Danit Lidor reports on Forbes.com that Kodak planned on increasing JPEG compression levels in order to save money, resulting in digital photos with lowered quality.
Kodak EasyShare Gallery is an online photo-sharing site storing one billion photographs -- taking up 380 terrabytes of diskpace (according to my quick calcs) -- the equivalent of 380,000 100GB hard drives. Maintaining that many drives gets expensive, not to mention the electricity needed to run and air condition them.
A director of engineering claims she was fired when she revealed plans by Kodak to increase the compression as photos were uploaded by customers. Increased compression = less disk space required = lower costs for Kodak = worse-looking photographs for customers. In the usual spin-fashion, Kodak apparently was going to call it "optimization." She says that Kodak was "going to take advantage of the fact that customers aren't going to understand."
A Kodak spokeshuman confirms this: "We have not compressed images that are stored in the Gallery without our customers' knowledge." Knowledge is one thing; understanding is another. The engineer reports that the EasyShare Gallery's EasyUpload option compresses photos to this day, without alerting customers directly.
It is a global scandal that digital cameras themselves use JPEG, because of the destructive compression algorithm used by the storage format -- known as "lossey compression," because image details are lost. There are lossless compressions available, such as JPEG 2000, PNG, and TIFF, but they all suffer from filesizes larger than JPEG, the compression king.
OTOH, memory is cheap today. I'd argue that lossless compression is more important than high resolution, which camera makers have no difficulty in implementing. TIFF would be an excellent compromise: it uses lossless compression and it is recognized by all software that deals with images -- it lacks all the drawbacks of JPEG and RAW.
Just as MP3 is the good-enough lossey compression for music, JPEG remains good enough for consumer-grade digital photography.