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.
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?