Sustaining Innovation and Disruptive Innovation in Cameras

A recent tweet from @charlesarthur on the camera market very nicely captured the difference between sustaining innovation and disruptive innovation. Let me explain.

1. Digital cameras started penetrating the consumer market around the year 2000. They were initially had very bad resolution and colours were inaccurate. Battery life was also a huge issue. Despite this, they took off in sales because you could view your photo immediately after you took it, and you didn’t have to go to your local photo processor.
2. Initial deficiency is a hallmark of disruptive innovations. Disruptive innovations often start off as a “toy” that however provides significant convenience to low-end users. In this sense, digital cameras completely fitted the bill.
3. However, if you look at the players in the market before and after the digital revolution, you notice that they are almost identical. The exception is that Casio gained significant market share (due to first mover advantage). Otherwise the main players, Nikon, Canon, Olympus all maintained their positions and enjoyed increased sales during 2000-2010. Clearly, digital cameras did not end up being disruptive to the film-camera market. Instead it was sustaining.
4. The reason for this is that the incumbent film-camera makers were motivated to make the shift to digital. Digital cameras were significantly more expensive than film cameras and drove a replacement cycle that would not have been existent without the new technology. This was financially very appealing to the incumbents. There were technical hurdles like manufacturing the CCD cameras. However, there were modular CCD manufacturers who were willing to supply these to the previously film-only camera makers. Hence film-cameras makers were both willing and capable of making the shift to digital. This is why only Casio, with its first mover advantage, was able to gain significant footing among the film-camera incumbents.
5. Since 2010 however, the incumbent camera makers have collectively seen a large drop in sales. This is due to cameras on smartphones. Instead of the traditional camera makers, the winners in this new market are Apple, Samsung, LG, HTC, etc. They are the smartphone makers. What happened here is unmistakably disruption.
6. Smartphone cameras were also initially very poor compared to the regular digital cameras. Like digital cameras ten years before, they also started out as “toys”, which however provided significant convenience to the user because you could immediately upload the photos to the Internet. Technology-wise, smartphone cameras were no better than digital cameras were in the year 2000, relative to the incumbent products.
7. The very different outcomes are a result of the difficulty of transitioning to the new market. I don’t mean difficulty in technology. I mean difficulty in flipping the whole organisation from top to bottom. For film-camera makers, it was relatively easy to transition to the digital-camera market. They were still selling cameras through the same channels to the same users. Film camera makers did not have to change their business models or their sales and marketing organisations at all. The only issue was technology and even this was easily overcome through modularity. However, for camera makers to transition to the smartphone market, they have to change their technology focus, their distribution channels, their sales and marketing organisations and everything else in between. This was too much for them to do. Instead, they focused on the higher-end of the market (digital SLRs and mirrorless cameras) where they could still thrive while maintaining their organisations and business models which worked, but only until smartphone cameras became good enough for all except the most demanding photographic tasks.

So there you have it. The takeaway here is that the most important element of a disruptive innovation is whether the incumbent is motivated and capable of embracing it or not. If the incumbent embraces the innovation, then disruption will not occur. However, if the incumbents don’t do so, then they will be disrupted.

It is usually not the technology that decides whether disruption will succeed or not, but rather whether or not the company organisation is capable of embracing it.