Starting with Kodak: Is the Future of Tobacco Giants in Vaping? (Text and Images)

In 1888, George Eastman launched the Kodak camera. This revolutionary innovation laid the foundation for the rise of the Kodak empire, which once had sales exceeding $10 billion and employed tens of thousands worldwide. One of its employees, engineer Stephen Sasson, invented the first digital camera in 1975. This invention brought misfortune to Kodak. Due to decades of advancement, people became accustomed to storing images in bits rather than on film. However, the corporate giant Kodak was slow to react and eventually filed for bankruptcy protection in 2012.

The tobacco and photography industries are entirely different, but a fundamental truth applicable to all markets is that companies unable to predict the future will remain stuck in the past. The invention and rise of e-cigarettes have not gone unnoticed by the tobacco giants responsible for nicotine consumption. Class-action lawsuits and changing cultural norms have torn apart the dignity of tobacco giants, with their once-frequent advertisements disappearing from fashion magazines, and their new customer sources being cut off. However, e-cigarettes have been rapidly accepted, providing big tobacco companies with an opportunity for revival or permanent extinction. Regardless, tobacco companies have taken steps in recent years to leverage e-cigarettes to mitigate their traditional businesses.

How can tobacco companies ride the vapor cloud into the future? One method is to acquire popular e-cigarette companies. In 2012, Lorillard Tobacco Company acquired blu eCigs for $135 million (which later became a brand under Imperial Brands due to various mergers). Two years later, the e-cigarette industry was shaken again by another acquisition, as Altria Group's subsidiary Nu Mark swallowed Green Smoke for $110 million. The logic behind this is not hard to grasp: by acquiring existing e-cigarette brands, big tobacco companies can secure their foothold in the future market while eliminating potential competitors.

“Incorporating Green Smoke's significant expertise and experience, along with its supply chain, product line, and customer service, will enhance Nu Mark's capabilities and strengthen its competitive position,” said Altria Group's Chairman and CEO Marty Barrington at a press conference.

Of course, companies that have spent decades developing new products to capture larger market shares will not be satisfied with letting others innovate for them. Many tobacco companies have developed their own e-cigarettes, such as Altria Group's MarkTen. The design of MarkTen blatantly mimics the appearance of traditional cigarettes, and MarkTen has joined Reynolds' own e-cigarette brand VUSE to win brand loyalty from a wide customer base.

However, some analysts believe that despite the significant investment in developing new e-cigarettes, tobacco groups are losing this war. According to a 2014 analysis by Wells Fargo, “The decline in e-cigarette sales reflects a shift towards vaporizer types, which are often sold through non-tracked channels (especially e-cigarette shops).” Compared to typical e-cigarettes, vaporizers are more personalized and open, posing a potential threat to tobacco companies, as those who embrace e-cigarettes tend to avoid mass-produced e-cigarettes.

But tobacco companies are not powerless; one method they employ is to give the market's invisible hand a little push, promoting the establishment of regulations for vaporizers and e-cigarette products. According to a 2015 Reuters special report, tobacco giants like Reynolds and Altria Group have applied to the FDA to provide many different products to small e-cigarette shops as manufacturers, initiating a storm of scrutiny and regulation that will be difficult for small e-cigarette shops to survive.

“I believe what this industry hopes to see is... the tobacco industry operating more like the pharmaceutical industry,” said Stephen Parrish, a retired executive from Altria Group, in a special report. “Very strict regulations may not be liked or admired, but at least they should be legally operated.” Whether through lobbyists arguing for new regulations or engineers developing innovative e-cigarette products, big tobacco companies cannot be bypassed; they know nicotine consumption is on the brink of reform. But the question is, will they hinder it or embrace it?