The business case for a digitalM

[hankg]

Advertisement (gone after registration)

I don't think the current business model is that unusual: high-quality, more or less handbuilt technical items for the top-end of the market. Several other similar firms come to mind: Breguet watches, Morgan motor-cars, etc... The model seems to work.

 

I think when Hermes bought into Leica that was their thinking. A venerable brand at the top end could be made into a successful luxury 'lifestyle' product as the formula had proven very successful with so many other brands. In reality it didn't work out all that well.

 

I think the current owners have a different idea, a top end product to be sure but in the mainstream in terms of providing working tools to working photographers. The brands stature to rely on function and value rather then exclusivity. The Summarits are a case in point, they dilute the exclusivity factor of the mark but make it more useful for people who are interested in the camera as a camera.

 

They are leveraging Leica's brand heritage in a very different way, trying to reestablish the form and function that made the brand great in the first place reinvented for the digital age. It really is a godsend for photographers who thought of the M as a camera rather then a cult object or collectible.

[jaapv]

I think when Hermes bought into Leica that was their thinking. A venerable brand at the top end could be made into a successful luxury 'lifestyle' product as the formula had proven very successful with so many other brands. In reality it didn't work out all that well.

 

I think that is exactly where Hermes went wrong: These are not lifestyle products, but highly specialized technical products marrying traditional values to present-day technology. A good example of the Hermes approach that is not really working are the Louis Vuitton watches.They imitate the high-end brands, tourbillons and all, but are only seen on the wrists of celebrities, who probably get them for free.....

[Peter Branch]

I think Leica were caught between a rock and a hard place, here they had many M customers crying out for a digital M, rather than redesign the whole package into a new format they decided to keep to the known format. For so many users to move outside this envelope would have met with anger and dissatisfaction, so IMO Leica played it safe to keep and attract existing M customers.

 

Eoin, Surely the problem was that Leica had no customers. They had equipment owners - who were no longer users in many cases - because the cameras and lenses are virtually indestructible, but customers were nowhere to be found. They tried to stimulate business with some world class new lenses but few bought them.

 

I suggest that if Leica had not had the vast pool of legacy lenses in place with potential customers then the M8 would have all but disappeared already. We wanted to be able to use our investment in some of the world’s best lenses in a digital environment. Film is effectively dead so we played with digital compromises, in my case a Digilux-2, to keep us going. Fortunately for Leica the M8 sensor, developed and made by Kodak, became available just in time to enable them to launch a camera which offered in almost all situations a performance that was at least equal and often actually superior to anything that can be achieved with film. This surely was the “magic” combination, better performance with lenses we already owned.

 

People at Leica tell me that two things have taken them by surprise – three if you count the fact that the M8 is still a year on selling like hot cakes – the first is the number of customers who are buying an M8 as their first ever M camera. Something is persuading them to part with serious money in a world with many alternatives when they know that they will have to invest a lot more money in lenses if they are to access the full potential. The second surprise is reported to be the number of M8 users, often already owners of a set of lenses, who are now upgrading and buying the latest lenses in significant quantities. In hindsight this should perhaps not be such a surprise.

 

To me the dilemma is that it is a camera which has transformed the fortunes of Leica and yet Leica as a company has a world class reputation for optics, not for cameras, and its future is surely only going to be assured if it sells premium lenses in viable quantities to a large and diverse consumer base. If I’m right Leica actually depends for its future on maintaining the growth in lens sales.

[hankg]

Eoin, Surely the problem was that Leica had no customers. They had equipment owners - who were no longer users in many cases - because the cameras and lenses are virtually indestructible, but customers were nowhere to be found. They tried to stimulate business with some world class new lenses but few bought them.

 

I suggest that if Leica had not had the vast pool of legacy lenses in place with potential customers then the M8 would have all but disappeared already. We wanted to be able to use our investment in some of the world’s best lenses in a digital environment. Film is effectively dead so we played with digital compromises, in my case a Digilux-2, to keep us going. Fortunately for Leica the M8 sensor, developed and made by Kodak, became available just in time to enable them to launch a camera which offered in almost all situations a performance that was at least equal and often actually superior to anything that can be achieved with film. This surely was the “magic” combination, better performance with lenses we already owned.

 

People at Leica tell me that two things have taken them by surprise – three if you count the fact that the M8 is still a year on selling like hot cakes – the first is the number of customers who are buying an M8 as their first ever M camera. Something is persuading them to part with serious money in a world with many alternatives when they know that they will have to invest a lot more money in lenses if they are to access the full potential. The second surprise is reported to be the number of M8 users, often already owners of a set of lenses, who are now upgrading and buying the latest lenses in significant quantities. In hindsight this should perhaps not be such a surprise.

 

To me the dilemma is that it is a camera which has transformed the fortunes of Leica and yet Leica as a company has a world class reputation for optics, not for cameras, and its future is surely only going to be assured if it sells premium lenses in viable quantities to a large and diverse consumer base. If I’m right Leica actually depends for its future on maintaining the growth in lens sales.

 

I think their are 4 groups of buyers

 

1. Own and use Leica M and wanted a digital M for their lenses.

2. Collect Leica and buy whatever Leica produces.

3. Used to own Leica M but because of digital sold it and now are buying back in (that's me)

4. New to RF proving that there is room for alternative platforms to the auto-everything DSLR's

 

I think it's groups 3 and 4 that provided the surprise additional sales.

 

The M8 being 1.33 crop probably worked in Leica's favor. If you shot a 28 or a 35 or a 50 as your 80% lens. The one that you splurged for the fastest current Leica optic - you now needed to reconfigure your lens line up to get back to the field of views you are happy with. Of course those buying back in and new converts will probably buy and sell a few lenses to find what suits them. That's a lot of lens buying that wasn't happening pre-M8.

[delander †]

If I’m right Leica actually depends for its future on maintaining the growth in lens sales.

 

To do this it needs to sell more cameras to more people. In this digital age that means there must also be new, better Leica digital cameras down the road.

 

Or do you mean more branded lenses to Panasonic and others. Zeiss seem to be doing this for different mounts.

 

Jeff

[guidomo]

Hard to imagine any 30 year old, even if wealthy enough, enjoying manual focus.

 

You'd be surprised how large that group of people is. And I think Leica was, too.

 

I am part of this group (OK, 32 years old) and in a world of excess the Leica core values and the minimalism of the M line attracted me to it. It was the first M I ever owned.

[bradreiman]

Advertisement (gone after registration)

You'd be surprised how large that group of people is. And I think Leica was, too.

 

I am part of this group (OK, 32 years old) and in a world of excess the Leica core values and the minimalism of the M line attracted me to it. It was the first M I ever owned.

 

well I'm 38 but kinda that generation and not "wealthy enough" at all! but I've been shooting only m cameras for years and just got my second m8 (which I can barely afford). In the long run me and the bride will save money though without the scanning/developing etc. its cheaper to do jobs in digital. I remember when the 5d came out wondering if I should jump ship and go "slr", glad I waited for the digital m to come out, it just suits my shooting style better. i love manual....b

[guywalder]

Leica definitely lost a lot of ground while Hermes were involved, and a recently closed UK Leica dealer went down still trying to sell some of the special editions - including the "Ein Stuck" which comes with a certificate for 1 share of basically worthless Leica stock. How pretentious is that?

 

A digital M was the only product which was going to turn Leica around - Sports Optics couldn't do it, the R couldn't do it, nor could an endless procession of PanaLeicas. Only a digital M could reinvigorate the company, along with a level of drag-along lens business which has taken them by surprise.

 

For the future, they have to learn from the M8 experience and actively address those issues which make the M8 a compromise - IR, crop-factor, shutter noise, reliability, lens focussing, white balance, mediocre JPEG quality, gritty shutter release, need I go on?

 

Mark, I agree with all of your post, except, sadly, the PanaLeica procession. Based on the latest annual figures: turnover from re-baged Panasonics will overtake turnover from system cameras (R&M) during the current financial year...

Of course a new digital R could help, but hasnt the R line been (commercially) pretty moribund since long before the digital revolution? Also the M8 is, I think, relatively underpriced, circa 30% more than an M7/MP, where the japanese charge 200 to 300% more for their range topping DSLRs compared to film models, but who knows what the price elasticity of demand is??

[carstenw]

Guy, I am not sure at all that the Japanese camera companies and Leica use the same model for pricing their digital cameras. Leica's price looks like they have ignored development costs, and simply priced based on the extra cost. This makes sense if you want to appeal to your existing customers, and if the product run is long. The Japanese manufacturers seem to price them as high as the market can bear, a sound financial decision, but not necessarily one which will make you popular with film users.

[guywalder]

Guy, I am not sure at all that the Japanese camera companies and Leica use the same model for pricing their digital cameras. Leica's price looks like they have ignored development costs, and simply priced based on the extra cost. This makes sense if you want to appeal to your existing customers, and if the product run is long. The Japanese manufacturers seem to price them as high as the market can bear, a sound financial decision, but not necessarily one which will make you popular with film users.

 

Carsten, if I can put it this way without joining your 'ignore' list

I think you are looking through your Leica tinted glasses there! Leica priced the M8 based on a desperate need for revenue, and uncertainty about how the market would react. Hence they are now making 'Stoltz' price rises. No one can afford to ignore development costs, least of all a company in the state Leica were at the M8 launch. The Japanese on the other hand, not only have inter brand competition, but also intra brand competition (5D vs 1D / D200 vs D2 etc). After all Nikon's pricing of the origonal D1 was what, in large part, revolutionised the digital market, and despite years of DSLRs Nikon are still growing DSLR sales at over 50% a year (dont know Canon figures).

YMMV of course....

[carstenw]

I think we have the same mileage wrt. Leica pricing

 

I don't know about the Japanese pricing, but I do think that you are wrong about the M8. If you open it up, you see that not much was done to rationalise the construction or the circuitry. Given the simplicity of the M8, all of its functions could surely be placed on a very small, dedicated circuit board with a few custom chips. It looks more like they used what was there, and simply squeezed it in. With their tiny production runs, I cannot imagine that they could make enough money to justify taking some of the decisions which only pay off with large numbers sold. Maybe now that the M8 has been such a success, they will do so in round two, but that is unclear yet.

 

Compare the price of the M8 to the M7. Similar concept, but the M8 has a very expensive large sensor in it, as well as a ton of work fitting and squeezing all the off-the-shelf functionality into it, yet it (originally) cost little more, ie. they clearly could not have tried to make *extra* money from the M8, as opposed to the film cameras.

[jrc]

I don't understand why everybody thinks the Leica M8 development is such a feat. In terms of functionality, the Canon G9 (or G7 at the time) is both smaller and has more functionality, though it is mated with a chip and lens that are not as good as in the M8. So are most small high-spec compacts that sell for more than $500. Since with Leica, the lenses were a given, their basic development involved one thing: finding a chip with decent ISO ratings that they could use with the Leica mount. Leica basically had to write a bunch of specs, and then hope that Kodak (or somebody) could come up with it. The rest of the internals are pretty much off-the-shelf, and judging from some of it, not a very high shelf. As Carsten said, much of the processing stuff could have been put on a couple of custom cards, and there would have been room left over.

 

Other than getting the right chip, Leica's biggest function was design, since it seems like it manufactured nothing -- and design, if you have a genius or two in the shop, would be relatively simple, given the idea that you wanted an "M" camera. You don't need a huge design team.

 

I suspect most of the design parameters could have been laid out in a couple of meetings around the local bar, on napkins. That's why the M8 has a round LCD on the left end, even though it means that it's possibly the least-informative LCD in the history of camera LCDs. That's why we've got the removable base-plate, another useless relic from a functional point of view, but perhaps highly desirable from a legacy/enthusiast marketing viewpoint.

 

So to me, the M8, though highly desirable, seems to be a camera produced on the cheap. Other than the size of the chip, why would it be more expensive (other than the Leica name) than the RD1? In many ways, the RD1, though lots cheaper, is a much more clever and innovative design.

 

Much of this could go back to the fact that Leica was almost broke. Maybe they *couldn't* afford more than two guys on the design team; maybe it *was* done on napkins. But now that they've got some money, the M9 could and should be much better: and I hope for Leica's sake it will be. Remember that Nikon brought out a heritage SP a few years back, and it sold out in minutes. If Nikon brought out a digital SP, with, say, the D3 chip, compatibility with heritage lenses and a really good focus confirmation, they could sell tens of thousands of units immediately at a fairly steep profit -- and even for a company the size of Nikon (which really isn't that big) the resulting tens of millions of dollars of profit would be...interesting.

 

The threat is out there, I think, but Leica could stop it dead with a really stellar M9. If they're not spending all the M8 profit on doing just that, they're idiots.

 

JC