I recently attended a talk on Innovation at the annual Hay On Wye literary festival. A strange place for an innovation talk you might think, and to a certain extent you’re right. It wasn’t quite what I expected, and certainly light on content. It was, however, interesting to hear what the US ambassador to the UK thought about innovation as well as his role in explaining the US’s position to UK citizens.

At one point, the interviewer, Alec Ross, raised an interesting point about innovation but managed to draw completely the wrong conclusion. He compared Eastman Kodak to Instagram and highlighted how in the internet age, 13 people could generate a company that get’s sold for $1bn, whereas Kodak, which in its heyday employed 140,000 people, basically went bankrupt. The point he attempted to make was that internet companies could create significant innovation and value and that ‘old style’ were both less innovative and, ultimately, less successful.

I wanted to explore this example as I think it tells us something quite important about innovation, about innovation ecosystems, the role of anchor companies and how smart cities need to build rich innovation ecosystems if they are to exploit technology to grow their economies and improve the lives of their inhabitants.

The Instagram/Kodak comparison is interesting. At a first glance, there’s something seductive about 13 people creating and selling a $1b company that could lead us to consider Instagram a success and Kodak a failure – but that would be completely the wrong conclusion.

The problem comes from viewing a company simply through the lens of its market valuation – economics teaches us this is a poor yardstick for success and has little to do with the actual economic value of the company – especially in the case of ‘internet companies’.

While Instagram did generate $1bn when sold, its total actual economic value stops there – Eastman Kodak, on the other hand, grew from a handful of people in the 1890s to a workforce of 140,000 in the mid 20th century.  That means, in its heyday, that the annual wealth it delivered through salaries alone was significantly higher that Instagram’s total worth. Seen over the span of Kodak’s 100 years in business, its economic value creation dwarfs Instagram.

What’s perhaps more important from the point of view of this blog is that Kodak was a deep technology company that created significant innovation during its lifetime, ranging from the original roll film, through the Kodachrome process, the instamatic camera, to some of the groundbreaking work on OLEDs and Dye Lasers – all of which generated revenue and helped other companies generate revenue. There’s no easy way to value these types of innovation, but however you measure them, they far exceed even a rose tinted view of Instagram’s innovation.

Finally, and to the crux of this blog, Eastman Kodak acted not only as an innovator of its products, but an innovation engine in the cities where it had significant presence and most especially in Rochester. A plethora of companies had, and still have their roots in Kodak and its employees. These include the medical imaging firm Carestream Health Inc., medical diagnosis technology company Ortho-Clinical Diagnostics, satellite imaging company ITT Exelis Inc., optics maker Rochester Precision Optics, imaging sensor company Truesense Imaging Inc and medical imaging company Logical Images.

Additionally, a number of companies benefited from the training and expertise of Kodak employees as they moved from Kodak to other companies – a good example is organic light-emitting diode firm OLEDWorks LLC.

Companies such as these today employ thousands of people and are part of the rich and thriving ecosystem that Kodak helped create in the Rochester area and far beyond.  It is this aspect of innovation that makes the comparison between Kodak and Instagram so interesting. Not because of Instagram, which at first blush seems so impressive, but in actual fact was a poor example of sustained innovation, but because of Kodak. The comparison shows the power of a long-lived, technology-driven company, to help foster and grow an innovation ecosystem and generate long term economic value and growth. It is the Kodaks of the world that are the real innovation engines, not the Instagrams, and it is the Kodaks of the world that Smart Cities should do all in their power to attract, sustain and grow – because they are essential players in a thriving ecosystem.