For the last decade, Eastman Kodak Co. has been the poster child for how a disruptive innovation--in this case digital imaging--can plunge even the best-run firms into crisis. Over the last 18 months, Kodak has worked hard to turn the forces of disruption to its advantage, with so-far mixed results.
Kodak has shifted its consumer imaging strategy from a focus on image capturing to image sharing. It has de-emphasized digital cameras, where fierce market competition makes profitable growth difficult to achieve. Its online photo sharing site, Kodak EasyShare Gallery, draws more than 20 million consumers, a number that admittedly still trails Yahoo!'s (nasdaq: YHOO - news - people ) Flickr.com.
Kodak's boldest bet is an inkjet printer that it hopes disrupts the $50 billion home printing market. The key to Kodak's strategy is a revolutionary printing technology that allows it to dramatically decrease the amount of ink used. That allows Kodak to charge very low prices for inkjet printing cartridges. Its business model contrasts with market leader Hewlett-Packard (nyse: HPQ - news - people ), whose inkjet division derives the lion's share of its profits from replacement inkjet cartridges.
Are market conditions ripe for a disruptive approach? Consumers definitely gripe about the high cost of inkjet cartridges. Yet it is unclear whether those high costs actually inhibit home printing, particularly of pictures. Perhaps the complexity of the picture printing process--not the cost of the inputs--stops home-based printing.
After all, why do people print pictures? One simple reason is to have a way to share memories with visitors. A simpler, easier way to do this is to use a digital photo frame that shows constantly rotating pictures.
While Kodak competes in this market, its products trail those offered by Philips. Also, Kodak's strategy assumes that consumers consider total ownership costs when making purchasing decisions: Kodak's printers actually cost more than comparable printers offered by HP, Lexmark (nyse: LXK - news - people ) and Canon (nyse: CAJ - news - people ). While corporate purchasers controlling large budgets carefully consider total cost of ownership, it is less clear that multi-year ink purchases factor into consumer purchase decisions.
Regardless, the home printing market is big enough that Kodak could create a meaningful growth strategy by simply capturing a sliver of the market. Was the cautious optimism we expressed last year warranted? While reviews of Kodak's initial line of printers were decidedly mixed, Kodak's product might just be good enough to establish a toehold in the market. Kodak sold 520,000 printers in 2007, exceeding its target of 500,000 printers. A recent search on Amazon.com (nasdaq: AMZN - news - people ) found that the 5300 EasyShare printer ranked eighth among multifunction devices, behind four Canon printers, two HP printers and an Epson printer.
HP responded to Kodak's disruptive incursion quite predictably--it cut the unit price of its inkjet cartridges by 30%, while lowering the unit volume by more than 50%. In other words, HP responded to a low-cost incursion by increasing the price per ounce of its inkjet cartridges. In a November analyst call, Kodak admitted that the introduction of its inkjet line of products has suffered hiccups, such as uneven distribution and product quality issues. It claimed, however, that these issues are typical for a widespread launch of a new product. It still believes that it can build a $1 billion printing business by 2010.
Two big questions remain. First, Will Kodak sharpen the disruptive edge of its printer play by improving quality and lowering cost? If Kodak can't address the kinks that have inhibited uptake, its disruptive foray is likely to disappoint. Second, Does Kodak have any other disruptive developments in its pipeline? Even a $1 billion printer line won't be sufficient to return the company to prominence in the near future.
Demonstrating the ability to launch a steady stream of disruptive growth ventures, however, could make Kodak the poster child of a company that learned how to turn disruption from a threat to an opportunity.
Scott D. Anthony is president of Innosight and co-author of The Innovator's Guide to Growth (to be published in May 2008 by Harvard Business School Press).
Adapted from a recent edition of Strategy & Innovation . For more information visit www.forbes.com/strategy&innovation
