The Fight at the Top

A term that comes up a lot in both high tech and in overall market transitions is this: first mover. 

A first mover is a company who is first to a technology or marketplace, and the general assumption has always been that first movers have an advantage of some kind that will translate into top market share and perhaps the best overall profitability. Whether that does or not tends to have to do with two other factors: pace of technological change and growth of the market. 

What does this have to do with mirrorless cameras? And in particular, what's happening this week with mirrorless? (Nikon will introduce a new mirrorless system this week, in case you’ve been asleep.)

Mirrorless itself was an attempt to bend the established rules that had created a unique market: DSLRs. Simply put, none of the other camera companies were able to break the Canon/Nikon duopoly at the end of the film SLR, and then they weren’t able to break the duopoly in the early DSLR era, either. That wasn't for lack of trying or resources: both Fujifilm and Sony (and its predecessors) were bigger companies than Nikon and well known for excellent imaging products. 

When you can't beat someone in a market, start a new one (classic Ries and Trout). And that's what happened with mirrorless: while mirrorless would really be just a predictable evolution of ILC—the ongoing removal of mechanical components and processes—both Canon and Nikon rested on their laurels and were doing what I call lazy iteration for the most part when m4/3 started up. “Lazy iteration" would be a slow roll of carefully curated features, performance, and technology without really making any big fundamental changes.

Nikon did enter the mirrorless market early, but with something that wouldn’t compete with their DSLRs. Apparently they thought that they could grow sales by finding a “mirrorless market” that was in addition to DSLRs.

What we have about to happen now, though, is a clear fight at the top of mirrorless: full frame ILC's future. Leica was, surprisingly, the actual first mover (2009). But Leica also did not have the resources or the engineering pace to defend that position, nor did they back off from their very high premium luxury position, which meant that there wasn't much market for them to obtain, either. A very safe bet for them, but one that's soon going to have three big players muscling them aside so that Leica stays boxed in the really high priced luxury-only market.

Sony also moved very early in full frame mirrorless (2013). Moreover, they've done exactly what they should do, considering that Canon and Nikon would eventually join them: Sony has iterated and pushed technology at a relentless pace. 

So where we are now is basically this: Sony is on generation three, Nikon is introducing generation one, and Canon is not yet to market with full frame mirrorless, but should pop out at say generation one-and-a-half if their full frame camera is as similar to the EOS M and dual-pixel initiatives as we all think they will be. (Using that same logic, Sony should probably be said to be on generation four.)

Wait, why am I not giving Nikon credit for the Nikon 1? Simple: because it was a completely different development than what Nikon is doing now. Nikon 1 was a "new thing" that dictated its own features and design, deviating quite a bit from Nikon's mainstream ILC products. Nikon's new Z cameras will be a true evolution of Nikon's ILC products. 

Note that I wrote that two things apply for first movers: pace of technology and growth in market. The first of those works in Sony's favor, the latter does not (see the other article I posted today: full frame camera sales in the US have been basically flat). While it might seem like the market will grow, it really is just going to shift (from DSLR to mirrorless), and Canon and Nikon just have far too many established customers that they can shift. Thus, for Canon and Nikon the goal is "retain the customer." For Sony it is "steal the customer."

Okay, now for some details.

Does Sony have a "technological" edge? 

My answer is "not really." Some will claim that Sony being an image sensor manufacturer they must have an advantage right at the heart of the camera. But history tells us this simply isn't true. Sony Imaging has been more aggressive recently spending the dollars to get Sony Semiconductor's latest and greatest technologies into product, and tailoring that for Sony Imaging's needs. But that's exactly what Nikon was doing that established them so well in DSLRs. Nikon isn't stopping that now, and despite all the "but Sony will only sell sensors to Sony" nonsense that's going around on the Internet these days, I see nothing's that's changed. Nikon pretty much dictates the tech that goes into their image sensors, and it has always been arguably state-of-the-art. 

Meanwhile, that argument doesn't even apply to the biggest player, Canon, who has had a tighter relationship between sensor and camera group than Sony does. Be very careful about writing Canon's sensors off: they've leapfrogged before and I'm sure they will again.

Sony actually has a very interesting problem: it's a supplier to others—and that's a big, profitable business—as well as a maker of consumer product that competes with those they supply. Consumer products are a less profitable business with more downstream sales and marketing expenses. I see nothing that's keeping Sony's sensor, EVF, battery, and other supply products from others, which means that Sony's camera group is going to have to actually pick up the pace of technology evolution, not rest at their current speed. Sony as a company is not keeping competitors at bay via hoarding of IP assets.

Nor does Sony have a large enough customer base in the A7/A9 users as Canon has in the 1D/5D/6D arena or Nikon the D3/D4/D5/D6xx/D7xx/D8xx/Df one. So just "iterating to retain" the early base Sony has isn't necessarily enough to ward of the Duopoly. 

Thus, we're back to how does Sony steal the Canon/Nikon DSLR customer? 

That brings us to marketing, because it likely won't be through technology alone. Sony has already ramped up Alpha Universe, Kando, Sony Professional Services, and much more. Sony is far better than Nikon is, for instance, in engaging and exciting their existing customer, and that alone might peal off a few folk that Nikon has antagonized with their lack of customer engagement through the years. Sony also seems to understand and activate the YouTube/Instagram endorsement system better than Nikon.

Canon? Expect them to do a heavy ramp on the marketing side, just like Sony. While Canon users might be more likely to switch to Sony mirrorless due to the fact that the Canon EF lenses cross over far more easily via adapter than do Nikkors, ironically, I don't think that will be the major factor of who Sony can steal from whom. 

Nikon is the much more vulnerable target here, as they're fighting a two-front war: (1) trying not to lose high-end ILC market share to Canon; and (2) trying to ward off Sony catching them. Moreover, Nikon has been building up years of customer concern: QA problems, product cancellations, strange lens prioritizations, lack of customer engagement, tough gray market policies, lots of complaints about repairs, and plenty of other consumer-facing problems.

So, here's my prescription for the companies fighting it out at the top:

  • Canon — At some point soon they need to address the perceived dynamic range gap with Nikon/Sony, as it's the primary technical aspect that gets talked about as being "behind." Other than that, they need to fill out the EOS M lens set so that it becomes a strong entry position whose users eventually upgrade to full frame. Couple those two things with as much marketing, promotion, and customer engagement as Sony is doing, and Sony has little chance of taking away Canon customers in any quantity. Indeed, there's a chance that some Canon users that switched early to A7/A9 might come back to Canon. So: move a little faster, promote a little harder, keep the feeder system working properly. 
  • Nikon — The fight for Nikon is multi-front and near existential. The new mirrorless camera system does fine for putting A7 competitors out into the dealer base for consumers to purchase. Nikon needs more than that, though, particularly appropriate lenses for that new system. And that doesn't address all the other problems that Nikon has been self-inducing over the past 10 years. Nikon needs to fix their customer relations, simply put, and engage both the press and their customers much more than they currently do. 
  • Sony — What Nikon doesn't do Sony needs to continue to do. The A7s and next A9 will be important on the product front, but Kando and all the customer engagement is working and are as important, and Sony needs to double down on that. The still/video crossover needs to be better emphasized (same lenses work for pro stills and pro video). And frankly, where Sony could whip Nikon's butt if they had done it (or if it's imminent) is to make sure the feeder system—A5xxx and A6xxx, plus more and better E-mount lenses for APS-C—is healthy. Why? Because this provides the ability for non-Sony users to sample the current Sony technology at a lower price point. Switching from a full frame DSLR system with lenses to a mirrorless one with a similar set of lenses is a five-figure proposition for many. Those folk often won't commit to a switch unless they can first sample and get reassured at a lower price point.

Too many folk believe that it is the product and technology that is the thing that wins a market war like we're about to have in mirrorless full frame. No, it's not. The thing that wins is having a customer focus. No customer, no sale, no matter what the technology. So it's how you engage and speak to that potential customer that's important. Sure, describing why your technology is better might be part of that, but you actually have to catch the customer's attention before you can get to that discussion.

In 2017 we had at most 200k (and probably less) in total global unit volume in full frame mirrorless, and a number of those were older gear that was lingering on the shelf sold at steep discount. The potential for 750k global unit volume per year in full frame mirrorless is probably there if we transition fast from DSLRs, but even 400-500k unit volume is well worth pursuing. So there will be a war. And the payoff for the winners is huge (500k units at a US$2000 retail price point implies US$1b in sales). Yeah, everyone is going to want as big a piece of that as they can chew off.

It's a win for all of us consumers, as we are about to have clear competition and a wider choice of products, and they are likely to continue to iterate relatively fast (e.g. two year cycles).

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