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Spotting Structural Decline Early: What Blockbuster and Kodak Have in Common

Business Analysis • Beginner Investing • 8 min

What this lesson is about

Two of the most-cited business collapses in history share an uncomfortable detail: the people inside both companies saw the threat coming.

2 parts · a quick check after each · then the quiz

Part 1 of 2

Two of the most talked-about business collapses in history share a striking detail: in both cases, people inside the companies saw the threat coming, yet the companies failed to act decisively. Kodak's engineer, Steven Sasson, created one of the first working digital camera prototypes in 1975. Kodak had the core technology in-house nearly twenty years before digital cameras took over film photography. The company hesitated to commercialize it, fearing it would hurt its profitable film business. Ultimately, Kodak filed for Chapter 11 bankruptcy in January 2012.

Blockbuster's story is quite similar. It's well-documented. Around 2000, Netflix co-founder Marc Randolph says Netflix approached Blockbuster about a partnership or acquisition for about $50 million. Blockbuster turned them down. Its business model, focused on in-store rentals and late fees, was eventually overshadowed by mail-order and streaming services. Blockbuster filed for Chapter 11 bankruptcy in September 2010.

The product life cycleIntroduction to decline, and what extension does to the tail.

Quick check

Which company's own engineer, Steven Sasson, built one of the first working digital camera prototypes in 1975, years before digital cameras disrupted the film industry?

Part 2 of 2

Insider Angle: This pattern has a name: Clayton Christensen's "innovator's dilemma." It captures the idea that an incumbent isn't always blind to a disruptive threat. Instead, a profitable business model often leads to powerful incentives to protect what's already working. This can prevent them from making necessary changes, even when it’s the right move for the long term. To spot this pattern early, it’s not just about watching for new technology. It’s about noticing an incumbent’s hesitation and internal conflict regarding a threat. Insiders often understand these challenges well before the market does.
Try This: Research a modern industry where a similar disruption might be happening. Look for an established, profitable company facing a smaller competitor with a different business model. Check if the incumbent's executives have publicly acknowledged the threat and how aggressively they’ve responded.

Quick check

Why is Kodak's slow, cautious approach to commercializing digital camera technology widely cited as a business case study?

Quiz

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