October 4, 2013
Nikon and Canon have not had much success in the smaller-sensor interchangeable lens camera market. The EOS-M is now heavily discounted and lackluster sales of the Nikon 1 system led the President of the imaging division to indicate that the company will focus on higher margin DSLRs in the future. Meanwhile, Olympus, Panasonic, Sony, and others are launching well received smaller-sensor (micro four thirds (MFT) and APS-C) mirrorless cameras. Why the difference in outlook for the various firms?
As I argued in my previous posts (Part 1, Part 2), MFT and APS-C mirrorless customers want and need a system in order to maximize the usefulness of their cameras. Olympus, Panasonic, and Sony are racing to deliver full-featured systems with lenses, flash units, and other accessories that complement the cameras. In contrast, Nikon has shown only limited interest in fully developing the Nikon 1 (CX) format system. A few lenses do not make a system. Likewise, Nikon’s interest in its DX customers seems to be waning. The company has not launched a flagship professional-level DX camera in years. The DX lens lineup is also withering on the vine.
Nikon’s DX Legacy
Many people have forgotten how late Nikon was to the full-frame game. For almost 5 years Nikon customers fretted over whether the company would ever launch a full-frame camera. Canon introduced its first full-frame DSLR in 2002. Nikon didn’t introduce it’s first full-frame camera until 2007. During this five year period, Nikon seemed wedded to its DX format. The company introduced some high quality lenses for the system like the 17-55 f/2.8 and the 12-24 f/4. The company even developed a nice 10.5mm fisheye lens for DX. I have all of these lenses and they are great for DX cameras. Even with Nikon’s limited DX lens development in the past few years, the company’s existing products would give it a wide range of lenses for the mirrorless APS-C format if it developed such a camera and adapter. The extensive DX legacy would give Nikon a leg up if it entered the mirrorless DX market.
Admittedly, the DX format doesn’t have a lot to offer in terms of camera and lens size advantage compared to FX. The lenses are still similar in size to FX equivalents. That’s why I think MFT is the sweet spot in size versus performance right now. Nevertheless, DX does give an advantage in sensor performance over MFT. This explains the success of the Sony and Fujifilm mirrorless lines. Nikon’s advantage in the market would have been a solid lens lineup that could be used with a mirrorless camera or a DSLR.
It’s true that Nikon has created adaptors for its CX system, but the size disparity on the systems is just too great for most. Using large Nikon lenses on a Nikon 1 camera can be done, but it seems impractical for most uses. Moreover, if you are going to use such a large lens, why give up the sensor performance improvements of the larger formats? Most of the weight and size advantages come from the lenses, not the camera body. Only long range shots taking advantage of the 2.7x crop factor make the tradeoffs seem reasonable.
Although Nikon was very late to introduce a full-frame (FX) camera, the company now boasts the highest resolution full frame camera (D800) and several great pro FX bodies. The company has even upgraded many of it’s already excellent lenses to handle the increased resolution of modern FX bodies. The problem for consumers that want smaller systems is that Nikon, and Canon for that matter, think that everyone aspires to a full frame DSLR. The company doesn’t seem to see a need to develop full systems in the smaller formats, since anyone that gets serious about photography will obviously (in Nikon’s mind) move to a full-frame system eventually. Once I realized this, I quit waiting for Nikon to release a D400.
The Disruptive Innovation Model in Action
It is actually Nikon’s lack of interest in DX that has opened wide the door for Olympus, Panasonic, and Sony. Imagine if Nikon had introduced a pro-level D400 two years ago and continued to develop high quality DX lenses. If the company had taken that route, Nikon would now be in a position to challenge Sony and Fuji in the DX mirrorless market. Nikon could introduce a DX mirrorless camera that comes with a full featured system from the start. Sure, DX lenses would require adapters for a mirrorless system, but the availability of these high quality lenses would have given Nikon breathing room to develop dedicated DX mirrorless lenses as the system matured.
Nikon now sees little need to invest in high-end DX products. Nikon assumes that most of its serious customers will migrate to full-frame. Unfortunately, what they are likely to discover is that many consumers will migrate to MFT, Sony, and Fujifilm instead. There is a market for full featured mirrorless systems that are smaller and lighter than FX DSLRs and several companies are vying to lead in that arena. Instead of seizing that opportunity, Nikon fears that DX and CX systems will cannibalize its FX sales.
The actions of Nikon and Canon are consistent with the expected behavior of entrenched competitors in a market that is being challenged by a disruptive innovation. Ironically, long-established firms in stable markets fail to meet the challenge of a disruptor by doing two things that are considered “best practice” in most companies: listening to your best customers and pursuing higher margin products. Nikon is listening to its best customers–those professionals and serious amateurs that value the ultimate image quality and other performance attributes. This causes them to miss customers that value a different set of performance attributes (e.g. price, weight, size). DSLRs and DSLR lenses are also higher margin items compared to mirrorless products. Why pursue smaller-sensor mirrorless technology when the margins are in full-frame DSLRs?
The problem with this behavior is it assumes a static technology context. DSLRs currently outperform mirrorless cameras in a variety of ways (noise, autofocus, etc.); nevertheless, the performance gap is shrinking. The number of consumers that find mirrorless performance adequate is likely to increase as the technology improves (see Thom Hogan’s excellent analysis on the state of mirrorless here). Nikon is like the frog in the pot of lukewarm water. The frog is lulled into complacency by the comfortable water, and then becomes unable to move as the water approaches the boiling point.
The view of Nikon and Canon that serious consumers will eventually migrate to FX cameras is a serious miscalculation. Clayton Christensen documents many market leaders that failed to heed the threats posed by disruptive innovations. It appears that Nikon and Canon may be the subjects of a chapter in a future Christensen book.
Note: My use of the term “disruptive innovation” refers to the concepts developed by Clayton Christensen and colleagues. For more about this term, see my post “What is a Disruptive Innovation?”.