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Data Sheet—Canon and Nikon Hope It’s Not Too Late to Avoid Disruption

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How long should a market leader let a potentially disruptive innovation go before reacting? Amateur photog Aaron in for Adam today, contemplating the fate of camera titans Nikon and Canon.

I got my first Canon camera, a no-frills film model known as the AT-1, as a gift for my bar mitzvah many years ago, but the company’s major market has always been professional photographers who spend thousands of dollars on the hefty bodies and gigantic lenses that bring in the big bucks. Nikon was the Pepsi to Canon’s Coke, or maybe the other way around, but the two companies had a lock on the high-end market of single-lens reflex, or SLR, cameras for decades.

In Harvard professor Clayton Christensen’s well-trodden disruption theory, as a market leader continues to improve its product, it goes beyond meeting the needs of what some customers actually want. New entrants with a new technology arrive, usually at a lower price and with fewer capabilities, aiming to meet the need of those overlooked customers. The incumbents, satisfied that their advantage in quality is what matters most “tend not to respond vigorously,” Christensen wrote in a 2015 article explaining and defending his theory (which has come in for some legitimate criticism over the years).

Even when the camera market went digital, the advantages of owning a Canon or Nikon remained, as new digital SLR models were compatible with lenses from the prior analog film models. At the same time, the rise of smartphones has nearly destroyed the market for pocket-size consumers cameras. So starting almost exactly 10 years ago, some competitors decided to try a new tactic to compete.

Instead of selling their own SLRs, which use a mirror and prism mechanism to allow a scene to be viewed by the photographer and recorded on film, Panasonic, Olympus, and others started selling selling smaller cameras that relied just on digital sensors. Without the mirror and prism contraption, these “mirrorless” cameras could be much smaller and lighter than traditional SLRs. They still came with interchangeable lenses, but the picture quality couldn’t match the SLRs. Prices were much lower, however. Soon, Sony, Samsung and Fujifilm were making even better mirrorless cameras.

Canon and Nikon largely ignored the trend. They were still making hay with their gigantic SLR models, adding ever more sensitive sensors to capture even more pixels. But as sales of mirrorless cameras increased, first Nikon and eventually Canon introduced their own models, to mainly mediocre reviews. The market leaders appeared not to want to tempt any of their pro audience away from buying higher-priced SLRs.

Just as Christensen’s predicted, the cheaper technology improved and lately Sony, Fuji, and Olympus have been tempting a growing number of “real” photographers to defect. In Japan last year, sales of SLR models dropped 10% and mirrorless sales increased 29%. Now Canon and Nikon are waking up to the threat and planning serious, professional-grade mirrorless models. A top Canon exec told the Nikkei Asian Review a few weeks ago that the company must “actively roll out products for a growth market even if there is some cannibalization.” The new models should arrive in the second half of this year, but the question now is whether they waited too long.

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Our hearts go out to the victims of yesterday’s shooting at YouTube headquarters, where a woman opened fire, shooting three people before turning the handgun on herself.

Aaron Pressman
@ampressman
aaron.pressman@fortune.com

NEWSWORTHY

Poaching big game. After Microsoft and Google reorganized in efforts to speed their work on artificial intelligence, Apple has made its own play to strengthen its AI efforts by scooping up one of its competitors’ experts. The iPhone maker hired John Giannandrea, who had been overseeing Google’s search and AI unit until this week’s reorg left him out of a job.

Not so crazy. Shares of music streaming leader Spotify started trading on the New York Stock Exchange. Despite the unusual direct listing by Spotify, which did not hire a Wall Street bank to underwrite the shares, trading activity was relatively unremarkable (except for the exchange flying the wrong flag to mark the occasion). The stock closed at $149.01, giving the company a stock market value of about $26.5 billion. Perhaps feeling jealous, Amazon told Billboard that its music streaming service has “tens of millions” of paid subscribers, its first detailed disclosure about offering.

Getting crazier. The escalating trade war between the United States and China looks to hit the stock market again on Wednesday. Shares of chipmakers Nvidia, Intel, Advanced Micro Devices, and Micron were all down 3% or more in pre-market trading, after China said it would impose more tariffs on American imports.

Where is Elon Musk’s sleeping bag. Tesla said on Tuesday it produced a record 34,394 electric vehicles in the first quarter, a 40% increase over the fourth quarter but less than planned. About 25,000 were older Model S and Model X, with the remainder the new Model 3. Production of the Model 3 reached 2,000 per week by the end of the quarter and should hit 5,000 within three months, the company says. Tesla stock jumped 6% as the carmaker also said it would not need to raise any more capital this year.

Semi-interesting semiconductors. Intel introduced its newest generation of high-performance chip for laptops and laptop makers (sans Apple) responded with a slew of new products. Intel also dumped its Wind River unit, bought in 2009 for $884 million, on private equity buyer TPG for an undisclosed price that was not material to Intel. Wind River makes real-time operating systems that run everything from airplanes to robots.

Sky plasma. Drone delivery startup Zipline introduced its newest model, a flyer capable of reaching speeds of 80 mph and carrying cargos weighing up to 4 lb. The company is already delivering blood and medical supplies to isolated parts of Rwanda, carrying 7,000 units of blood in more than 4,000 flights.

FOOD FOR THOUGHT

Mobile carriers promise that we’ll soon have super-fast wireless connections via the next generation of gear, dubbed fifth generation, or 5G. But according to Ed Gubbins, telecom technology analyst at GlobalData, 5G isn’t just about faster connections. And it may not be coming quite as quickly as the carriers have said, as he explains in a new report:

While the first big, global wave of 5G services will be aimed at consumer mobile broadband that is faster than today’s 4G, faster speeds are not exactly what separate 5G from 4G.

The real defining promise of 5G is to allow operators to connect both people and machines with a common network, thereby attaining greater efficiency and profitability than any previous generation. That depends on the development of new business cases and new market adoption that the mobile industry has not seen before and does not well understand.

Smartphones that support 5G are not expected until 2019. Though some operators, such as AT&T, have promised to roll out 5G service sooner, it can only be delivered to less popular devices like mobile hotspot ‘pucks’ and ‘dongles’—mere preludes to the mass market.

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BEFORE YOU GO

I was in Scotland on vacation last month but I didn’t make it to the beautiful Isle of Skye. Some scientists from the University of Edinburgh and others did, however, where they’ve uncovered a series of 170 million year old footprints of dinosaurs. It appears that “long-necked cousins of Brontosaurus and sharp-toothed cousins of T. Rex” were patrolling the scenic shores well before humans arrived on the island, Steve Brusatte of the university’s School of Geosciences noted.

This edition of Data Sheet was curated by Aaron Pressman. Find past issues, and sign up for other Fortune newsletters.