Tuesday, March 22, 2005

Digital blindspot

UK leading camera retailer and photo processing business Jessops (which only floated last November) issued a regular trading update yesterday, in which it said full year results would be "significantly below" previous expectations. The market responded with a brutal 30% drubbing of the share price. The Financial Times coverage of the story quotes the CEO as saying that the past six weeks have been the worst he has seen in seven years at the company, and underlines the fact that management apparently had no explanation for the sudden deterioration. Apart from whatever seasonal and macro effects may be involved, is there more to the story than is being considered?

This slide pack (see page 11) from the maiden set of results last December contains a discussion of market dynamics and a market forecast out to 2008, with observations that the replacement cycle for digital cameras is shorter, and that the company has first mover advantage in digital processing and printing. However, to a casual outside observer there are a couple of obvious pieces missing from the puzzle: cameraphones and online photo hosting/sharing. As I thought people in the imaging industry might have clocked by now, cameraphones are getting steadily more acceptable as candidates to absorb replacement demand from "traditional" digital cameras, and at an almost ludicrous pace. It also seems to me that the market outlook given last year clearly ignored the potential for demand to be sucked out of the local market, and into cyberspace, by global players with other agendas (sound familiar, telcos?).

It seems hard to believe that this would not have even been factored in to the previous outlook, and if my reading of the situation is correct, it looks like another example of industry vertical silo thinking ("TV and internet are fundamentally separate media", "Skype can never be an acceptable replacement for the QoS of the PSTN", "Freeview can't be viewed as serious competition to pay TV", "cameraphones are not a suitable replacement for digital cameras.") Consumers famously vote with their feet, and it's painful when companies get so badly wrong-footed.

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