Losing Focus

By Glenn Rifkin | Boston Magazine |

The security guard at the front desk of Polaroid's art deco headquarters on Memorial Drive greets me with the familiarity of an old friend. His hair is thinning, and he's put on some pounds, but after a few seconds I recognize him as Gene Donovan, the very same guard who staffed the post in 1976, the year I began working at Polaroid. I haven't seen him since I left in 1977.

All told, Donovan informs me, he's been with the legendary instant photography company for 33 years, a tenure that has spanned the glory years and the slow, painful demise of a once widely admired, now bankrupt organization. His piercing blue eyes reflect the timeworn acquiescence of a survivor who knows the day of reckoning is not far off.

When the $2 billion Polaroid Corporation filed for Chapter 11 bankruptcy protection in October, the company conceded it had run out of time and cash, buried under nearly $1 billion worth of long-term debt. The plan now, according to CEO Gary T. DiCamillo, is to try to return to profitability and sell off all or parts of Polaroid to the highest bidder. Whatever the future holds, Polaroid's 64-year run as an independent company is over, its iconic brand badly damaged and perhaps beyond repair.

For those who had been part of the company during its heyday in the 1960s and 1970s, the bankruptcy filing, though not unexpected, was stunning nonetheless. The average Polaroid employee — 6,500 remain, down from a peak of nearly 21,000 in 1978 — has been there more than 20 years. Add the tens of thousands more who worked at Polaroid for decades and are now retired, and you have a vast, loyal, and emotionally connected community rarely seen in corporate America today.

Ask any of them what went wrong and almost all will eagerly, if unhappily, offer an opinion. Polaroid remained too insular, they say; the CEOs and the executives who followed legendary founder Edwin Land were shortsighted engineers who made an endless stream of costly bad bets and questionable strategic choices. DiCamillo, the long-awaited new blood who arrived from Black & Decker in 1995, surrounded himself with Polaroid veterans, preventing the injection of new life into the old company. Polaroid missed the shift to digital imaging and couldn't catch up once the digital revolution got rolling. Polaroid couldn't climb out from under the mountain of debt created when it fended off the now infamous Shamrock Holdings takeover bid in 1988. Known for its relentless technological innovation, Polaroid lost its golden touch once Land retired in 1982, after which its labs continued to turn out nifty technology that didn't sell. Polaroid wasted the $925 million payoff in 1991 from a Kodak patent-infringement case, an amount that should have been used to pay down the onerous debt.

The list goes on and on. But one thing is clear: Having established one of the world's most recognizable and admired brands over the course of 40 glorious and profitable years, Polaroid's leaders permitted that brand to devolve into irrelevance. “They allowed one of the 10 greatest brands in the world to go down the drain,” says Peter Wensberg, who served as senior vice president of marketing during the company's glory years. “A priceless asset was wasted.”

What happened to Polaroid may seem frustratingly familiar in this town. The region has witnessed the demise of one company after another, all of which, at their heights, seemed indestructible. Wang Laboratories. Lotus. Prime Computer. Data General. Cullinet. And, biggest of them all: Digital Equipment Corporation. Some have gone out of business; others have been swallowed up by mergers and disappeared inside new organizations. All left legions of shocked and departed employees who believed deeply that they were part of a corporate family — and had good jobs for life.

Though each had its own set of insurmountable problems, all of these Boston-area companies shared the hubris to believe that their technical smarts would keep the world beating a path to their doorsteps. All fell victim to their leaders' inability to keep up when that world inevitably changed around them.

One former Polaroid marketing manager who went there after leaving Digital was astounded at the similarities. “When I first got (to Polaroid), it felt like the same company,” he says. “The corporate language was even the same. They showed a video from the CEO telling us the European economy and the exchange rates were killing us, but new products were just around the corner. I leaned over to the guy next to me and said: 'I've seen this movie. It ends really poorly.'”

I didn't work for Polaroid for very long. I joined the staff of the company's internal newsletter in the fall of 1976, just before Jimmy Carter got elected president, and stayed long enough to help organize the star-studded bash held a year later in New York's Plaza Hotel to mark the 30th anniversary of instant photography.

Headquarters in those days was the Tech Square campus in Kendall Square near MIT. Long before the 1990s high-tech boom attracted dotcommers and a sea of office buildings, restaurants, hotels, and movie theaters, Kendall Square was Polaroid's domain, an oasis of pioneering research and marketing genius in an otherwise barren, undeveloped urban tract.

A steady stream of world-renowned photographers, movie stars, advertising giants, and technology wizards passed by Gene Donovan's lobby desk back then. It wasn't unusual to spot the likes of Candice Bergen, James Garner, Ansel Adams, or Alfred Eisenstaedt on their way to the executive offices on the top floor. This was Polaroid's renaissance, the days of hope and glory spun from the vision of its president, founder, and guiding genius, Edwin Land. While still a Harvard freshman, Land had invented a new way to polarize light; when he was a senior, he had quit school to co-found a lab where he applied his principle to photographic filters, optical devices, motion picture processes, and, in 1947, the world's first instant camera.

Land was a mythic figure — handsome, graceful, and elegant. I met him only a few times but always had an urge to bow my head. After all, the man had single-handedly invented an entire industry — instant photography — and the innovations poured out of his mind and the company's R & D labs like water from a fire hose. He owned more patents (533) than any American inventor except Thomas Edison. The prevailing feeling then was simple and powerful: Anything was possible. Under Land's watch, Polaroid became one of the ten most recognizable brands in the world. All you had to do was turn on your TV and you'd see commercials featuring the likes of Sir Laurence Olivier touting the company's remarkable SX-70 camera.

The synergy was awesome and palpable. Land's crack engineers would build and the company's marketing magicians — led by the dashing Wensberg and the legendary Madison Avenue ad agency Doyle Dane Bernbach — would turn their products into bestsellers. It was a potent mixture: talented, young engineers and scientists — many from just across the street at MIT — along with some of the best and brightest marketers in the business.

Despite his elitist attitude about the technology itself, Land was intent on bringing his inventions to a mass audience. The inexpensive, fixed-focus OneStep Land camera, for example, was launched in 1977 with a television and print campaign produced by Doyle Dane and featuring James Garner and Mariette Hartley. The commercials so charmed the American public that the OneStep became the best-selling camera in the United States — instant or conventional.

Beneath the showy and successful exterior pulsed a unique organization built on Land's belief that a company could become far more than a collection of employees, products, and earnings statements. Under his paternalistic hand, Polaroid became a corporate family, routinely named one of the best places in the world to work. Land rejected conventional wisdom regarding compensation and benefits. Even in the parking lot, spaces were allocated not by rank but by seniority.

In 1970, in response to a bid by the United Rubber Workers union to organize Polaroid workers, Land sent a photocopied handwritten note to all 10,000 employees. “This is no ordinary company that we have built together,” he wrote. “It is the proud pioneer that set out to teach the world how people should work together. Polaroid is on its way to lead the world — perhaps even to save it — by this interplay between science, technology, and real people. I have waited many years for this next great step in our growth toward the perfect scientific-human company. I cannot imagine that many of you could turn away now.”

And not many did. Most Polaroid employees joined up for life. For many who stayed on even as the magic petered out, there was a stubborn belief that the good old days might return. This futile determination only added to their deep eventual disappointment. As it turned out, Polaroid could not save the world: The company couldn't even save itself.

Polaroid's problems had begun even during the heady days under Land, and worsened after. By the time the company filed for Chapter 11 bankruptcy protection on October 12, its stock was selling for 28 cents, down from nearly $50 a share in early 1998. It listed $1.8 billion in assets and $950 million in debts.

The spotlight quickly fell on DiCamillo, who had been brought in to save Polaroid only to preside over its humiliating fall. Some who follow the company think DiCamillo flubbed an opportunity to turn the company around; others, that he was dealt an unwinnable hand.

While he wrestles with the Chapter 11 proceedings, DiCamillo himself isn't talking. But Skip Colcord, senior manager for corporate communications, points out that the company made money under DiCamillo in both 1999 and 2000, mostly on the unexpected success of the i-Zone instant pocket camera that became an overnight hit among teenagers. But Polaroid's insurmountable debt, coupled with the economic slide that began in 2000 and intensified after September 11, proved the company's undoing.

Prior to 1988, Polaroid's debt was $225 million. That figure soared to $830 million after the company borrowed heavily to fight off the 1988 takeover bid by Roy Disney/Shamrock Holdings. His critics point out that under DiCamillo, the debt actually rose even higher, to $935 million — a dramatic increase Colcord blames on the collapse of Polaroid's once-lucrative market in Russia, along with the domestic economic slide.

DiCamillo restructured, laid off thousands, pushed for new, cheaper products, and jumped on any good news as a sign of a turnaround that never came — much like Robert Palmer, the engineer who succeeded legendary founder Ken Olsen at Maynard-based Digital Equipment. Olsen, like Land, had built a dynamic organization. Digital attracted the best and the brightest in the computer field for decades. The company, like Land's Polaroid, was fashioned in its founder's image and renowned for its devotion to its employees and its open, entrepreneurial environment. Having created a hugely profitable new market — minicomputers — Olsen was blindsided by the advent of the personal computer and a rapidly shifting marketplace. His own board forced Land out in 1982, and Olsen endured the same fate a decade later.

Olsen's successor, Robert Palmer, was touted, like DiCamillo, as the right guy at the right time to spearhead a turnaround. By then, Digital was a cauldron of hope and desperation. But there was no light at the end of the tunnel and, in 1998, Palmer sold Digital for a paltry $9 billion to Compaq. An era was over. Swallowed up and eventually reduced to incidental pieces, Digital, as an entity, ceased to be.

Digital may have been headed too far in the wrong direction under Olsen for Palmer to turn things around. DiCamillo was also handed a difficult assignment. But there are those who think he could have saved Polaroid.

“DiCamillo didn't move fast enough to adjust his cost structure,” says Ulysses Yannas, an analyst who has tracked Polaroid since 1967. Under DiCamil-lo's predecessor, I. MacAllister Booth, he says, a huge bureaucracy was built, particularly in sales, and the balance between the engineers and marketers was shifted toward the engineers.

In 1991, Polaroid won a $925 million settlement from Kodak in a patent-infringement case, and Booth invested $300 million of it to build a plant in New Bedford that would make dry film for a new medical x-ray business. He poured another $300 million into research and development to support that business, which ultimately failed. He earmarked yet another $300 million to build the Captiva, a new instant camera with a smaller format film than the SX-70. Though market research showed that the camera wouldn't sell if priced above $60, Polaroid stuck a $120 price tag on it. It, too, ultimately failed. “Essentially, the $925 million was pissed away,” says Yannas.

Since 1976, in fact, Polaroid had been losing money selling cameras. The money was in the film. Historically, gross profit on film was more than 60 percent. As long as Polaroid kept the film revenue growing, it would stay profitable. But after the early 1980s, Polaroid started to lose its marketing edge, and it was here that Polaroid's vaunted brand was allowed to erode.

Even if there was a thriving commercial business for Polaroid's instant cameras among the likes of real estate brokers and insurance adjusters, the company lost touch with its consumer audience. Consumer-use rates typically dropped from 5 packs of film the first year after purchasing a camera to 2.5 packs the second, and fewer beyond that. At that rate, Polaroid needed to sell 1.5 million cameras a year to keep film sales steady. But Polaroid's marketers were suddenly no longer able to communicate the fun of instant photography. Their once-captive audience was embracing cheap new 35mm point-and-shoot cameras and one-hour processing.

Yet the company held on tightly to its core technology. An instant picture could be only as big as the camera that created it, so the cameras were bulky and unwieldy. People going on vacation left them gathering dust at home. Also, the picture quality was poor in relation to 35mm 4-by-6 prints, and the only practical way to make duplicates was to shoot the same picture again.

Polaroid allowed its brand to become about a single technology, says Sam Hill, president of Helios Consulting and coauthor of The Infinite Asset: Managing Brands to Build New Value. “Their fundamental premise was under constant attack, first from one-hour photo shops, then digital cameras and camcorders. If they had invested in digital much earlier and maybe offered a line of minicams, they might have saved the brand. People haven't stopped loving instantness.”

But Polaroid's research pipeline had lost its direction after Land retired. His insistence on building and releasing the Polavision instant movie system even as video cameras loomed on the horizon tarnished his previously unassailable reputation for product development. Despite that debacle, no one was ever able to effectively fill the void Land left. At his best, Land knew the difference between good technology and good products. Without him, the R & D group tried to bring new life to the product line but always seemed a day late and many dollars short.

“There was one stubbed toe after another in product development,” says Jeffrey Eaton, who spent more than 25 years in Polaroid's applied technology division. “They kept betting large amounts of money on projects that never went anywhere.”

Successful existing products were left to languish. That OneStep camera, originally offered in 1977, is still on the market, unchanged except for a few cosmetic touches. In fact, the product line today is overloaded with dozens of models and variations of instant cameras and film types that have done little but confuse consumers. “If you don't renew consumer products, they die,” Yannas says.

Polaroid had a brief spike in its fortunes in late 1999 when it unveiled the cheap i-Zone camera. Polaroid engineers dismissed it as a toy, while the marketing staff argued that it would be a hit among teenagers for its postage stamp-sized prints, which could be affixed to binders and assignment books. The marketers prevailed, and three months after it was introduced, the i-Zone was the best-selling camera in America. i-Zone film sales fueled Polaroid's first annual profit ($9 million in 1999) since 1994, and another profitable year in 2000. Unfortunately for Polaroid, the i-Zone suffered the fate of other teen fads: a short shelf life. Unable to sustain interest, the i-Zone did little more than stave off Polaroid's bankruptcy for a few more years.

Ironically, Polaroid is selling more cameras today than ever in its history — more than 13 million in 2000, including 5 million i-Zones. Polaroid also put its name on a line of cheap digital cameras, which became top sellers in mass-market outlets such as Wal-Mart. But film sales have not bulked up enough, and the margins on the digital cameras are so small that profits remain elusive.

Meanwhile, Polaroid's marketing edge has steadily eroded. Wensberg left in 1982 shortly after Land retired. “I knew it wouldn't be the same company without him,” he says. Six months after that, Polaroid split with Doyle Dane, its advertising agency for decades. Under Land's successors, William McCune and then Booth, who were both engineers, key marketing players started heading for the exits. “They essentially let the consumer franchise melt away,” says Wensberg. “We were so much in the mindspace of the American public and had been for so long. That just began to evaporate. The consensus is that the company went into decline because of one-hour photo processing and the rise of digital photography. The real reason is they let a great brand go down the drain.”

Booth, who seems to reap the lion's share of blame for Polaroid's decline, believed the company's monopoly on instant photography would be enough to sustain it. Warnings about the coming digital photography revolution fell on deaf ears.

“People were talking about digital photography for years but no one took it seriously,” says Joan Holmes, a Polaroid graphic designer for 28 years. “If they had, we could have gone arm in arm with it, carrying instant developing into the digital arena. It would have been seamless. But there weren't creative enough minds at the top to figure out how to combine the two.”

DiCamillo was brought in and promised to jump-start the brand and the company. Insiders say his enthusiasm masked a fundamental misunderstanding of what it would take to remake Polaroid. “No one wanted to hear the fact that the film business was declining,” says a former marketing manager. “i-Zone was supposed to be the savior, but no one figured out how much film you could sell before it would settle to the bottom of the kids' backpacks. We had a bunch of 50-year-old white guys sitting in Cambridge trying to figure out what teenage girls around the world would want for next Christmas.”

DiCamillo hoped to turn Polaroid back into a marketing organization and concentrate on products that were cheaper to make. But moderate successes like the i-Zone were simply not enough to outweigh the failures.

Yannas, Wensberg, and others think instant photography could have and should have provided a far greater return for Polaroid, even in the face of digital imaging. More than 60 million conventional and roughly 14 million instant cameras were sold worldwide in 2000 compared to 11 million digital cameras, which remain expensive and require access to a personal computer to view the enlarged results. Yannas estimates that, in the year just ended, about 28 million Polaroid cameras were still in active use, generating film revenues of more than $1.1 billion. “Where is the death of conventional photography?” he asks.

That won't help Polaroid now, of course. Chapter 11 means more cutting, including more layoffs. DiCamillo has made it clear that he intends to sell the company. The main question now is: Who would want it? Canon and Olympus have been mentioned, both companies that might value Polaroid's strong film distribution channels. There also may be a buyer waiting in the wings, like KKR or Berkshire Hathaway, that's interested in buying Polaroid to sell off its remaining assets.

Yannas estimates that even if not a single new instant camera were sold, there will remain a demand for Pola-roid film. He predicts that film sales could generate nearly $475 million by 2005, with profits of $285 million. “The business still has legs,” he says.

More important, despite its woes, Polaroid's brand remains viable if not vital. Now a marketing consultant, Wensberg thinks there's life in instant photography yet. “If you were to walk out on the street with an SX-70 camera today, you'd soon find two or three people looking over your shoulder,” he says. “Seeing a picture developing in the light right in front of your eyes is still an amazing sight.”

For now, the building on Memorial Drive, where Polaroid moved its headquarters after giving up its sleek concrete and glass digs in Kendall Square in 1998, feels like part of a ghost town. There is an emptiness and dearth of energy in a corporate hub that once pulsed with vibrant style and panache.

The hallways are quiet and mostly deserted; fewer than 85 people remain in the four-story building, which is likely to be sold off in short order. I look at Gene Donovan, and he nods in bemused understanding. He's seen the disbelief on visitors' faces often in the past few months. “Whatever happens,” Donovan tells me with a wry smile, “I'll be the last one out the door. I've got the keys.”