and keep some supply available.

Toshiba, in contrast, sees no hope, resigned to the fact that its HD DVDs have irrevocably lost the standards war to Sony’s Blu-Ray technology. This must feel like sweet justice for Sony and its CEO Howard Stringer (c’mon, everybody remembers Betamax vs. VHS) and be a bitter disappointment for Toshiba. Standards battles are hard to predict, and both sides went into this one well armed for a long war of attrition. With computer manufacturers, content providers and others unprepared to place a compelling bet on one or the other standard, the battle could have dragged on for some time.

I find it fascinating that the critical blow (after some others had been cast, of course) came from a third party that stood to lose a great deal in a protracted standards battle, and that’s Wal-Mart. Wal-Mart has no interest in shoppers holding off their purchases for fear of spending a lot of money on a piece of obsolete junk. The superstore’s perspective is: who cares who wins, as long as the situation gets resolved and commerce can chunk merrily along. So when one of the big film studios went with Blu-Ray, that was enough to convince Wal-Mart that it was time to place a bet. Toshiba’s capitulation came within days.

While both stories are sad, they do serve to remind us that for innovation to progress, some established practices, offers and products have to give way. It sure isn’t the most pleasant part of the innovation process, but it is necessary. So best of luck to both companies, and may something brighter offer some excitement down the line.

Comments

by Osifo Akhuemonkhan | February 23, 2008 at 2:00 PM

I reckon Sony's win in the standards battle can be largely credited to the wider distribution of Blu-Ray players in the form of Play Station 3 consoles. The PS3, though coming in at third place in sales amongst 7th generation video game consoles, has helped Sony market its new video format. With over 3.25million PS3s/Blu-Ray Disc Players sold, its hard to imagine that consumer stores such as Wal-Mart or Target would go with HD-DVD. Synergy amongst the different divisions of Sony has helped it achieve this marketing success. In light of this new development , perhaps Professor Noel Capon should make addendum to his list of Top 3 marketers of 2007.

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