DSC Market: A Tale Of Two Buyers

By Greg Scoblete On Jan 6 2005 - 8:00am

Digital camera makers face a Jekyll and Hyde market, albeit without the violence associated with that unfortunate scientist. Instead, it's a two-faced consumer segment: one face, the novice user, inexperienced and potentially intimidated by advanced technology but nonetheless interested in the benefits of digital photography. The other segment: current camera owners, many among the tech-savvy early adopter crowd, seeking bigger and better bangs for their buy-up buck.

Catering to these divergent needs has made price competition in the $200-$400 price band fierce, with major manufacturers reporting tightening margins and declining revenues. But it is also breathing life into a lucrative new arena of digital SLRs and creating a generation of sophisticated, high-performance cameras to capture the repeat buyers, vendors say.

“What you see is an emphasis on more in-camera technology to make picture taking easier on the lower end,” said Jerry Grossman, VP, marketing, Nikon. “We also have great success in the digital SLR segment, which will really heat up in 2005.”

The marketing message has also shifted, vendors note. While the megapixel still ranks as the spec of all specs announcing new models, the product — and pitch — has dramatically expanded to emphasize longer battery life, quicker response times, larger LCDs and proprietary image processing engines, to cater to the repeat buyer who already knows the basics. It also helps the novice, vendors say, by emphasizing the totality of features that comprise a digital camera.

“I think we're at the point of diminishing returns with the megapixel, so our direction is looking at what [other features] are important in taking a great picture,” said Todd Schrader, VP, marketing, Konica Minolta.

“We've seen a falling off in the megapixel race,” said Phil Scott, marketing director, Kodak. “The higher megapixel models have not grown as fast and we're seeing a larger expansion in the 3-, 4-, and 5-megapixel category.”

Casio's president, John Clough, noted that the race may not have slowed much from his vantage point, but it's “not the cornerstone of our value proposition.” Instead, his company has chosen to carve its niche with slim cameras featuring large LCD screens and fast response times.

Other vendors have shifted focus to the internal circuitry which processes images inside the camera. Canon, notably, poured tens of millions into a branding campaign around its internal system, called DIGIC, echoing Intel's successful “Intel Inside” effort to bring what is normally an obscure technology, from a consumer's point of view, to the forefront of their purchasing decisions.

David Ryan, director of future product marketing, Hewlett-Packard, argued that in fact it is the processing technology that is a key differentiator in the market. “Our core strategic advantage is the imaging science in the camera,” Ryan said. “The camera is just a computer with a lens; it's what you do with the computer that's important.”

Kanika Ferrell, marketing and business development, Texas Instruments, which supplies DSPs for HP, Kodak, and others, agreed. “Consumers we surveyed care more about core specs, which the engine controls, then they did about brands, which we found surprising.”

According to Chris Chute, senior analyst, IDC, the digital camera market shakes out roughly evenly between newcomers and repeaters, with each accounting for 50 percent of the approximately 24.5 million digital cameras purchased in 2004. With digital camera penetration expected to reach 50 percent by the end of 2005, camera vendors confront a challenge within the sizeable portion of repeat purchasers, Chute said.

“It should be worrisome to camera vendors. They have managed to keep prices up but the overall market is still” confined to the boundaries of PC penetration, Chute said. “It's still a tech market. It's still PC-centric.”

“A digital camera is a very PC-friendly device, so it's difficult to swim against that tide,” Schrader said. “That said, it's also a huge opportunity.”

As long as the technology was new, vendors didn't have to worry about eclipsing PC penetration, said Walter Haug, VP, marketing, Fujifilm. “We have two choices now: we have to expand the industry or have a dogfight over 60 percent.”

“To grow the market we are speaking to customers about ease of downloading and printing,” said Ron Gazzola, senior product manager, digital cameras, Fujifilm.

A linchpin of the industry's effort to appeal to a base beyond the PC-centric is a new crop of “PC free” technologies, integrated into everything from printers and cameras to DVD players and TVs. The PictBridge standard for printing directly from a camera to a printer via USB cord enjoyed widespread adoption, while flash memory card slots have made their way into DVD players and TVs.

“We've always viewed the PC as an accessory to a digital camera,” said Martin Lee, VP, marketing, Olympus.

Kodak also won manufacturer support for its ImageLink standard, which lets competitors manufacture cameras and printer docks that work with Kodak's EasyShare line (and vice versa). To date, only Olympus has officially announced that it will have an ImageLink product in its lineup in 2005.

“We look to provide both inclusive and exclusive technologies,” Lee said. “Pictbridge and ImageLink are inclusive technologies which will give customers the option to” enjoy imaging without a computer.

According to Ed Lee, director, printer trends services, InfoTrends, “the jury is still out” as to whether consumers are using the PC-free capabilities of their products.

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