June 3, 2013
Last week I explained why I believe a smaller format, probably micro four-thirds (m43), camera is in your future. Today I’ll tell you why that future camera probably won’t have the name Canon or Nikon on the body in 10 years.
Canon and Nikon have used proprietary lens formats for years that impose high switching costs on consumers. Lenses built for one brand of camera will not work with full functionality on other brands; likewise, the camera bodies won’t work well with additional accessories like flashes. Once a consumer invests in a DSLR camera system, the cost to switch brands is significant and very few consumers will make the change. As long as the Canon and Nikon duopoly marches pretty much in lockstep, consumers will maintain brand loyalty even when one brand has a temporary strategic advantage in its lineup. It is cheaper to wait for the other brand to catch up, rather than switch for a fleeting improvement.
When I teach MBA corporate strategy classes I emphasize that switching costs are a significant barrier to entry for new firms in an industry. Established industry players often design products and services with these costs in mind to keep customers loyal (e.g. termination charges for cell phone contracts). Switching costs are a very effective strategic tool…until a disruptive technology emerges.
Significant disruptive platform changes have happened infrequently in the photography industry. Large view cameras dominated the professional market until the emergence of the smaller platforms in the 1920s. Even so, professionals and serious amateurs used cameras like the 4×5 Graflex Speed Graphic for years.
New technology often spurs a flurry of innovation in the old technology. This was true with the Speed Graphic. Graflex introduced the Pacemaker Speed Graphic with multiple improvements to counter the emerging 35mm trend in 1947. Nevertheless, by the 1960s it was clear that the 35mm platform would become the industry standard. (See link to Gustavson’s book, Camera, at the end of this article for more on the history of the camera industry)
When new platforms emerge, this levels the playing field for new entrants. Investments in new systems require significant switching costs regardless of the sunk costs in the old system. This was the case for me with the move to m43. If I was going to move to a smaller format, my investment in Nikon glass was largely irrelevant. Moreover, the mediocre customer service and odd warranty policies of firms like Nikon and Canon mean that customers have little brand loyalty beyond the sunk costs of proprietary equipment.
The Canon and Nikon Reaction to Mirrorless
You might think that Canon and Nikon have all the technology necessary to dominate the smaller sensor mirrorless market. While this might be the case, it’s not likely to happen.
If established players reacted well to disruptive innovations, the world would look very different today. Wal-Mart would be leading electronic commerce instead of Amazon. Kodak would be leading digital imaging. Underwood and IBM would be leading word processing companies. Sony (of Walkman fame) would manufacture the leading mp3 player. Motorola would be leading the smartphone industry. The fact is, incumbent firms don’t tend to respond well to disruptive innovation. The economist Joseph Schumpeter’s description of the creative destruction caused by innovation means that incumbent firms tend to protect their existing turf rather than blow up their long-standing business model.
This willingness to embrace creative destruction has been one of the primary reason’s for Apple’s success over the past decade. Imagine if Steve Jobs had decided to exclude a music player for the iPhone to protect the iPod. Imagine if the iPad’s capabilities were limited by design in order to protect the MacBook. The willingness to risk a current line of products to an unproven new technology is rare in large corporate board rooms.
You can see the protective nature of the response of Canon and Nikon in their current mirrorless offerings. Canon is trying to preserve the value of its lens mount by introducing the EOS-M system. This APS-C offering uses existing lenses, but misses out on the size benefits of smaller systems like m4/3.
Nikon has gone the other way. Nikon has introduced its Nikon 1 Series that uses a smaller format than m43. This camera system has limited lenses and seemingly limited support in the Nikon corporate strategy. Moreover, the lack of a variety of fast lenses for the system makes achieving narrow depth of field difficult. The recent introduction of a 32.5mm f/1.2 lens for the system may mean this is changing, but it’s still early in the Nikon 1 lifecycle. The system does have advantages in autofocus technology over most other mirrorless offerings, so there may be some hope here. Nevertheless, Nikon’s mirrorless system seems to be positioned to not cannibalize from its larger format cousins rather than truly meet a market need.
The emergence of the m43 system and the entry of two “outsider” firms (Panasonic and Olympus) as early leaders fits the expected mold for disruptive technology. Panasonic is a relatively recent serious contender in the camera industry and has significant holdings outside the industry. Olympus is trying to reboot its camera offerings and is really a medical imaging company first and foremost. Recent alliances with Sony are an interesting development for Olympus. The universal lens mount for the m43 format has interesting implications for the proprietary business model designed to impose switching costs on consumers that has been prevalent for decades.
Of the two current industry leaders, Nikon has the most to lose. Nikon is not significantly diversified like Canon or the other industry firms. For Nikon’s long-term survival, it will need to become a leader in the mirrorless space.
If it seems far-fetched that I am predicting the demise of Canon and/or Nikon in the camera industry, consider this. Academic studies tell us that the average current life expectancy for large firms is 10 years and shrinking. You only have to think of a few examples to see how industry leaders can fall from grace quickly: Kodak, Circuit City, Netscape, America Online, Polaroid, Borders Books. Each story is different in details, but the overall trajectory is the same. Ten years from now, it’s very likely that either Canon or Nikon won’t exist as a camera manufacturer. You heard it here first.
The history of the camera industry is captured beautifully in Todd Gustavson’s excellent book, Camera: A History of Photography from Daguerreotype to Digital. Every camera lover should own this book. You can purchase it at Amazon with this link:
The classic text on the concept of creative destruction is at Amazon here:
Clayton Christensen wrote the definitive book on disruptive innovation. Amazon links: