Polaroid betting big on digital kiosks

Monday, October 13, 2003

WALTHAM, Mass. -- Polaroid's place in history has already been secured by its trademark cameras with their signature instant prints.

But bad investments and the digital imaging revolution buried that business, sending the company spiraling into bankruptcy two years ago as it failed to evolve gracefully in a new instant photo world.

Now Polaroid is back, reconstituted and trying to refocus under new ownership by Chicago-based BankOne. And it's betting its future on digital -- printing kiosks, that is.

"It has to be their future," thinks Ulysses Yannas, an industry analyst at Buckman, Buckman & Reid. "They don't have a choice."

Relieved of large chunks of the old company's debts (including some pension obligations, to the fury of retirees), and slimmed down from its 1978 peak of 21,000 employees to 3,700, Polaroid is actually making money again on its traditional film and camera business.

But that's clearly a dead end.

The percentage of U.S. households using a digital camera will rise from 20 percent in 2002 to 30 percent by the end of this year, according to Infotrends Research Group. That shift inspired Kodak's recently announced plans to slash its dividend and invest $3 billion in digital research, while companies with no previous connection to photography are flooding the market with new digital camera models.

Playing catch-up

Polaroid thinks its best bet for a piece of that action is on the digital processing end, but it will have to play catch-up. A dozen rivals, including Kodak and Fujifilm have already claimed much of the best real estate with nearly 50,000 kiosks installed in the United States.

But Polaroid says it can beat them with speed and convenience, and even persuade consumers to print more of their pictures instead of just e-mailing them around to friends and family.

Polaroid's kiosks, fed a credit card and camera memory card, spit out a high-quality print every two seconds. That's three times faster than what Kodak, with the largest installed base, plans to roll out next year and ten times faster than the current top speed of most competitors.

The new Polaroid kiosks don't offer bells and whistles, such as cropping and enlargements. Polaroid says 85 percent of the digital print market is first-time printing, with most customers wanting merely to pick their best shots and print on 4-by-6-inch paper -- all in a transaction as easy as getting cash from an ATM.

Polaroid aims to deploy its kiosks in airports, cruise ships and restaurants popular for children's birthday parties -- anywhere the urge for instant photographic gratification may strike.

The hope is that the higher speed will open up the market for larger orders, like running off photos to send out with the family Christmas card.

"The difference between 2 seconds and 20 seconds is not too big a deal if you're only printing two or three or four prints," said Bob Barton, the director of marketing at Polaroid for the new product line. "But we're finding that a lot of people are doing transactions of 100 prints or more. If you start doing a hundred-print transaction on a 20- or 23-second printer, you're going to be there for a long time."

The technology, dubbed Opal and Onyx, will eventually appear in home printers, though no timetable has been set.

The decision to start with retail appears curious. Four out of five digital camera users say they print at home, according to Infotrends, while only 12 percent use retail locations (dropping off their memory chips for pickup later, or printing themselves at a kiosk). The percentage using online services is also 12 percent.

But the percentage of people printing at home went down this year, while the 12 percent using retail locations is quadruple the 2002 figure, according to Infotrends.

That may be because the early digital camera buyers were techies who enjoy fiddling around on their computers. Newer, less savvy users, may prefer to do their printing in the midst of other shopping instead of going online and using such services as Kodak's Ofoto.

"Now digital cameras are going more and more mainstream," said Kerry Flatley, an analyst at Infotrends. "You're finding, to use a stereotype, a mother who's really busy and really doesn't want to print her own photos at home. She just wants to get her prints quickly."

David Gordenstein, president and CEO of Zeff Photo in Belmont, one of the test sites, said it's good to see a strong new product once again coming out of Polaroid, based in nearby Waltham.

"The word 'Polaroid' is synonymous with instant photography," said Gordenstein, who said the kiosk at his store has been a big hit. "They kind of lost touch for a while. Now, with this machine, they're getting back on track."

But while analysts say they're impressed with Polaroid's new technology, that's no guarantee it will rejuvenate the company.

"Competitors already have the positions at retail outlets, so how do you get them out of there?" Yannas said.

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