Apple Kicks Kodak While They are Down!

by Wayne Ferbert on January 22nd, 2012

OK, so this headline is a little bit of hyperbole. Apple, after all, did not single handedly cause Kodak to file for bankruptcy protection. The whole digital revolution just caught Kodak off guard. Apple was just the pied piper to the digital revolution!

If you are wondering about how Apple ‘kicked’ Kodak this week, then you must not be on Apple’s email marketing list. Just this week, on Saturday, Apple announced a new app they built themselves – titled Cards. You can check it out here: http://www.apple.com/apps/cards/. With this app, you can use your iPhone to send a card to friends or family with a picture you take with your iPhone. For a small fee: $2.99 for each card.

The concept is great: you are on vacation. You snap a picture of your kids and send it to the grand-parents in the form of a personalized card that gets sent in regular US Postal mail. It is a cool idea – and very functional. But you should know: The idea isn’t new. It isn’t even relatively new.

Apps on both iPhone and Android have been offering this kind of service for years – since at least 2009 when I first saw it! Apps like Postagram and Postino have been around the block. But here comes Apple – fairly late to the game. Remember, Apple has been offering the ability to use custom Apple built software to build photo books and photo cards from your computer for years. So this kind of software is a natural extension for Apple to launch.

But it sure did take them awhile. Despite the delay, does anyone want to make a bet on how long it takes Apple to surpass all of those other services and have more users and more downloads than all of the other post-card iPhone apps combined? I say the over/under is 6 months.

What does all of this have to do with Kodak? Well, printed pictures is supposed to be Kodak’s wheelhouse! It is the one thing someone would still hire Kodak to process. But here we are – Kodak is getting supplanted by the digital revolution – again.

So, you can see, on the week that Kodak files for Bankruptcy, Apple kicks them right where it hurts. Tough week to be Kodak.

Why does a blog on investing cover this territory? Because this kind of story is the example of the software revolution that we think will continue to drive the Technology sector to greater heights for the foreseeable future. At Buy & Hedge, we believe that these kinds of stories will continue to occur over and over again in the tech landscape – with software as the great equalizer.

We like Tech. In particular, we like technology that is software-centric. Or, companies that still have a lot of runway to use software to improve processes and achieve more productivity gain.
But just an important, we like mid-cap and large-cap technology companies. This story is an example of why. In software, the barriers to entry are getting so low, that large cap companies can afford to be fast-followers and invest after smaller companies prove a concept can work. We think fewer and fewer small cap tech firms will grow up to become mid-cap or large-cap tech firms. Instead, we believe the mid-cap and large-cap will throw their weight around and take share by tearing down the smaller than usual barriers to entry.

One last reason to like mid-cap and large-cap tech: the industry is maturing. The productivity gains will be measured in multiples in terms of productivity. But it will not be measured in dollar value created the same way the gains in the last decade were measured. In other words, the prize is not as valuable. Gains will be meaningful – but not as valuable. This makes them more likely to be achieved by the deeper pockets of large-cap firms – and not the small-cap firms that must reach for the ring to be successful.

The result: watch for the 2nd tech revolution in software. Just this time, the revolution will be led by guys wearing ties – or at least nice chinos. It won’t be led by the college drop-outs!


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