Lots of directions, little clarity
Now that the Photokina announcements have all been made, in theory we're supposed to have a better idea of what the near future holds for photography. In reality, things are much less clear than the normally are.
Before I get to commentary on the Photokina announcements themselves, I need to point out several things driving the photography market that are lurking in the background:
- The compact camera market has collapsed. This started in early Spring in the Japanese market (with a slight recovery now), but has apparently spread through most of the developed world. Simply put: everyone is selling fewer compacts than they expected, and multiple reports of an actual slippage in unit numbers have emerged in several places. Even the CIPA numbers (shipments from factories into distribution) show some big shifts (May had 9.6m units, July had 7.7m units). Dollar values have dropped significantly, too. Some of this drop is cyclical, but the drop appears larger than usual and it has the camera makers buzzing. There simply isn't any growth in compact sales now, which means any change in market share has to come at the expense/benefit of someone else.
- The dollar/yen relationship isn't clear. The Japanese companies all do their planning with assumed dollar/yen and euro/yen relationships in mind. The economic uncertainty and gyrating price of oil lately has made these relationships less clear than they usually are. Such monetary gyrations amplify any change in unit volume or average sales price.
- The economy is iffy everywhere. The US problems that started in the housing market are really a massive liquidity, value, and credit crisis, and this has now soured large portions of the US economy. I've talked with multiple camera dealers who say the same thing: discretionary purchasing is visibly down. As much as the rest of the world would like to think that a recession in the US doesn't effect them as much any more because there's something called a "global economy" now, the truth is that a real recession in the US will spill over into every economy.
- Household penetration is high. Even DSLRs are nearing their historical (film SLR) levels of household penetration. Pick a number. Say you think 66% of households will end up with a DSLR. To sell more DSLRs than that, you essentially have to convince those 66% to replace their current DSLR or find a compelling reason why more households should own one or current households should own more than one. We went through a similar plateau and eventual drop with film SLRs in the 1990's.
Those four things, taken together, mean that the camera makers are seriously wondering where to put their investments in products. You have essentially three choices:
- Weather the storm. Don't get too tricky with strategy and tactics. Find places to cut costs, scale back R&D a bit, slow product cycles a bit, tighten your lineup instead of increasing available models, be more efficient at sales and marketing. The goal is to hold market share until the storm has passed. I personally am not a fan of this strategy. Re-energizing a stalled lineup isn't as easy as it sounds, especially if your competitors haven't been idle.
- Go Darwinian on the weakest competitors. If you've got deep pockets, use pricing and features to push the weakest competitors completely out of the market. Lower your prices, shorten your product cycles, add new features, increase your advertising. The goal is to build market share and force some competitors out of the market so that when the storm is over, you're on top. If you've got the capital and patience, this is the preferred strategy.
- Find another port. Look for new product categories and niches you can exploit before the others realize they exist. Hope that these are big enough to once again give you growth and that the competition is low enough that you can restore product margin. For the smaller or more impatient, this is the correct strategy. However, the trick is to find a port that's defensible. If you pick one that others rush into, the best you get is a head start on building share in that new market.
In the context of the above, Photokina 2008 should be more clear. We've got some companies hunkering down, a couple trying to beat on the competition, many looking for another place to put their efforts. Let's take them one by one (strategy number they're following is in parenthesis after their name):
- Panasonic (3). Looking for that new hit (according to their presentation, a market of exactly 23m units that doesn't exist today). While they've done well in compacts, they haven't gotten traction in the DSLR market. The G1 and micro 4/3 seem to be their choice for a way forward, as it's essentially a bridge between the two (the compactness of compacts, the quality of DSLRs). What looks wrong to me is the proposed pricing. With excellent camera/lens DSLRs that are reasonably small already in the US$499 range, just making a smaller version doesn't justify a large price bump (though to be fair, Panasonic says they haven't completely locked in a price yet). I'm of mixed emotions on this one. The EVF (electronic viewfinder) actually seems to be the big news here, not the micro 4/3 or smaller size. That's because smaller sizes are going to be coming from everyone by the end of next year, I think. There's nothing to stop a micro APS or even micro FX effort. Still, the G1 looks like it will have a six month head start and the EVF looks very good and perhaps unique. Too bad Panasonic chose to launch with mediocre lens specifications, though, and it should have had video from the beginning.
- Leica (3). Nobody expected Leica to do something out of the box, but here they are beating others to the MDSLR market. The 37mp number in a reasonable-sized SLR design sure snapped a few heads around, though proof will be in the purchase, as it's looking like a pretty substantive price commitment compared to the other options. Still, Leica appears to have figured out that they needed to find new users, not just convert old film rangefinder users to digital.
- Olympus (3). Panasonic and Olympus appear to have divied up the initial micro 4/3 launch. Panasonic goes low-end DSLR, Olympus goes high-end compact (that's the 20mm f/1.7 on the Olympus prototype, by the way). Again, I think lenses get in the way. To stay compact, we have exactly one lens choice, a fixed normal lens. The other early lens choices are, as I noted, mediocre in specification and far too big for the compact body Olympus is showing, IMHO. They needed a wide and telephoto pancake at launch, or perhaps a wide pancake and a small telephoto zoom. (Yes, I know you can use the adapter and put regular 4/3 lenses on it, but that sort of defeats the purpose of going small.) On the other hand, the new 4/3 mid-level DSLR they announced seems underwhelming (and late).
- Fujifilm (1). Fujifilm does have some new sensor goodies to roll into their already decent compacts, but the overall strategy seems to be one of not rocking any boats and going with a scaled down, straightforward lineup. Fujifilm's big bet is that the sensor advantage still plays out well enough to keep them in the game with mediocre camera designs that don't break any new ground, and that the advantage is enough to hold pricing where it is. The S6 Pro prototype did not make it to Photokina, which is worrying. The original NDAs for that product have expired now, I believe, and you usually don't let NDAs expire unless you decided not to more forward.
- Pentax (1). Dealers in the US I've talked to all seem to say the same thing: "as soon as the current inventory is gone I'm out of the Pentax business." Thus, the "weather the storm" K-M offering is likely to be available in fewer stores when it eventually appears, putting it under even more pressure. Pentax seems to have missed several possible market shifts (video, for instance), too. So they've got some catching up to do, yet seem in hunkered down mode. That doesn't sound like a good place to be to me. Apparently there will be no FX Pentax; the K20D and K200D will get generational changes in mid-2009, and the 645D is back on the development board (what's with the "everyone wants to be in MF trend?").
- Sigma (1). Sorry, but the expected DP2 and a revised SD15 really don't look like much other than some (needed) engineering tinkering. I'm not sure why Sigma thinks they need to be in the camera business, actually, at least not if this is the result.
- Hasselblad (2). Price drops, incremental sensor improvements, tilt/shift adapter, a new lens. Sounds like classic #2 to me. But you could also read the huge price drops as a sign of weakness in MF; there just may not be enough customers willing to put US$20k or more into systems that also require large periodic investments in new backs.
- Canon (2). The 5DII is an obvious effort to play hardball. It undercuts the Sony Alpha 900, adds significant features, and is priced to make it difficult for any player to grab more of the serious shooter market. The 1080p video initiative at Canon is an attempt to push features into play that some of the competitors will probably be slow to match. The smaller camera lineup isn't quite as aggressive (other than perhaps the SX models), but very nicely refreshed; I expect Canon will use price as the hammer there.
- Sony (2). The Alpha 900 is obviously an attempt to play hardball in the serious amateur market. Here's the problem: you don't pre-announce the critical specifics so far in advance if that's the game you want to play. Sony essentially gave Canon everything they needed to know to target the 5DII as much as 18-months in advance. Silly. When you play strategy #2, you do so with surprise, not pre-announcement. The consumer Sony DSLRs were better handled in that regard, and have hurt Nikon, Pentax, and Olympus. Where Sony seems to have lost their punch is in compacts. I don't see how they even begin to hold share without dropping prices here.
- Nikon (?). Nikon's got themselves stuck in a wierd between-cycles place, unfortunately. While the revamp of the high-end cameras was successful (D300, D3, D700), neither their #3 initiatives (APS compacts, high-resolution alternative) nor their #1 needs (get those consumer DSLRs and Coolpix lines fixed, ASAP) are visible at the moment. Thus, while the D90 is a nice camera (much better than the D80 it replaces, even in the small touches), it and the botched intro of the P6000 are about the only things you can point to that look even modestly competitive in the many critical spaces they need to shore up. If Nikon is really working on a larger format SLR, Leica beat them to that punch. If Nikon is really working on the APS compact, Olympus beat them to that punch. If Nikon is going to refresh the consumer DSLR line, Sony beat them to that punch. And, of course, we're still all waiting for a very long list of lenses Nikon hasn't executed.
I should point out one other item: because Photokina is an every-other-year event, it tends not to be an announce-and-ship event. Instead, you see a lot of development announcements at Photokina (and there are more going on in the back rooms that the public never sees or hears about). I've never quite understood the rationale behind development announcements, at least not the kind we've been getting in the camera business. They seem to be mostly FUD (fear, uncertainty, and doubt) purveyors, and I've never been a fan of that. Essentially Panasonic, Olympus, Samsung, and Lecia are all trying to conjure up a world where "something better" is just around the corner in order to get you from buying something "perfectly fine" today. The problem with that approach is that "something better" has to be truly significantly better when it finally arrives, yet you're giving your competitors a chance to erode that. That's the problem with the Sony A900, actually. It's been a development announcement at multiple shows, and the US$2995 target price and 21mp FX sensor have been known for a long, long time. So, Sony might have gotten a few folk to wait only to have a Canon 5DII pop up for less money and more features.
Finally, let's put things a different way, who gained and lost at Photokina? Here's my tally:
- Winners: Panasonic, Olympus, Leica. This has a caveat: they need to deliver quickly, and at very high levels of execution. Otherwise, a development announcement "win" turns into a market "ho-hum".
- Losers: Nikon, Pentax, Samsung, Fujifilm. Too little to say to the public (the back rooms might have been a different story, but the folks that saw that stuff were almost certainly under tight NDA).
But the end of this year isn't going to be defined much by Photokina, I think. As we're reminded here in the US once again during our elections: "it's the economy, stupid." I've already caught wind of a lot of pricing maneuvers planned in the coming month, with more coming later if things don't improve. For instance, look for short term "instant rebates" on some good products that just hit the market. That's not a sign of market strength, is it?
(Hint for those looking for Nikon bargains: most Nikon instant rebates and repricings appear to take effect on Sundays, to match the big box circulars that are in the Sunday paper. Lately Nikon seems to have abandoned the old mail-in rebate programs that went for long periods of time for very short term instant rebates that force the dealers to do the paperwork.)