Eastman Kodak Co, the pioneer in photography who recently filed for Chapter 11 bankruptcy, is selling its online photo service business to Shutterfly. The deal will cost Shutterfly $23.8 million and is a step in the right direction for Kodak. Kodak is trying to slim down and get back to basics. The sales of its patents is said to be a big part of its turnaround, yet it could be the second half of 2012 before that happens.

However, its wealthy lineup of 1,100 patents should be able to get Kodak $1-2 billion which would greatly help the company get out of bankruptcy and get back to a new business model.

Unfortunately, there remains a roadblock which has delayed the selling of its patents. Apple has taken Kodak to court, saying that they have violated patented rights. The hearings are expected to continue on March 8th.

Kodak said that the deal with Shutterfly was a “stalking horse” bid which is essentially a bid that is approved by the courts in an auction that is run by the courts. This gives Kodak less say in the matter because the bankruptcy court essentially has the finally say.

Shutterfly’s share price rose sharply, up 18% after the deal was made public. The company said they will transfer all Kodak Gallery customers to Shutterfly, with the option to opt out of the change if they wish to not have photos changed.

Since Kodak has gotten rid of its online photo service business, in the process of selling its camera business, it is difficult to see what the company will be focusing on. According to the chief marketing officer, Pradeep Jotwani, Kodak will be focusing on its consumer businesses in retail and destination photo, as well as home printing services.

Unfortunately, when you enter bankruptcy, the court makes you sell assets to cover your debt obligations and this case, Kodak has lost many different parts of the business that made them who they were. Kodak was once a pioneer and an innovator in the realm of cameras and photography. Unfortunately, they did not adapt well to competitors’ superior products which has cost them dearly. Kodak will live on but in a very much slim down form that will not be recognizable. However, in business, this is the cycle of life and death. You innovate, become a leader but once your power is challenged and you are unable to respond, your business fails. It is the way of life.