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Legacy systems can kill your business Opinion 

Legacy systems can kill your business

There’s a lot of hand-wringing in the camera business these days. Once again, factory sales and OEM shipments from Asia are indicating another 20-percent or greater decline in camera production for 2015. System cameras – like DSLRs and interchangeable lens cameras – are declining at a slower rate than compacts, which are dropping drastically.

This is part of the natural evolution of the market, as casual snapshooters use their smartphones in lieu of a dedicated compact camera. This is much the same reason why dedicated MP3 players have become more scarce; not because music is less popular. It’s because there are more options to engage in this activity; this is the same with photography.

The curveball, however, is the change happening at the high-end of the market: interchangeable lens cameras. The phrase “DSLR” is an anachronism. All contemporary “SLRs” are digital, so the “D” is unnecessary and the “single-lens reflex” for SLR only makes sense if you remember there was once a camera called a “twin-lens reflex.” The word “reflex”, however, is the core of the problem, since this refers to the mirror action inside a DSLR. There’s a new class of interchangeable lens cameras – sometimes called “mirrorless” or “interchangeable system cameras” (ISC) – that don’t need an internal mirror. They are smaller and produce results comparable to and, if you’re an ISC fan, exceeding the capabilities of a DSLR. They are especially adept at HD video.

And ISCs are causing fits for Canon and Nikon. Let’s look at why.

Most companies can be boiled down to one core competency. Usually, this idea isn’t obvious. For example, Wal-Mart’s core competency isn’t low prices. Wal-Mart sells efficiency. This efficiency is transferred to customer value as low prices. In fact, in the case of Sam’s Club, customers will pay an annual membership fee to access that efficiency.

Kodak’s expertise was taking complex chemical formulations and applying them them at dizzying speeds, in complete darkness, at enormous scale.

Likewise, the expertise of Eastman Kodak was not photography. Kodak’s expertise was taking complex chemical formulations and applying them them at dizzying speeds, in complete darkness, at enormous scale. These processes drove both the film and the photo paper production businesses. For decades, it was an ideal business: Kodak’s production savvy could keep film prices low, while the high capital costs to be in the film-making business prevented an onslaught of competitors. Yes, Kodak had a few worldwide competitors, but Fujifilm, Konica, Agfa, etc., had their own regional strongholds from which to compete.

Once digital photography came into play, Kodak couldn’t afford to pass up the high-margins of the film and paper business to pursue the low-margins of consumer electronics. No matter how many Kodak EasyShare cameras were sold, this paled in comparison to what the photo consumables business yielded. Even a foray into desktop inkjet printing – while yielding impressive margins – failed to produce the volume necessary to offset the decline of film and color paper.

This is not to say the company didn’t have the expertise or the knowledge to engage in digital photography. Kodak was in digital photography earlier and far more deeply than they are given credit for. It’s just the digital photography business is fundamentally different than the chemical photography business.

Ironically, Kodak diversified into pharmaceuticals and graphic arts, to take advantage of the company’s impressive chemical patent portfolio, in the 1990s. This was eventually abandoned, in part, because Wall Street didn’t “get” why a photography company would be selling Bayer aspirin.

Which brings us back to today, and the dilemma faced by the two leading camera brands, Canon and Nikon. Both companies weathered the shift from analog to digital fairly well, because their products used film, but didn’t depend on it. Adapting film SLR bodies to DSLR didn’t require a wholesale reboot of their camera lines; in fact, the companies were able to preserve their investment in lenses by preserving the lens mount.

Lens mount is stifling innovation today

It’s that lens mount, however, that is stifling innovation today. Both Canon and Nikon have mirrorless cameras in their lineup but most casual observers wouldn’t know that. Since both companies had to come up with new lens mount to accommodate the narrower mirrorless body, they both are starting at square one with mirrorless. This is not a trivial thing: Canon has produced 100 million EOS EF lenses for its SLR format bodies since 1987. That’s an enormous R&D and production investment, difficult to talk away from, especially considering there is reasonable demand for its current lenses. (Also, lenses don’t need to be updated as frequently as SLR bodies.) In Nikon’s case, 85 million Nikkor lenses have been produced since the late 1950s.

Canon EOS M mirrorless cameras have received tepid reviews and Nikon’s effort, despite an Ashton Kutcher-fueled marketing campaign, failed to make its Nikon 1 series mirrorless cams a must-have item.

Meanwhile, competitors like Sony, Samsung, Panasonic, Ricoh/Pentax and Olympus– having a smaller share of the DSLR market and therefore less to lose – have dominated the growing market for mirrorless system cameras. Even Fujifilm is carving out a niche at the high end of this market. In Japan, where mirrorless cameras have a much bigger share of the camera market, Sony commands nearly 30 percent share, followed by Olympus and Panasonic. Canon and Nikon have less than 10 percent share. In Korea, Sony is the number one overall camera brand, due to its dominance of the mirrorless segment, followed by Samsung.

Of course, it’s not too late for Canon and Nikon. The market for interchangeable lens cameras will continue to be viable, as these cameras are not likely to be replaced by smartphones. The question is, can an international conglomerate be nimble enough to make the changes necessary to compete effectively in the new market space?

[graphiq id=”aYRRxt7eAa9″ title=”Kodak” width=”500″ height=”810″ url=”https://sw.graphiq.com/w/aYRRxt7eAa9″ frozen=”true”]

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