A Better Comparison

Reuters recently ran an article about how the "camera refused to die," citing such statistics as the industry shipping three times as many cameras in January 2012 as it did in January 2003. This article is making its way through local newspapers via the wire services (it showed up in my local paper yesterday).

Unfortunately, there are quite a few flaws in using such a crude metric: one month is not a long enough period to determine real sales trends; "shipping" is not production (how many made) nor is it sales (how many sold) but rather an arbitrary movement of cameras from manufacturer to subsidiaries and distributors; finally, the real camera-in-phone revolution didn't take charge until smartphones took off and solved real workflow issues (e.g. the emergence of the iPhone in 2007), so backtracking all the way to 2003 seems a bit excessive.

So let's take a different look at the actual industry numbers. We'll use the first quarterof 2007 versus the first quarter of 2012. How much did the market grow in those critical five years?

  • Production 2007: 16.79m compacts, 1.6m DSLRs
  • Production 2012: 21.47m compacts, 4.24m DSLRs/mirrorless

Another way to look at it is in terms of actual dollars the manufacturers got for that effort:

  • Sales 2007: 302.7b yen
  • Sales 2012: 280.8b yen

So here's the real change in the five years of smartphone cameras: a 7.2m unit increase (a 40% increase over five years, or an average of about 7% a year), and a sales decreaseof 21.9b yen (7.2%, or about a percent a year). Put another way, if a camera maker manages to "stay still" (keep their share in the market) they'll make 7% more cameras in a year and take in 1% less money doing so. During that same time period Apple grew their gross product margins from a bit over 20% to 47%, mostly because of how profitable the iPhone and iPad are.

In other words, overall the camera makers are losing product margin, but the two clear smartphone leaders (Samsung being the other) are growing product margin. If you study tech cycles closely, you see this same pattern repeated over and over again when innovation moves one product ahead of another. Low growth with negative product margin movement is the classic signal of a market plateauing into a more stable state (or in some cases, peaking before plummeting). The way out of that cycle is usually disruptive technology.

As I've written before, if you map the DSLR sales against film SLR sales, you see a similar pattern, though somewhat accelerated with digital: rapid acceptance with strong growth, moving to good growth, moving to splintered growth, moving to flat, and eventually moving to declining market. Compacts are close to flat, while DSLRs/mirrorless are in the splintered growth stage still. This makes some sense: camera phones compete first and foremost against compacts. DSLRs/mirrorless cameras have capabilities well above and beyond camera phones. If someone finds that they like taking pictures with their camera phone but reaches the limits of what the phone can do, the natural step, as the Reuters article correctly points out, is to buy a higher end dedicated camera. Something with more lens flexibility, much more control, and better quality. Most compact cameras don't move that bar far enough.

Yet it should be clear that once a user is satisfied with the workflow of a camera phone (e.g. take picture, Instagram it, click the Send to Facebook button), they're going to want that in their more sophisticated cameras, too. As I started writing back when the smartphones first appeared: dedicated cameras need to be communicating, programmable and preferably modular in the future. The first company to get that recipe correct is going to be the one that has a more natural upgrade position vis-a-vis smartphones.

text and images 2017Thom Hogan
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