How do you explain one of the slowest and most agonizing declines in corporate America?

Over the last decade, arguably longer, Polaroid Corp. has resembled the development of an instant photograph in reverse, slowly but persistently fading away to nothing. Once an icon of corporate America, the Cambridge company had withered to micro-cap stock status long before its shares began trading for a fraction of the price of a cup of coffee.

Here are a few numbers that will show you what we mean: Polaroid's third-quarter revenue over the last several years. In 1995, Polaroid collected $580 million during that three-month period ending in September. The company's third-quarter revenue declined to $569 million the next year and $516 million the year after that. By last year it had sunk to $458 million. The number for this year's third quarter has not yet been announced, but it's surely much lower.

People close to Polaroid look back on those years and argue over many of the details and individual decisions made by the company's managers. But there's no getting around the core problem: Polaroid was a small company operating in a market under attack from other technologies, and it needed to find new ways to make money.

Today, it's just as certain that Polaroid's strategy to deal with its problems was a bust.

The company's decline might have appeared more precipitous in the mid-1990s, but Polaroid caught a few fleeting breaks along the way. Polaroid's instant photos became all the rage in post-Communist Russia, and sales there zoomed from next to nothing to $196 million in 1995. But the business disappeared just as quickly. Polaroid sales were also puffed up by very low-margin specialty products, such as videotape and 35-millimeter wares sold to Wal-Mart Stores Inc. to appease its single-largest customer.

Meanwhile, one-hour photo development shops and digital imaging were threatening the core business of instant photography. Though pressure was slowly increasing on Polaroid's instant mass market, the customer who buys a camera to shoot pictures at a birthday party or high school graduation doesn't change his or her habits very quickly.

But other people did. They were the customers who used standard instant cameras on the job, people like real estate agents and insurance adjusters. A big customer like State Farm Insurance cut its multimillion-unit annual purchase of film packs by more than half within a few years in the mid-1990s.

Those customers were especially important because Polaroid's real profit was not in its cameras but in its film. A casual customer who buys a Polaroid camera might use five packs of instant film over the first year, and perhaps two or three the next year. But the real estate agent might have used 15 or 25 packets in the first year, and almost the same amount next year. Those customers who used photography on the job were hugely profitable to Polaroid - and they were moving to the world of digital imaging.

The erosion of Polaroid's technical and business stronghold was impossible to miss. But what to do about it?

Polaroid moved into new commercial markets, spending heavily to develop products for graphic imaging and medical imaging. Considered by many to be very good technical products, they sold poorly. In the case of medical imaging, Polaroid ran headlong into the push to contain health-care expenses in the later 1990s.

Polaroid's board was well aware the franchise had problems when it hired Gary T. DiCamillo as chief executive in the fall of 1995, and so was he. After a few months on the job, the former number two man at Black &Decker told Boston Capital he planned to roll out lots of new products that didn't cost a fortune to develop, contrary to Polaroid's track record.

DiCamillo's plan to transform a technology company into a marketing business didn't work out the way he planned. A few new products turned out to be hits, most notably Polaroid's I-Zone cameras. But many others didn't and the company often found it difficult to meet drastically accelerated product development cycles.

At some point, it became clear that the rapid-fire consumer product strategy had to be a bridge to the digital future. At first Polaroid began rolling out low-end cameras, printers, and other products that were more an extension of the high-volume product model and less of a real commitment to digital imaging.

That appeared to change in May when Polaroid announced two promising products to print digital images, one in black and white and the other in color. But the new products were still a year away and, financially speaking, Polaroid was nearing the end of its rope. Debt continued to pile up and Polaroid was eventually unable to meet the tab. Once the company missed its payments, the trip downhill became faster and bumpier.

Some critics complain that Polaroid never had its costs in line with the declining size of its business. But DiCamillo cut deep as soon as he arrived in Cambridge, slashing 1,600 jobs and continuing to eliminate more over time.

Others beef about the company's product strategy: Polaroid should have found a way to build its commercial imaging businesses, or to spin off digital business into a separate company, or who knows what else.

There is much less debate about the future. Polaroid does not have the money or the products to be a meaningful corporate player any longer and the odds of remaining independent beyond the immediate future are remote. Look for the potential buyers to surface once Polaroid makes its way to the protection of the US Bankruptcy Court, when buyers may be able to acquire the icon of another era for cents on the dollar.

Steven Syre (617-929-2918) and Charles Stein (617-929-2922) can be reached by e-mail at boscap@globe.com.

SIDEBAR: DEVELOPING PROBLEMS A HEAVY LOAD OF DEBT HELPED DRIVE THE MARKET VALUE OF POLAROID DOWN FORM MORE THAN $2 BILLION IN 1995 TO JUST $13.4 MILLION TODAY.

STEVEN SYRE &CHARLES STEIN / BOSTON CAPITAL

Boston Globe Newspaper

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