Living Economics

Extreme Image Makeover
The successful emergence of once-slighted digital cameras has reshuffled the cast of major players in the photography business.

In a little more than a decade, the market dominance of film photography has been all but eclipsed by digital photography. Some 92% of all cameras sold are now digital (NY Times. 2/2/2006). The end of the film photography era is marked by the total and partial exit of Konica Minolta (the third largest film maker behind Kodak and Fuji) from the camera and film business (NY Times. 2/20/2006).

The digital revolution has in fact literally pulled the rug from under the 1990’s trade dispute between Kodak and Fuji, the top two film makers. Kodak alleged that Fuji had illegally closed off the Japanese market to foreign competition. But while the fight was never satisfactorily resolved, the film business has gone down the drain, so to speak. Today, the consumer film business has practically collapsed as people have mothballed their film cameras and moved over to digital cameras. Kodak and Fuji are undergoing traumatic transition to the digital era with uncertain success. Fuji has decided to lay off about 5,000 employees after Konica Minolta’s announced exit (Yomiuri Shimbun).

In fact, even the market for digital cameras is peaking with projected falling total revenue amid very slow growth (Economist). Camera makers are pondering what to do to prop up the demand for digital cameras now that once-megapixel-hungry consumers have realized that there is no point to go beyond 8 megapixels (NY Times. 2/2/2006).

Digital photography is a classic example of a disruptive technology (see Disruptive Technology). In its infancy, digital cameras were regarded as inferior substitutes for the high-end film cameras. So dominant film-camera makers ignored them in their single-minded pursuit of high-end customers for higher profit margin. When digital cameras went up to 8 megapixels, their unsurpassed advantage of instant image feedback was enough to dethrone the film cameras.

When a game-changing technology emerges, new product categories appear and the deck of major market players is reshuffled. Konica Minolta, one of the best known brands in the photography world will no longer be in that business after suffering big losses. Kodak, once a dominant player in the film market, is struggling to survive. On the other hand, Sony, once only known for non-photographic consumer electronics, is now the second largest player in digital cameras.

Although Kodak is still the third largest player in the digital-cameras, it no longer has a dependable stream of revenue similar to the complementary film business. The flash memory cards of digital cameras can be reused over and over again and are generally made by third parties. Most digital photos are not even printed on paper any more. So its photo-printing kiosk business is still trying to gain traction. When consumers are ready to trade up their low-end Kodak cameras, they are likely to go with Japanese high-end cameras. The standardization of flash memory cards also means that consumers using one brand of cameras can easily defect to other brands. Product differentiation within the product category of digital cameras is therefore very important for continued survival among competitors.

Note:
  1. Editor's note: Sony is the lone digital camera maker that insists on using complementary expensive proprietary flash cards trying to lock in its customers. But this strategy also locks out customers who do not want to give up on their open-standard flash cards.
  2. Editor's note: Sony is the lone digital camera maker that insists on using complementary expensive proprietary flash cards trying to lock in its customers. But this strategy also locks out customers who do not want to give up on their open-standard flash cards.
References:
  • Economist. 3/25/2006. “Down with the shutters.”
  • New York Times. 2/20/2006. “Konica Minolta, a photo giant, quitting cameras and color film.”
  • Yomiuri Shimbun. 2/7/2006. “Even the mighty can fall.”
  • New York Times. 2/2/2006. “Pixel counting joins film in obsolete bin.”
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