Lost years for Leica!
Killing fields
It is clear that the market for digital photography is rapidly becoming a killing field for many companies. In fact the whole area of the consumer electronics, including computers and peripherals is the stage of the great shakeout, which has been predicted for several years. Even the car industry is in shambles, with General Motors, Ford and even Daimler-Benz reduced to junk status. The management of Toyota contemplates a substantial price increase to help the others to survive.
Kodak's share in the market for filmbased photography was quite high (about 40%) and profit margins were above 30%. There was hardly any competition and people bought Kodak films and chemicals year after year. But now that market is being reduced at a rate of 20% a year worldwide (not the predicted 6%!) and Kodak cannot compensate this loss in the electronic imaging market, even if this market is four times bigger than the filmbased market. In this larger market more players are busy and they know how to operate a business with low profit margins. Kodak is learning but not fast enough and only reducing operational costs is not enough. Investment in chemical film products has stopped some years ago, an act that boosts the profit margins, which are needed to compensate the vast investments in electronic imaging. It may be questionable if Kodak can ever become a significant player in the electronic imaging arena. The fact that the new Kodak boss is a former HP manager speaks for itself. Kodak sells now more cameras in the USA than its rivals, but worldwide this is not the case (Canon and Sony are the runners up here) and the toughness of competition is indicated by the withdrawal by Kodak of its high-end professional D-SLR cameras. But selling digital cameras with razor thin margins is not Kodak's expertise. Presumably Mr Perez from HP knows this sport better. Whatever the case, most analysts doubt the ability of Kodak to restructure in this period of intense competition and fundamental restructure.
Agfa too is in trouble. The traditional company with its famous chemical products and world-class paper went into receivership last week. Rumour has it that the investment company let the money flow out of the company. This is a symptom, not the cause.
How to sell products?
If the whole market were in trouble, one would conclude that it was everybody's problem. But that is not the case. In the car industry the Japanese and Korean companies sell all they can manufacture and in Germany Porsche and BMW are producing flat out. It is a local problem of knowing how to sell a product. That is not a new problem. New is the fact that the Internet has redefined consumer power. The customer is now in charge and the biggest internet companies like Google and e-Bay know how to handle this new attitude and shift of power. GM generated over the last five years lacklustre products that could only be sold with big sales incentives. They failed to ensure that every product was distinctive and could be sold with success. Traditional sales channels cannot do the trick.
The same analysis holds true for Kodak: the company itself defines the filmbased products as obsolete. And by announcing that no investment money is directed into this area, you are sure to drive home one single message to the consumer: do not buy or invest in this product.
The same story for Agfa: the chemical business is sold to an investment company because the parent company does not believe in its economical survival.
The big picture is clear: the companies who made their name and fortune in the chemical and silver-halide photography are struggling to transform themselves into mean and lean players in the electronic imaging arena. But they lack the financial power and creative drive to enter the market of digital photography, where short product cycles and immense public relation budgets are needed to survive and of course a clear understanding of the new consumer power that is channelled through internet.
The position of Leica
This is the global context in which to locate and evaluate the current status: big sales losses in the segment of filmbased products, not enough profit in the segment of electronic imaging. And the lack of a clear strategy to do the almost impossible is evident in the latest announcements by the Board of Directors: how to create the transition from chemical to electronic imaging and how to create a bridge between both technologies to stay a leader in silver-halide imagery and become a major player in electronic imaging
The last five years have been lost for Leica. The company could not find a distinctive profile for its classical products. They did introduce some of the finest lenses ever designed and manufactured, but failed to tie these new products to the still vibrant niche for high quality black and white silver-halide photography. It is sad to note, but the focus on the collectors side of the business, may be part of the trouble. Leica has the habit of producing on an almost annual basis some products for the classically minded customers. The special editions for rich buyers and the collector-users of the LHSA may bring some welcome cash flow, but it also alienates the working photographer to recognize its true mission: the manufacture of a photographer's tool that satisfies the highest demands for high quality imagery.
Too small?
In the area of electronic imaging, Leica signalled that it could not develop exciting new products on its own and needed partners to become a player in this field. But the Fuji collaboration was no success. The current Panasonic ties are more secure, but the Leica products and the Lumix products are evidently based on the same design and Leica has not been able to convince the buyer that the Leica additions and modifications are worth the premium price asked for the red dot implementation.
According to the latest information, Leica has a new and reduced yearly target of Euro 100 million. The profit margins are slim and it is not realistic to expect that the amount of money that can be invested in the development of new or improved products (filmbased and digital) will exceed structurally the profit margins. Even Leica needs to care for a good return on investment of the shareholders, both of whom have indicated in interviews that precisely the lack of a clear strategy is Leica's biggest long term problem. The reporter in the German magazine (Handelsblatt) has summarized the position thus: Leica is in an excellent position to become a major player in the shrinking market for film based photography, but too small to become a player in the market for electronic imaging. This observation is not new, but it is not simple to translate this into a viable company strategy. Mr. Cohn resigned because he was not sure he could steer the company in the right direction, Mr. Coenen tried but failed and the new (interim) boss Mr. Spichtig is still in a stage of orientation.
The global picture
Germany's political problems and its industrial problems (Siemens giving away its cell phone (mobile phone) production to a Taiwanese company) signal a larger and deeper problem: the transition to a global production system and an internet-style economy and consumer power is painful, but a swift action is needed. The political parties and the majority of manufacturers in old Europe have no clue what medicine is needed. Leica is firmly rooted in the culture of this old Europe too.
There is no need to throw away the baby with the bathwater, the manufacturing values of old Europe are fine and the new Leica lenses are superb examples of traditional craftsmanship mixed with high-tech design and manufacture. But Leica needs to reinvent itself to fit into the new business model for the 21th century. The lost years cannot be recouped, but the creative potential in the company should be exploited quite soon.
Enter Mr Kaufmann!
