A case for new market entry – is this the right diversification?

I choose again to write this post about DxOLabs! My passion for photography keeps bringing me back here. DxOLabs – a company with interesting products (B2B and B2C)! They have three existing lines of businesses with good synergy. I had tried once before to visualize their business model & suggest two possible opportunities in this previous post (Business Model Canvas – validating a reading – DxOLabs.com).

I write again about DxOLabs (hereon referred to as DxO) as I noticed a job post on their website – which particularly drew my attention – “Product Manager – Consumer Devices”. A snapshot of the job post is here below

Product Manager - Consumer Devices
Product Manager – Consumer Devices

Although it looked an interesting opportunity to venture into, I decided– for my own sake – to analyze this move towards ‘Consumer Devices’!

The starting point: ‘what exactly are they trying to make’? With little public information available about DxO, the best starting point is the company itself – the job-description (JD) to start with.

“Consumer devices leveraging the connectivity of a mobile phone to create a stunning camera fitting in your pocket” – that helps me draw a mental picture about this consumer device.

  • Is a camera for sure
  • Will have an integrated connectivity-module
    • Like WiFi, to communicate with PCs/Laptops/Phones
    • Like (mobile-telephony) radio capabilities
  • Has to be compact – either that or there is a trend of increasing size of the pocket!
  • Will be sourced from white-label ODMs in China (given that Chinese language skills will help)
  • Might be sold in French(& English) speaking regions (say Europe to start with) or US & Canada (unlikely given the large geographic spread)  – as the JD necessitates exceptional French/English speaking abilities

In short, my hypothesis: It is a fantastic “point & shoot camera” with advanced capabilities, to be sold in the European market! I might be wildly off-target – but I believe it’s my best guess.

Starting with evaluating the target market – is this an interesting market to venture into?

The growth rate in this segment has not been encouraging. A measure I thought of using was the trend of possession of camera in households. I could pull this figure out for various regions, at various units of aggregation – country level or region level – using two examples, say Western Europe to depict region-level trend and Germany to depict a country level trend. (See two figures below. Source: Euromonitor)

Western Europe - Possession of Camera (% of households)
Western Europe – Possession of Camera (% of households)
Germany - Possession of Camera (% of households)
Germany – Possession of Camera (% of households)

Germany for instance shows a rather alarming trend of the forecast-ed growth rate being less than half of that in the recent past (0.4% vs 0.9%). While the absolute numbers may be less relevant directly, the relative figures are not encouraging. On a larger scale, even the Western European region shows minor slowdown in adoption (0.3% forecast vs 0.4% past CAGR). I believe this figure would be cumulative of ‘point & shoot’ and higher segment cameras like DSLR (which are witnessing higher growth). That is ascertained by some disheartening statistics about the point & shoot segment. Research here suggests that back in 2011 sales in this segment dropped by 30% in a year! That’s a sharp drop indicative of tough times ahead.

That leads me to talk about the most probable cause of this drop – pervasiveness of Smartphones & Tablets. The increasing computing power available in handheld devices and the fall in size & price of camera parts are added reasons for consumers to rely more on their phones than on yet another camera. The emergence of Compact Digital SLRs might be a good sign, but it remains to be seen how long before this segment reaches its maturity level? It also raises questions on my first hypothesis – is this ‘consumer device’ a Compact DLSR?

The most obvious substitute to a Camera is a Camera-phone. The threat from this substitute is extremely high – especially because Smartphones/Tablets allow instant social-media connectivity! I have personally on several occasions within Europe seen people holding up the Tablet to click a snap where I am fumbling with a bulky DSLR (albeit I love my DSLR for reasons of my own beyond the scope of this postJ ). There also is ample evidence to suggest that Smartphone vendors are upping the ante w.r.t photography capabilities.

The large variety of consumer devices at various price points from these several vendors raises questions about price-competition. An already crowded market with several established players is a tough one to crack into – and stay in profitably.

There is also a need for an appropriate distribution channel to market consumer devices. Retailers are a major sales channel for camera manufacturers, complementing their own direct & online sales channels. Each country (or region) has a set of dominant distributors & retailers.

Camera makers are thus facing competition not only from their industry peers, but also from Smartphone makers. For instance while Nikon & Canon might be players in camera industry, Samsung also leverages its camera capabilities into its Smartphone offerings. Others like Apple and HTC are the unexpected competition these camera makers now face.

Where does DxO Labs fit in this scheme of things?

  • Brand recognition! This is the most important challenge to overcome – while DxO’s software products are used by a set of professional photographers – this device is targeted at a different segment.
  • The increasing consumer inclination to use Smartphones as their compact photography companion is a trend that should keep DxO on its toes during this market entry
  • Increased investments by Smartphone vendors in camera technology embedded in the phones will be a challenge to match – a case of asymmetric resources
  • Multi-point competition is an aspect to be managed cleverly, particularly because DxO is a technology supplier to some of the consumer electronics vendors; introducing its own device will pitch DxO as a direct competitor to their current partners
  • DxO will have to build its B2C and distribution-channel capabilities; it is quite different licensing hardware ISP to businesses vs. selling a consumer device to an end consumer
  • DxO will have to deal with margin pressures when dealing with consumer electronics retailers – else focus majorly on going the online-sales channel

Why would DxO want to enter this space?

A few reasons I can think of are below:

  • With its imaging-hardware capabilities, perhaps DxO believes it can market their own consumer device and grab a piece of the current pie
  • DxO’s online presence through DxOMark.com and its photography software could help build some brand recognition – but addressing the right segment is crucial! Scaling down their imaging software capability and plugging it onto this device can help it mimic Instagram or Vine… but there are miles to go before DxO can leverage social media to gain traction.

That makes me wonder – how about tying up with its regional brethren Fotopedia.com and provide some interesting effects to the vast pool of images, or maybe explore options with Flickr to gain traction in Europe.

Nevertheless, the choice of target market is extremely tricky – unless DxO has a bag of tricks in place already that is deeply concealed from the public domain, it will be tough ride in the long run!

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