Competitive Strategy

Compare traditional photography to digital imaging. What are the main structural differences? How have value creation and value capture changed from traditional to digital photography?

I. Following Sony Corporation announced its plans to launch the first filmless digital camera in 1981, the photography industry started to switch towards digitalization. Utilizing the five competitive forces theory to analyze the structural differences between traditional photography and digital imaging, differences mainly lie in three forces, namely entry barriers, bargaining power of buyers and rivalry among current competitors (see the figure below).

1) Shifting threat of new entry:

In the era of traditional photography, from the early 1960s attempts to entry the market had become extremely rare, because both entry barriers and incumbent advantage were very strong. By 1976 Kodak controlled 90% of the film market and 85% of camera sales in the United States, the economies of scale created an entry barrier for other competitors to enter. Another factor was product differentiation. Established firms have distinguished brand identification and customer loyalties, which stem from past advertising, customer service, and good quality. Good relationships with retailers also increased entry barriers by raising economies of scale and making access to distribution channels more difficult.

In comparison, digital imaging does not rely on the proprietary silver-halide technology, which is pioneered by single incumbent like Kodak. Based on new technologies of image sensor and computer, digital imaging industry welcomed new entrants to the immature market. Since 1985 dozens of new private-label varieties had entered, yet in 2002 the market was consolidating into a few major vendors like Sony, Kodak, Olympus, and Hewlett Packard, which indicates that digital imaging has entered the stage of economies of scale. Noticeable both industries require intensive capital and R&D investments, which generated high entry barriers.

2) Changing buyer power and threat of substitutions:

Buyer power was weak in traditional photography, as complements (film and paper) that are compatible were not available and the cost switching to substitutions was very high. After more labels