In the 1960s rangefinder cameras, which had been around since 1916, lost their dominance to SLR cameras. In the early 2000s, film cameras lost their dominance to digital cameras. Will we see another sea-change in the camera market with the rise of mirrorless system cameras?
Just five years ago, if you wanted a digital camera you could only choose between having a small digital compact camera, which gave you convenience without much power, or a bulky DSLR, which gave you great power but without much convenience. Four years ago, Panasonic and Olympus launched a new type of digital camera they called the mirrorless interchangeable-lens camera.
Removing the mirror-box found within traditional SLR and DSLR bodies allowed the companies to create smaller-than-DSLR cameras, but with larger sensors than digital compacts. This meant the new kind of camera was more powerful than a compact and more convenient than a DSLR. Just like a DSLR camera, the mirrorless camera’s lenses could also be changed, providing the same level of visual versatility as a DSLR camera.
By the end of 2012, four years after they were first launched, these mirrorless system cameras have taken over 50% of the DSLR market in Japan. In Taiwan the number is even higher at 54%. In Singapore, the numbers vary, but estimates place it at 30 to 40%. Mirrorless system cameras have not caught on as fast in Western countries, estimates place mirrorless at 18% of the US interchangeable-lens camera market, at 20% in the UK and at 11.1% in Europe.
The numbers in Asia are impressive and must signal a resounding success for both Panasonic and Olympus, right? Actually, not as much as you might think, because in the five years since their products launched, nearly every other camera company has jumped into the mirrorless market.
In 2011, Olympus commanded a lion’s 36.6% share of the mirrorless market in Japan, while Panasonic took 29.3%. They had to share the market with Sony though, which took 27.3%. Nikon launched their own mirrorless cameras late in 2011, so expect to see their numbers become more significant this year. The biggest camera company in the world, Canon, just announced their mirrorless camera in July of this year.
In terms of market share, we also haven’t seen Panasonic or Olympus’ numbers jump far ahead of Sony, Nikon or Canon’s. The latest info we could find for worldwide digital camera market shares put Canon at number one, Sony at number two and Nikon at number three in 2010. Unless the numbers have shifted dramatically in the one and a half year since (unlikely), neither of the upstarts has displaced the reigning kings from their thrones with their brand-new products. There's no doubt that mirrorless system cameras have helped create additional sales for Panasonic and Olympus, but if they had a head-start why are they still behind in terms of market share?
Mirrorless system cameras introduced a real technological innovation in the world of cameras; providing a ‘middle way’ camera which sits in-between DSLR and compacts. But if you look at it more closely, the basis of competition on which mirrorless cameras stake their reason for existence are the same as all other cameras; points like bulk, ease of use and image quality. Removing the mirror-box from existing cameras is also not an impossible task; companies like Samsung, Fujifilm, Sony, Nikon and Canon have all created their own mirrorless cameras in a few short years since Panasonic and Olympus.
As Horace Dediu explains in this presentation, you can call this symmetrical competition; mirrorless system cameras are charging head-to-head against its competitors - digital compact and DSLR cameras - on common points. There has been no asymmetrical point of differentiation which is not a feature of non-mirrorless competitors and which cannot be easily copied. This is the reason why this writer believes there has been no market-wide disruption of the kind that propels an upstart entry like Panasonic and Olympus to the top ranks, unsettling the previous incumbents like Canon or Nikon.
In other words, for mirrorless (or any new kind of camera) to sweep the market and cause a massive market disruption, one big enough to take a non-leading player and make them number one, you need a product which does not look like anything that came before. Of course, such a product - by its very definition - is nearly impossible to imagine.
Nearly impossible to imagine, but not completely. For the purpose of our argument, we can play a little thought experiment. Apple Inc., currently the most valuable company on the planet, can conceivably buy any company it wants with its immense treasure chest. Let’s imagine it buys a company which has both experience in lenses, image sensors and engines, as well as compact cameras and mobile phones - imagine Apple buys the camera arm of Panasonic (and along with it, the current partnership with Leica).
Now imagine Apple, with the help of its design maestro Jonathan Ive, marries an iPod touch with a compact camera sensor and a lens with optical zoom. With the supply chain mastery of CEO Tim Cook, Apple manages to sell this iCamera at the same prices as the iPod touch, 8GB at US$199, 32GB at US$299 and 64GB at US$399.
We can call this imaginary product the iCamera, a digital compact camera, with a proper camera sensor and lens, coupled with the power of iOS, Wi-Fi and the access to more than half a million apps on the App Store. And with iCloud, once you take a picture, it’s automagically pushed to all your iDevices.
(One can argue that Apple has already created such a iCamera with the iPhone, but for the sake of argument let’s continue with this fantasy.)
The point of this thought experiment is not to ask if Apple should go into the camera business, but to wonder if the power of an iCamera with a networked operating system and a catalog of iOS apps could cause enough of a market disruption to take Apple from zero in the camera business to the top three of the market, knocking at least one Japanese camera maker off its throne?
If it sounds possible to you, then here we have an idea of what could be possible with asymmetrical competition - in this case, Apple has provided a mobile operating system with an ecology of apps which cannot be easily copied or competed against by its competitors.
And it gives us to an idea for a possible asymmetrical point of differentiation in the camera market: Provide a mobile computing OS and ecology of apps which elevates our current dumb cameras into smart ones. This is an example of a powerful je ne sais quoi which is lacking in any of the current mirrorless system cameras when placed against competing categories like compact and DSLR cameras.
Now you might be wondering if Nikon and Samsung have already beaten an imaginary iCamera to the punch - both have recently announced compact cameras powered by Android. It is an exceedingly bold move by the Japanese company; to essentially admit defeat in creating a viable mobile OS, and an obvious move by the Korean giant which already makes both cameras and Android smartphones.
But it is at best a stopgap measure, there is an inherent danger in ceding your hardware to someone else’s software, essentially just becoming a hardware vendor. The most obvious of which is how Nikon’s Android 2.3 compact camera, the first on the market, was upstaged barely one week later by Samsung’s announcement of an Android 4.0 compact camera. The point of differentiation, in this case Android, is easily copied by any competitor, making it a moot point, and we are back to symmetrical competition - competing on the same propositions.
If we follow the PC platform war between Apple and Microsoft, we can also see how ceding your software stack can have adverse effects on your business. While hardware vendors piggybacked on Microsoft Windows to great success in the early days of the desktop PC revolution, the saturation of the PC market, and a common symmetrical feature in the form of Windows, later forced PC manufacturers to compete on differentiators like price - essentially a race to the bottom.
We see this played out in the case of Dell and HP, since the launch of the iPhone, HP’s and Dell’s market value have both plunged by 60 percent. In contrast IBM, which transitioned to enterprise hardware and software in the 90s and sold off its PC business to Lenovo in 2005, is doing much better. Sales topped US$100 billion in 2011, and it was ranked number nine in Forbes’ most profitable companies of 2011.
Unlike Dell and HP, the ability to integrate hardware, software and ecology has given Apple an asymmetrical advantage - iOS, OS X and the App Store are not available on other devices except Apple’s. Because of this advantage, Apple has been free to charge what it wants, which has lead to the phenomenal fact that while Apple doesn’t always lead in market share, it leads in profits made. Android smartphone makers, however, struggle to differentiate their products. According to Dediu, in 2011 Samsung, which has a 30% share of the smartphone market reaped 26% of the profits, while HTC took a mere 1% of profits. Others like LG, Motorola and Sony all reported losses.
So we can see that while adopting Android seems like a good idea, it is essentially a short-term solution which doesn't fix a long-term problem.
American computer scientist Alan Kay once said; “People who are really serious about software should make their own hardware.” We can also observe the opposite to be true; that “People who are really serious about hardware should make their own software.”
If we think that creating a mobile camera OS is a possible point of asymmetrical competition, we must also see that instead of ceding your software stack to a third-party, the ideal is to create your own software and hardware. We see that to be true today in the PC business, in the mobile phone business and we can expect it to be true in the camera business. But is anyone up to the challenge?
To answer that question, you first need to answer this question first: Why bother? The big three camera companies, Canon, Nikon and Sony, need only continue sustaining their innovations to remain at the top. So expect to see more of the same; more megapixels, smaller cameras, touch-screens and Wi-Fi (certainly not bad things for consumers).
The only companies which might be interested in disrupting the status quo are the companies which fall outside of the big three, namely Panasonic, Olympus, Fujifilm, Pentax, Ricoh. Unfortunately, while they might have the drive - Panasonic and Olympus drove the mirrorless system revolution after all - they don’t enjoy the immense resources that the larger companies command and might not have any left to devote to risky projects.
The very idea of creating a new ecology of software and apps is not just risky, but also a Herculean climb uphill. The old cliche is that while Japanese companies are good at hardware, they’re traditionally bad at software (not too hard to believe at times, if you experience the UI on some cameras). Stereotypes aside, the fact of the matter is that while the digital camera market belongs to Japanese companies, most UI and software disruption today is coming out of America.
If the Japanese can become as good as Silicon Valley at creating user-friendly software, they still have to face the tough challenge of establishing an eco-system beachhead. Just ask Microsoft, which has created a world-class mobile OS with Windows Phone and world-class hardware with partner Nokia, but still lags behind Android and iOS in terms of market share.
Promising disruptive technologies can also be endangered by any number of factors; just look at webOS. Palm’s mobile OS predated the release of Android and could have become a major force, but one of its many mistakes was a failure to distribute, launching a CMDA-only phone with Sprint, a small US carrier.
While the concept of iOS or Android sounds obvious in hindsight, the original launch of the iPhone was not without risk - cue the many dubious voices slamming the iPhone before its launch (there were many more doubtful voices at the iPad’s announcement). Yet the potential success of a market disruptor can be decisive, we only have to look at Apple’s successful launch of two market disruptors to see the rewards which can be reaped. Pre-iPhone, Apple’s market cap in 2006 was US$60.56 billion, post-iPhone and iPad Apple’s latest market cap is currently US$665 billion.
The second, more obvious answer to the question “why bother?” is simply so that no company gets unpleasantly disrupted by a competitor out of the blue (but we can argue that an asymmetrical disruption to the camera market has already occurred with smartphones eating into the compact camera business).
But with the huge amount of work, uncertainty and entrenchment involved, it’s unlikely that we’ll see our digital cameras transform as our mobile phones have transformed, from dumb phones to smart phones, from dumb cameras to smart cameras. While we shall certainly see more Wi-Fi capable cameras (which is a good thing) and Android-powered cameras (which might not be a good thing, see the Nikon Android camera’s short 140-shots battery life), we probably won’t see the evolution of a truly smart, next-generation disruptive camera any time soon.
I like coffee and cameras, but not together.