Kodak's Strategy
For First Printer --
Cheaper Cartridges

"This is going to change the industry," predicts Kodak's Philip J. Faraci, head of its digital imaging consumer group. Mr. Faraci, who was once senior vice president for inkjet systems at H-P, says: "For people who print a lot, we're offering a really great solution." Mr. Faraci says Kodak expects the lower price ink to be especially appealing to the top 20% of people who print at home and buy more than the average customer's 4.6 cartridges per year.

The Kodak EasyShare 5500, a $300 high-end model that prints, scans, copies and faxes

Not everyone is convinced that Kodak's move will have much impact on the broad market. Ron Glaz, an analyst with market researcher IDC in Framingham, Mass., says Kodak will be successful in the niche of "people who want to print a lot of photos," because the company's name is associated with photography, but it is only in that segment that it will "put a lot of pressure on H-P and Epson."

Karl Schwenkmeyer, vice president of marketing, inkjet systems at H-P, predicts that consumers will stay with H-P. While ink price is an issue, he says, other factors such as ease of use and speed of printing are also important to buyers. He says that H-P's market share grew to 47% in last year's third quarter and that its ability to continue to spend more than $1 billion a year on printer research and development is resulting in continuous improvement in inkjet printers. He says that while photo printing is an important segment of the market, close to 90% of pages printed are other types of documents.

Lexmark declined to comment.

Kodak's Mr. Faraci says that while the company expects photo printing to be a key motivator for people to buy its printers, it designed the devices for general-purpose home and small-office printing. The devices can print and copy up to 32 pages a minute in black and white and 22 in color, and the high-end model includes a fax machine. He says Kodak's core market is families where both parents and children are using computers. Kodak says its research shows that over 70% of all families restrict their children's printing because of the cost of ink.

Mr. Faraci says that 10 years ago most consumers didn't think about the cost of ink, and looked primarily at the cost of a printer when purchasing. But today, Kodak's research shows that lower-price print cartridges are the single most cited feature that consumers are looking for.

"If we're wildly successful, we might get 1% of the market over the course of the year," Mr. Faraci predicts. He says his goal is to have Kodak printers producing 10% of the inkjet pages printed in 2010.

Kodak expects to start selling the new printers in March through electronics retail chain Best Buy Co., in an exclusive retailing deal that lasts three months.

Success of the inkjet printers is crucial to Kodak's future as film photography fades away. Kodak has undertaken a wrenching restructuring over the past three years, taking billions of dollars in losses and laying off nearly 30,000 people as it cut costs in the face of plunging revenue from film and photo-finishing. Its digital cameras are among the top three best sellers in the U.S., but they are consumer-electronics items with low profit margins and tough competition.

Kodak Chief Executive Antonio Perez, who headed H-P's inkjet-printer business as an executive there in the 1990s, proclaimed two years ago that Kodak would enter the inkjet market, the main medium for consumer printing of digital photos. If the inkjet printers prove popular, they could provide the kind of high-margin, recurring revenue that film used to give Kodak.

Kodak's printers incorporate innovative nanotechnology in the ink and print heads, squirting droplets that are only a few atoms in size from tiny nozzles. One benefit to Kodak of having such small nozzles on the print heads is that consumers may be reluctant to refill the cartridges with ink from other providers, for fear of clogging the holes.

Unlike most rivals, Kodak uses pigments rather than dyes in its ink, which makes prints more resistant to fading. Kodak was able to hold down the cost of its cartridges by keeping all of the electronics in the printer, unlike rivals who include some electronics in the cartridges.

Write to William M. Bulkeley at bill.bulkeley@wsj.com¹