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Where It All Went Wrong: Nikon's Strategic Failures

Where It All Went Wrong: Nikon's Strategic Failures

Nikon was the darling of the camera industry. At the leading edge of technological development, they introduced the F mount to great acclaim, alongside some top-notch glass. Pros flocked to their system, and the amateurs followed. So, where did it go wrong?

Nikon has a century-long pedigree, having been founded in 1917 from the merger of three optical companies, and began manufacturing their first lenses in the 1920s. During World War 2, Nikon employed over 2,000 staff across 30 factories producing a range of optical equipment for the military. It was in this period that their reputation as a high-quality camera and lens manufacturer became known more widely, with the catalyst for expansion beyond Japanese shores being the 1950 Korean War: photographer David Douglas Duncan famously discovered and promoted Nikkor lenses. The introduction of the F Series range of SLR cameras (replacing their rangefinder lineup) catapulted them to global stardom. An overnight success, F Series cameras were known for their high quality, making them both reliable and durable. By offering an extensive lens range, Nikon capitalized on this success, then added to and developed it by offering viewfinders, motor drives, light metering, lens indexing, strobe flashguns, electronic shutter control, and matrix metering, to name a few. Nikon breezed through the 1960s and 1970s riding high on the back of a great system, as other manufacturers scrambled to catch up and release their own products.

As I've commented on before, lens mounts are the cornerstone of a camera system. The quality of the lens lineups is one of the biggest draws for professional photographers, and the mount is the linchpin in determining the boundaries of what can be (optically) achieved. Nikon set the bar pretty high with the F mount, but by the 1980s, the focus had returned improving lenses as a way of improving the camera system. The F3AF, introduced in 1983, was Nikon's first autofocus camera and perhaps is the marker in the sand for where their market domination began to unravel. With that in mind, here are what I consider to be Nikon's five strategic failings.

1. Keeping the F Mount

Nikon wasn't the first manufacturer to use a bayonet mount or introduce an SLR. However, it was the combination of design elements of the whole system that made it successful. Being an optical company, they were unusual in releasing a full lineup of lenses with the new system. Pros flocked to the F, and once they had invested in the lenses, there was a huge disincentive to switch to another brand. And therein lies the problem for Nikon. How do you innovate your lenses while maintaining backward compatibility?

This wasn't much of a problem through to the late 1970s with Nikon's non-AI lenses (just don't mount them on a modern Nikon, although they work great with a lens adaptor). In 1977, the AI (Auto-Indexing specification was released), which indicates the lens' maximum aperture. These changes were indicative of the introduction of electronics into camera design that had been spearheaded by Pentax and Minolta — Nikon was playing catchup as autofocus loomed in view. While the 1983 F3AF was their first AF camera (using in-lens focus motors and TTL contrast detection), full AF didn't come to the F mount until 1986 with the AF lens range, which used an in-camera motor and a mechanical screwdriver linkage to focus. AF-S arrive in 1998 with in-lens ultrasonic motors and AF-P in 2015 using a stepper motor.

It's pertinent to remember that Nikon and Pentax were the only manufacturers not to introduce a new mount for AF in the 1980s. Canon brought in the EF mount in 1987, which removed all mechanical linkages, used in-lens motors, and incorporated the largest throat diameter of any SLR of the time; however, it broke compatibility with the previous FD mount. Pros gradually switched to Canon as the functional advantage was clearly preferable to the backward compatibility. Nikon's aging F mount significantly hampered its efforts to produce a competitive and compelling lens lineup. That's not to say it doesn't make high-quality lenses — it does — but the technical limitations of the mount put it at a disadvantage that has cost its customers.

2. Late Introduction of Full Frame Digital

I'll say it upfront: the D1 was brilliant in that it ushered in the DSLR to the mainstream. While it wasn't the first digital camera or digital SLR, it was the first that could replace a film camera. Nikon hit its groove big time. With a 2.7 MP APS-C CCD sensor that could shoot at 4.5 frames per second and accept the full range of F mount lenses, it had everything going for it. Nikon was pushing hard on the sensor technology inside its cameras and moved from CCDs to its own proprietary LB CAST with the D2H in 2003. Yet by the same point, Canon was already producing the full frame CMOS-based EOS-1Ds. It would take until 2007 for Nikon to follow that lead, releasing the highly regarded D3, D700, and D300 lineups. They were a potent triumvirate, but Nikon had already surrendered its lead. Was its investment in LBCAST to blame here? Was it able to produce sensors in sufficient quantity, at an appropriate price, for the market? It's hard to know, but the winning strategy was full frame CMOS.

3. The 1 System

The 2010s arrived with Micro Four Thirds mirrorless from Olympus and Panasonic, apparently blindsiding the industry. Manufacturers rushed out their own systems in the bonfire of lens mounts. Canon and Nikon played coy — DSLRs were technically superior, so mirrorless was seen as an adjunct for the amateur, and their systems reflected this. Nikon brought out the 1 System in 2011, opting for a small CX sensor (2.7x crop factor). However, they also innovated with a competitive mount (17 mm flange distance and 39.5 mm throat diameter), fast AF, and their first line of stepper motor lenses. It was certainly a good system, but they misjudged the market. Smartphones took over as the consumer camera of choice, Micro Four Thirds captured a significant slice of the burgeoning video sector, and Sony made a push for full frame mirrorless. Nikon (and Canon) were left floundering in a wild west of rapidly changing markets. Nikon realized its mistake after investing a significant amount of time and money, finally killing the system off in 2018. More importantly, Nikon surrendered six years of active development time to Sony, allowing them to claim the number two spot in interchangeable lens camera sales in 2018. Sony subsequently became the number one seller of full frame cameras in Japan in 2019.

4. Late Pivot to the Z System

By the end of 2012, the camera industry was riding high — sales had peaked at 120 million units per year, and the advent of mirrorless cameras provided a rich backdrop to the sector. Sony led the mainstream pivot to full frame mirrorless in 2012, then 2013 dawned, and camera sales collapsed, dropping back to 60 million units and then on into freefall. Was this just a blip? Would mirrorless prove to be a flop? By 2015, both Canon and Nikon would have known they were in trouble and a rapid pivot of strategy would be required. Sony was pulling in professional photographers and grabbing and increasing part of the ILC market. It took until the end of 2018 before their response, in the form of the Z system, arrived. It was good — in fact, very good — offering a svelte body, IBIS, and a market-leading lens mount. Launching with the Z 6 and Z 7, Nikon offered normal and high-resolution models that were competitive with Sony. Sony still had the edge, not to mention six years in which to build up its lens offerings. The Z System is pitching to consumers in a market that is very different from 2011 when it launched the 1 System. There is no real thirst amongst consumers for compact cameras — interest lies in mid-range ILCs and professional specification cameras, a market where margins can be higher. Launching a new system on the back of high sales takes the pressure off the financials and, ultimately, the bottom line. Trying to do the same thing when your camera division has sales in freefall and is running at a deficit is much harder.

5. Lack of Business Diversification

Capitalism thrives on companies selling goods and services before reinvesting profits in new ventures. Invent a great product, sell the heck out of it before your competitors catch up, then move on and sell something better. Sounds easy! The problems start mounting up when you spend more money than you receive in sales income. As I noted when discussing Nikon's medium-term strategy, cutting costs is critical, and these can relate to R&D, production, and sales. The problem with cutting R&D is that this is the bread and butter of your product roadmap; in order to produce a better product (and so increase sales income), you need to design and build it. In a growing market (as seen in the 2000s), this doesn't really matter, because you end up selling more regardless. In a contracting market, it's critical.

As manufacturers grow in size, they can expand production in four ways. Firstly, increase the volume of their core product (make more cameras). Secondly, move horizontally with similar products. Thirdly, move vertically into related products and industries. Fourthly, do something largely different. Many companies start with the first, then move to the second and third. For example, if you make cameras, you might move into lens production, sensor fabrication, and software products. Precision manufacturing of optical products might take you into surveying, medical imaging, and automated car navigation. Finally, "do a Musk" and just stay high tech. The serial Silicon Valley entrepreneur started with PayPal and has since set up SpaceX, Tesla, and SolarCity. The benefit of this last approach is that you can cross-subsidize and are not reliant upon one primary income stream.

What does this have to do with Nikon? As a company, it isn't nearly as diversified as other manufacturers. Just look at its main competitors to see: Sony and Canon both have significantly more employees and generate greater revenue from a wider range of sources. In 2015, Nikon's Imaging Division made up 68% of its income. Nikon has been highly focused on the camera sector to the extent that other manufacturers haven't, and this has made it vulnerable as income has fallen. It understands this weakness and is attempting to diversify.

Summary

Nikon is a camera company through and through, and while large ($5.5 billion turnover and 25,000 employees), its success has been largely predicated on the performance of its Imaging Division. The camera sector is in an unusual position — having had rising sales for over 40 years, existing management teams will not be used to seeing a contracting market that is falling back to the same levels as the 1980s. Nikon's current position is a result of all five of these strategic failures. It's adherence to the F mount allowed Canon to steal a march with the EF mount in the 1980s. Nikon managed to pivot more quickly to digital, but rapidly gave up that advantage by failing to release a full frame model. The 1 System was an expensive dalliance with a mirrorless that cost it time and money before it finally left the market in 2018. However, its reliance on the Imaging Division is stressing a business that has limited capacity to take financial shocks. The Z system is a world-leading product, but is it too late?

Lead image courtesy of MediaModifier via Pixabay, used under Creative Commons. Body image courtesy of NASA via Wikipedia, in the Public Domain.

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70 Comments

Adam Palmer's picture

My theory is that they were on top for so many years that when Autofocus came around they didn't take it seriously quickly enough. When I was in school in the late 90's all the older photographers used nikon and the young guys all used Canon. When you are on top for long enough you just want to keep doing what you have been doing forever. Same reason why Canon and Nikon drug their feet on full frame mirrorless for so long.

Johnny Rico's picture

Do you people not realize this stuff ebbs and flows?

paul aparycki's picture

don't understand the corporate world much, do you?

ebb and flow doesn't satisfy investors

Dave Dundas's picture

Yes it does. That's why we have buy and sell, long and short, options. Regardless of what Nikon does, it will satisfy some investors, and no company satisfies ALL investors.

Michael Dougherty's picture

Yes, it does ebb & flow all things being equal but, in this case, smart phones are moving into this space with larger sensors, computational processing, and superior communications. So far, the traditional camera makers are only nibbling at these features.

barry cash's picture

When they closed the NYC Nikon gallery by Rockefeller Center that's when Nikon started to lose it, they regained all they lost by making the D4 and then D850 but then someone smoking crack said Z and Zing Sang they lost the whole thang!

The road back isn't tough though someone not smoking Crack has to bury the Z'x's and bring out the new thang.

Blck Blt's picture

yasss queen!

Jan Holler's picture

I am not convinced. The Canon FD mount has a flange distance of 42mm, the EF mount of 44mm, Nikon F got 47mm. There have been decades of debates about what company makes the better lenses with no general result despite of the difference of the inner diameter of the mounts.
The quality of a mount is not just the flange distance and the diameter. It is about coupling the lens tight to the body and do so after a thousands of changed lenses. After all, Canon, Sony and others changed their mount for the mirrorless technology as well.
It is yet to be seen, if the mirrorless cameras can save the camera industry. I think those will survive who can endure the crises better. Nikon is sometimes late, but when they finally react, the resulting product is very competitive.
Many times it has been said that Nikon will be doomed soon, it just never happened. It could have, but it did not. I hope for the best for us that Nikon will not vanish. As a competitor to challenge the other remaining companies.

Les Sucettes's picture

You are correct. Success isn’t defined by mm but by $$. But the mm lead to the -$ that made them loose spot 1, and then spot 2 and possibly spot 3 ... at that point of consistent downward trend there will be no turning back and plenty of camera makers that have a good lineup but no 35mm / FF and may be interested in buying into this market. See also Minolta to Sony.

Nicolas KIEFFER's picture

Funny how SONY got the 2nd spot, but whatever you look at, photo contests, online statistics, SONY is never near the 4th place. It is fuji that is gaining places fast.
So maybe SONY is selling many devices, but something is lost somewhere in the race.

I am living in Paris, and I do not see much SONY cameras, majority is Canikon, then Fuji, then we see Oly and SONY almost equally... and frankly, it is really a small fraction of the people still using a photocamera instead of iThings/Android.

Les Sucettes's picture

What are andruids? Is that a gallic thing?

Dale Karnegie's picture

If I were to summarize the main issue with Nikon in one phrase: disregard for what their users want.

To some degree, all camera manufacturers suffer from this problem. (case in point: all modern cameras seem like relics compared to the sophisticated technology in smart-phones)

However, I do think Nikon leaders have a little bit of arrogance to them; they are pretty skeptical of change and frequently show up to the party with under-developed technology much later than their competitors.

I say this as someone who shot Nikon for a decade until 2019; the Z releases and the inability to ship new lenses without a 2 month delay was what pushed me over the edge

Thom hogan documents the head scratching decisions Nikon has made over the years in pretty explicit detail; read his blog if you haven't had a chance --

Deleted Account's picture

What "sophisticated technology in smart-phones" are you talking about? All I ever hear about is computational photography, which I have zero interest in. Anything else?

Dale Karnegie's picture

I'm talking about state of the art touch capacitive sensors, long-running background tasks, internet connectivity, and an operating system with an open "app store" of sorts. A camera platform that embraces innovation and software developers.

Allow astrophotography enthusiasts to download an app on their camera that helps them frame their shots in pitch blackness. Allow developers to create complex intervalometers that exceed the capabilities of what the camera companies themselves are willing to do. For ffs, allow me to edit and upload to a hero shot to my social media platform of choice straight from the camera...

There is no reason that a $3500 DSLR shouldn't be capable of running complex software that modernizes our interaction with our cameras -- and what they can do.

Basically I'm talking about bringing cameras to to the 2020s. These cameras cost 3-5x the cost of a smart phone, but act like appliances

Deleted Account's picture

Oh. Well, okay.

jim hughes's picture

IMHO there's at least one reason cameras aren't able to "run complex software": developing a custom, embedded OS that meets all these requirments - and is maintained and supported indefinitely - is a very large and expensive software effort.

Dale Karnegie's picture

Except Android is open source; a company like canon or sony could easily use that as a starting point for creating something tailored for a camera. I wouldn't underestimate these companies -- Sony is excellent with software; just look at what they have done for the playstation series

jim hughes's picture

I shouldn't underestimate Sony, nor should you underestimate the task. It's not a one-shot "perpetual beta" that only needs to run a few big name apps. It's a major commitment going forward. Security updates, real-time performance, boot time, networking... even a browser?

How many times have camera makers talked about this internally... and shot it down?

Glem Let's picture

I have to chime in a bit here Dale (not to criticise, condemn or complain 😀).
Nikon have always listened to their customers, the F90x (N90)..? All the way to the D810 the F90x was a tweaked version of the previous model after taking feedback from pro’s and the D810..? same feedback from D800/E owners..

I had all of the above and the tweaks made taking great pictures easier.

Today... right now... camera companies are rubbish at software and can’t even come up with universal raw file formats or universal memory cards, so that point is true...

Also today... right now... Nikon make the two ‘best’ pro cameras out there in the D850 and the D5.

Internet photographers and amateurs may prefer smaller, lighter mirrorless cameras and Nikon are dipping their ties in that arena but the have been a pro camera provider for decades, ask ANY PRO RENTAL house and you can’t get a D850 or D5 any time soon (pre Covid).

I think you could say Nikon learnt from losing mkt share to Canon with their EOS range and better AF back in the day and right now are not sitting on their laurels and are getting involved with mirrorless whilst still producing the very best dslr’s and lenses.

Wake up Canon..?

G

Lawrence S's picture

You should read into it. Today, smartphones can sense where the highlights and shadows are, and take a dozen different pictures in the time you take one picture with a pro DSLR and combine selectively to provide a near perfect exposure - one that takes some work in a RAW editor when you use a "normal" camera. It's really amazing if you really get into it. Especially the latest smartphones from Google (Pixel) and iPhone. Also, "Nightmodes" of both those cameras are exceptional, especially the iPhone. You take nighttime photos just casually in your hand without a tripod, the phone takes a huge amount of photos in a couple of seconds or faster and combines these and you get sharp, clean images that would take a tripod and long exposure to take with a "normal" camera. And this includes the "trick" to get the perfect exposure from my first point. There is also some work done on "fake" bokeh for portratis, which works more or less or not at all. But are clever either way. That's a lot of improvement for such a small device and small camera system.

Deleted Account's picture

Don't take this the wrong way but, I have absolutely zero interest in computational photography which is why I asked if it was about something other than that. Better sensors would be welcome and other related technology. All that other stuff, to me, is like going fishing and paying a scuba diver to put a fish on your hook.

Lawrence S's picture

I understand that. But there are times for spending an hour to get one shot and times where you need and prefer a quick shot in high quality. And everything in between. Both are a tool to get the same end result. A smart smartphone is waiting for you to press that shutter button, as much as the next Linhof large format camera. You decide the timing, composition and if you want, the exposure. The difference is, the Linhof takes the same picture and has the same picture taking process for about a century, while the process and possibilities for smartphones are evolving fast and offering ways and results that if you told me 5 years ago, I would found very hard to believe. I enjoy both worlds and have uses for both.

And to get back to the topic, I believe this is where the major camera brands (Canon, Nikon, Sony, Fuji, in no particular order) should fish for innovations and fight off the attack of The Smartphone on their sales.

Deleted Account's picture

And staying on-topic, I don't think it would help at all and not just because of my dislike for the technology. The preference of smart phones over traditional cameras started when smart phones were abysmally worse. Having embraced such bad imagery then, why would anyone suddenly see the need for traditional cameras now that smart phones offer much better quality? It's kinda like the death of CDs at the hand of MP3s when MP3s were limited to very poor quality audio; what could CDs possibly offer, now, to get their audience back?
No; I'm afraid quality has always taken a back seat to convenient mediocrity.

Dave Dundas's picture

Disagree. While mediocrity may be good enough for some, maybe even many or most, there will always be a market for quality (there will always be a market for mediocrity too, don't get me wrong). But even in a global pandemic/depression, you don't hear Mercedes, Ferrari, or even Rolls Royce filing for bankruptcy, or laying off thousands of workers, or pushing out "budget" models.

I think you may be confusing 2 different things and arriving at 1 conclusion for both. The fact that smartphones are relatively cheap, and also provide an "ok" camera in your hand at the same time, brings a capability to people that did not exist before. That new capability changes the playing field somewhat, along with the novelty of a new toy, and people have found it useful. Combine that with the fact that social media, which does well with visuals, is often viewed on a screen smaller than my hand, making a 5 mp image look just as good as one of my 20mp images, and well, that market is going to create problems for "professional" cameras. However, that's not the only market there is, and the vast majority of that market, was never a market for pro cameras in the first place.

Deleted Account's picture

I agree with you completely but was referring to how it effects the manufacturers. Before the advent of digital cameras, "camera" manufacturers sold X number of units and built their business on those numbers. When digital came along, a lot of people who would have never bought a film camera, bought digital and they adjusted to those new numbers. Going back to the pre-DSLR numbers will either cause them to go out of business or scale way back. The market from the last 15 years is NEVER coming back!

Alnoor Meralli's picture

Completely agree with you Dale. I’m a Nikon user for 3 decades. Nikon had become a follower. In doing so has made small leaps on existing technologies such as high megapixel cameras, but easily replicated by competitors. Examples of not listening to customer needs are video where it is sorely behind. Software is another area where Nikon is archaic. Nikon still sells tethering software whereas all other manufacturers, its just freely downloadable. Regards its strategy on mirrorless, I do think Nikon should have led with the consumer market offering first to secure that huge market wanting more capabilities than their smartphones; that market has been lost to Sony. Photographers working professionally do look at ROI on their investments in camera bodies and lenses. The Nikon Z7 and Z6 while great cameras will not generate nearly the same number of sales or revenue for Nikon compared to the consumer market.

Ziggy Stardust's picture

Yes. The Z cameras were too far behind other mirrorless in features to attract new users to Nikon and weren't pro specced that would persuade enough Nikon pros and prosumers to stay with the brand. Especially with the supply PR disaster of the 500mm PF.

Michael Dougherty's picture

"disregard for what their users want'. Yes and no. Elan Musk didn't ask potential customers what they wanted, he just made what he wanted and it became a success. Same with Bill Gates. The purpose of management is to create products and features that people don't know they want until after the company makes it. This becomes more difficult as the people who figured this out originally have been laid off or retired.

Dale Karnegie's picture

Elon musk, like all good designers, distinguishes between what people _say_ they want and what they actually want. When you assess the needs and desires of a user group you can not accept their requests at face value. You have to read between the lines, identify their pain points, and come up with a solution that solves their problem through creative thinking.

Ultimately you are still giving customers "what they want" -- its just packaged in a form they may not expect. And, ultimately, delights them because it's better than any solution they could come up with on their own.

When I wrote that camera manufacturers (specifically Nikon) doesn't give users what they want, I mean they don't truly understand their user-base, their pain points, and they don't use creative design thinking to address those problems in novel, innovative ways that take full advantage of the current state of technology.

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