Case Study Leica

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Rev. May 16, 2014
LEICA CAMERA: A “BOUTIQUE” FIRM FACES A WORLD OF CHANGE
Leica must be kept from becoming a boutique firm for the nostalgically minded.
Purchased for use on the GEEN-1016, Strategy & Management, at Faculty of Engineering & Science, University of Greenwich.
—Dr. Josef Spichtig, Leica chairman, 2005 annual report
Leica Camera AG CEO and principal owner Andreas Kaufmann was melancholy while
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strolling the floor of photokina—the world’s largest photography industry trade fair. The
biannual event took place in Cologne, Germany, less than 100 miles from Leica’s headquarters
in the small town of Solms. Being so close to home made Kaufmann feel more like a host than
an attendee, and after having had another tough year in 2008, he did not relish the spotlight.
Kaufmann had fired the previous CEO, Steven K. Lee (an American), a few months earlier after
Lee’s efforts to turn around the struggling company had rubbed longtime German employees the
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Leica’s big announcement at photokina was the launch of the M8.2 digital system
camera—an update to the M8 model that had been unveiled two years earlier at the same trade
show. The M8 had had problems processing infrared light, which caused some black colors to
appear purple. To resolve the problem, Leica had provided free filters to M8 owners and sent
4,000 letters of apology hand-signed by Lee.1 The M8.2 fixed all that and featured some new
exterior finishes, but Leica’s most devoted followers were looking for signs of something else:
what lay ahead for the company’s famed R-series cameras and lenses?
Kaufmann was preparing to make a decision on the company’s well-loved but antiquated
R series. The line included expensive analogue SLR cameras and an array of high-end, expensive
R lenses that Leica’s die-hard fans had amassed since its introduction in 1976. The choices were
simple with varying complications—Leica was a small company, and investing resources would
1
Mike Esteral, “Late to Digital, Leica Slow to Refocus; German Camera Pioneer Fired American CEO Who
Pressed for Filmless Future,” Wall Street Journal, September 16, 2008, B1.
This case was prepared using public sources by Bill Chapman, Case Writer; Gerry Yemen, Senior Researcher; and
S. Venkataraman, MasterCard Professor of Business Administration. Kaufmann’s thoughts are fictionalized for
pedagogical reasons. It was written as a basis for class discussion rather than to illustrate effective or ineffective
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be a tradeoff. Should Leica invest capital in a product-line extension for the R-series lenses?
Would innovation focused on a new digital Leica camera line aimed at professionals be a better
choice? Or would investing more capital in a digital product by expanding the M-series line of
cameras and lenses make the most sense?
Company History
Photography was all about capturing a moment in time, either to document it, convey a
message, or elicit an emotion. The camera and lens were the tools that made that possible, but as
photographer Erwin Puts noted, “Leica owners have a special relation to the camera...” or as one
enthusiast claimed, he “adore[d] his Leica with heart and soul.”2 For many professionals, the

brand was more than a wind mechanism for film or a container of image files and a light meter;
it was, well, Leica!
Leica traced its origin to a mid-19th-century German microscope manufacturer Ernst

Leitz GmbH. In the 1920s, Oskar Barnack and Ernst Leitz II (a son of a company partner who
rose into the management ranks) developed and produced the first small-format camera to enter
mass production. Prior to this, cameras had been large and fairly immobile, typically requiring
tripod mounting to support their weight. The image captured by the camera was recorded on a
glass plate negative, and the resulting photographic print was the same size as the plate. Their
innovation was a compact camera that created a small negative (35 mm was the standard they
eventually settled on) and then later used an enlarger to magnify the image, resulting in a larger
print. This process revolutionized photography and led to the creation of consumer cameras. The
company name was eventually changed to Leica, a combination of Leitz and the German word
for camera.3
The well-known French street photographer, journalist, and artist, Henri Cartier-Bresson,
had been an early adopter of the 35 mm format and took many iconic images including those of
Mahatma Gandhi’s funeral in 1948 and of the Chinese Civil War. The portability of his Leica,
which he had famously wrapped with black tape to cover the shiny parts, helped him blend into
the streets to capture people and scenes in a different way than had been possible up to then
given the limitations of studio portraiture. In a sense, the Leica was the first point-and-shoot
camera.
War photographer Robert Capa took “Death of a Loyalist,” his iconic image of the
Spanish Civil War, with a Leica 35 mm, and Nick Ut famously captured the shot of a naked
2
Erwin Puts, “Are Leica Owners Photographers or Technophiles?,” Tao of Leica,
http://photo.imx.nl/leica/leica/leica/page101.html (accessed Oct. 2, 2012).
3
“History: From a Flash of History to the Birth of the Leica Legend,” Leica, http://en.leica-
camera.com/culture/history/ (accessed Oct. 11, 2012).
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Vietcong girl fleeing the horror of a napalm attack with a Leica M2. Queen Elizabeth was a
Leica fan and was pictured in 1986 on a 60th birthday postage stamp holding a Leica M.
The company went through a number of ownership transitions through the latter part of
the 20th century. In 1986, Leica GmbH was formed to manage the camera division of Leitz; a
year later, it became an independent division of Wild Leitz AG, a manufacturer of microscopes
and surveying instruments. A new headquarters and production facility were built in Solms.
In 1990, Wild Leitz merged with the British optical group Cambridge Instrument
Company to create the Leica Holding B.V. group. In 1994, former CFO Klaus-Dieter Hofmann
was successful in leading a management buyout of the camera division, which was then named
Leica Camera AG. The company went public on the Frankfurt stock exchange in 1996. In 2004,

the Kaufmann family investment firm—ACM—bought 27% of the company and eventually
acquired most of the thinly traded shares after further acquiring a 36% stake that had been owned
by luxury goods manufacturer Hermès International SCA. In 2006, Steven K. Lee, a former VP
for Emerging Business and Strategic Development from electronics retailer Best Buy, was hired
as CEO to lead the company toward a more digital future.
Rise of the SLR

In 1959, the Japanese company Nikon introduced the Nikon F, an SLR camera that was
adopted by many professional photographers who were recording news events of the 1960s,
including the Vietnam War. SLR stood for “single lens reflex.” “Reflex” referred to a mirror
(“reflection”) inside the camera, and “single lens” meant that one looked through the main lens
of the camera as one framed the shot. Earlier cameras typically used a rangefinder—a secondary
opening mounted above or beside the lens. Depending on the distance from the camera to the
subject, the rangefinder might not have been framing the exact shot one saw through it;
therefore, SLR was seen as an advance by serious photographers. SLR cameras also had very
little shutter lag, and when combined with a motorized film loader on the back, the camera could
produce rapid-succession shots of high-drama events such as rocket launches.
Under pressure to compete with Nikon, Leica introduced its own SLR—the Leicaflex—
in 1964. This led to a line of SLR cameras that was eventually dubbed the R series; cameras in
this series carried names such as R4 and R6 and typically sold in small numbers. Even as the
industry moved toward digital cameras in the mid-1990s, a subset of traditionalists resisted the
move for aesthetic and philosophical reasons, and Leica was there to serve them with R-series
SLRs that retailed for (U.S. dollars) USD2,495 before the purchase of any lenses. New Yorker
magazine film critic Anthony Lane paid a visit to Solms and wrote that the Leica factory was
“the place to go if you want to find the most beautiful mechanical objects in the world,” and
Leica users reminded themselves via an online discussion board of Cartier-Bresson’s metaphor
of his Leica as “a big warm kiss, like a shot from a revolver, and like the psychoanalyst’s
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couch.”4 The Leica R series had a very strong penetration among European photographers
(especially in German-speaking countries), and its world-class quality and precision made it the
camera for professionals, enthusiasts, and hobby photographers.5
Throughout its SLR camera development, Leica designed an array of R-series lenses that
many photographers favored. The eye of the camera, or the lens, was thought by some to be the
most important part of the image-taking chain, and camera companies invested considerable
resources into the design and manufacture of high-quality SLR lenses. Most camera
manufacturers made sure their lenses were forward- and backward-compatible within a series
and kept that technology proprietary by ensuring their lens mounts were unique to that series.
The first reflex lens in the R series was introduced in 1964 with the original Leicaflex camera.
Over the years, the company had had numerous optical breakthroughs and developed a series of

lenses that could be divided into four categories:6 one-cam lenses (Leicaflex), two-cam lenses
(Leicaflex and Leicaflex SL and SL2 models), three-cam lenses (R3 and later Leicaflex models),
and ROM lenses (R3 and later models). Cams were used in camera mount technology. Each
Leica camera body series had a dedicated lens mount; lenses that were incompatible with that
body could not be mounted to it (i.e., lenses that were developed to go on the one-cam
technology could not be mounted onto bodies with two-cam technology). Sometimes lens
mounts were incompatible even within a manufacturer’s series. With the use of camera-specific
adapters, R lenses could feasibly be used on almost any SLR camera.7
Given Leica’s experience in the field of microscopy, the company had a strong edge in
glass expertise. Essentially there were two choices for lens makers—develop lenses for mass
production and less cost or develop lenses for maximum image quality with little cost limitation.
Leica was the developer of the best lenses money could buy. With the option of using a
combination of over 100 different types of optical glass, the standard Leica lens was composed
of around 100 individual parts. A mixture of machine- and man-made, lenses were checked by
technicians more than 60 times throughout the manufacturing process (which differed depending
on the glass type); roughly 30 production processes were done by hand. The precision
adjustment of optical elements within each objective lens required skilled craftsmanship. Each
Leica lens had a unique serial number, and the “lens made in Germany” inscription was
guaranteed to be visible for decades. Before any lens was delivered, it was completely hand-
inspected, and each function was tested. As the company liked to note: “Leica Lenses: A
Synonym for Quality, Made in Germany.”8 The cost was almost beside the point—for example, a
fast standard Leica lens fetched around (euros) EUR8,000 (USD11,600)—the brand was of
4
Anthony Lane, “Candid Camera,” New Yorker, September 24, 2007.
5
Olaf Stefanus, “S, M, X,—And R?” Leica Fotografie International, January 1, 2011, 31.
6
A cam was located on the rear of the lens mount; it communicated aperture opening information to the
coupled external light meter of the camera.
7
Third-party companies came into the picture and started developing adapters that involved this expensive
technology.
8
“Leica Lenses: A Synonym for Quality, Made in Germany,” video of Leica’s lens-making process, 2:33,
http://en.leica-camera.com/photography/m_system/lenses/ (accessed Oct. 11, 2012).
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utmost importance, and there were waiting lists for expensive Leica lenses.9 Indeed, demand for
Leica lenses had exceeded the firm’s manufacturing capacity by the end of fiscal year 2008 and
caused an order backlog.10 Anything associated with Leica had become a collector’s item.
20th-Century Camera Industry
Other than the development of portable, affordable cameras such as the 35 mm, the major
transformation of the camera industry’s modern era was the move to digital imaging. A digital
camera used a traditional lens to transfer an image into the camera body, but once there, it was
captured on digital image sensors rather than on film. This was noteworthy because a digital
image could immediately be viewed on the camera itself or a computer screen and could quickly

be shared with others by e-mail. In contrast, film images typically needed to be printed later,
which was a comparatively slow and expensive process.
By 2008, most consumers had switched from film to digital cameras. Nikon had made
headlines in 2006 when it announced it would stop making film cameras (in fact, it would
continue to produce a film SLR, but most consumers did not know or care). Professional
magazine photographer Mark Greenberg told the Washington Post: “To use a car industry
analogy, it would be the same as Ford saying it is no longer producing an internal-combustion
engine. It’s really that revolutionary…film is done. Digital rules the world now.”11
The invention of digital photography also led to a rise in camera ownership. Essentially
there were three categories of people who bought cameras: high-end purchasers who worked in
commercial photography (e.g., magazine advertising), middle-segment professional
photographers (e.g., photojournalists), and low-end buyers seeking cameras for consumer
applications. The onset of affordable top-end digital SLRs (DSLRs) sat poorly with many
professional photographers who showed up to snap photos of events to discover amateurs taking
professional-quality pictures. Commercial and professional photographers often remained loyal
to perfectly engineered cameras. “Our customers buy for different reasons,” one Leica managing
director said. “They appreciate precise mechanical and optical engineering.”12 Indeed, there were
stories of professional photographers driving around in cars worth USD5,000 with USD70,000
worth of camera equipment in the back seat.
By the end of 2002, approximately 23 million U.S. households—nearly 20%—owned a

digital camera.13 The next year, 40% of U.S. households were expected to own at least one digital
9
Stefanus, 28.
10
Leica Camera AG annual report, 2007/08, 11.
11
Mike Musgrove, “Nikon Says It’s Leaving Film-Camera Business,” Washington Post, January 12, 2006.
12
Alan Cane, “A Blurred Picture: Digital Photography Is Soaring, But Don’t Write an Obituary for Film Just
Yet,” Financial Times, March 9, 2004, 11.
13
“Digital Camera Ownership Almost Mass Market,” Digital Photography Review, April 22, 2003
http://www.dpreview.com/news/2003/04/22/pmadcreport (accessed Oct. 11, 2012).
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camera by year-end. And in a sign that the market was maturing, from 2005 to 2007, the number
of households that owned more than one camera increased from 31% to 40%. The year 2008 was
the first one since 1999 for which the North American Consumer Digital Camera Forecast
predicted only single-digit growth.14
SLR cameras did not disappear; they went digital. By now, SLRs represented a mere
fraction of the overall photography market. In Japan, for instance, there were 10.9 million units
shipped in 2007, but only 9.7% of those units were DSLR. The balance comprised cheaper and
simpler digital cameras. Global trends were similar (Table 1).
Table 1. Global unit camera sales in 2007.

Total units sold 138,000,000
Digital units sold 126,000,000
Digital SLRs sold 7,000,000
Data source: 2008 Market Share Reporter (Detroit, Michigan:
Gale Group, 2008).
While profits may have contracted with the shrinking SLR sales, there was a distinction
to be made between developed and developing markets. With the instability of the global stock
markets and significant drop in market value during late summer 2008, camera sales were
expected to be moderate in developed markets. Yet in developing countries, especially in Eastern
Europe and China, market size was expected to grow, particularly for entry-level DSLRs.15
Leica Confronts Change
Andreas Kaufmann’s ACM investment firm found itself at the helm of a company that
faced an “existence-threatening” crisis by the end of 2005. While the global camera market grew
by approximately 14% in 2003, 47% of the units sold were digital cameras, and 53% were
analogue. Leica’s legend and reputation for film cameras left it particularly exposed to this trend.
Although Leica had launched its first digital camera (the S1) in 1996 at USD30,000 per unit,
only 146 were sold.16 Sales of system cameras (R series as well as the rangefinder M series) fell
25.8% for FY 2003–04, and compact (digital) camera sales fell by 23.3%. For the first time, in
2004, Leica told investors of the “considerably reduced margins” in digital cameras as well as
“shortened product life cycles” and a “shift in sales channels to large distributor formats.”17
14
Infotrends, “Maturity Changing Dynamics of U.S. Digital Camera Market,”
http://www.infotrends.com/public/Content/INFOSTATS/Articles/2008/10.28.2008.html (accessed Oct. 11, 2012).
15
Canon Inc. Form 20-F, 2008.
16
Laura Stevens and Eyk Hennings, “Blackstone to Buy Minority Stake in Leica,” Wall Street Journal, October
20, 2011.
17
Leica Camera AG annual report, 2003/04.
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Under economic pressure themselves, specialized camera dealers that had handled the
bulk of Leica’s retail sales were ordering fewer system cameras. In response, Leica management
reduced the size of its dealer group but moved to using in-store “shop-in-shop” installations to
emphasize the brand and offer “very good service to the sensitive Leica customers.”18 Serving the
customer included filling custom orders. For example, at the request of one of its customers (the
Sultan of Brunei), Leica revived a discontinued model and produced 20 cameras in Persian Pink
to be used as party favors.19 And it made history when it crafted a Leica lens costing
USD2,064,500 for Sheikh Saud Bin Mohammed Al-Thani of Qatar.20
Despite its superior customer service and custom orders, Leica’s situation became even
direr the following year. Sales fell to EUR92 million from EUR157 million four years earlier, a
period during which nearly 400 employees had been shed. Operating losses for the fiscal year

increased to EUR14.6 million from an operating income of EUR2.9 million the previous year.
The global move toward less-profitable digital cameras increased (only 36% of sales were
analogue now), and Leica claimed that the “high development costs” and “rapid succession of
product generations” had caused “all market players” to suffer “considerable losses.”21
Management called an ad hoc meeting in March 2005 to announce a loss of “half of the
company’s registered share capital” and its plans for a capital raise and turnaround attempt.
Banks terminated the bulk of Leica’s credit lines, and bridge loans were extended by major
shareholders. Despite the opposition of some institutional shareholders, the firm did raise
EUR22.95 million in additional capital and survived the crisis.
Rise of Japan: Canon and Nikon
The rise of digital photography went hand in hand with the success of a group of
Japanese companies. Market leader Canon was launched in 1933 in an apartment in Japan at a
time when most high-quality cameras came from Europe. Canon introduced its first 35 mm
camera in 1935 to compete with the German Leica model. Following World War II, Canon’s
slogan became “catch-up with and surpass the Leica,” and its less-expensive rangefinder camera
became popular with the U.S. occupation forces.22 By 1967, Canon was a global diversified
company that made photocopiers and calculators; it operated under this motto: “Cameras in the
18
19
Ken Rockwell, “Leica Lens Serial Numbers,” http://www.kenrockwell.com/leica/lens-serial-numbers.htm
(accessed September 28, 2012).
20
Ryan Whitwam, “The $2 Million Leica Lens You’ll Never Get to See,” August 25, 2012,
http://www.geek.com/articles/gadgets/the-2-million-leica-lens-youll-never-get-to-see-20120825/ (accessed Oct. 2,
2012).
21
22
“Canon Camera Story: 1937–1945,” Canon Camera Museum, http://www.canon.com/camera-
museum/history/canon_story/1937_1945/1937_1945.html (accessed Oct. 3, 2012).
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right hand, business machines in the left.”23 In 1976, the Canon AE-1 was introduced, an SLR
with a built-in microcomputer to help with light metering and other functions.
By 2002, Canon was reveling in the rise of digital cameras, crediting them (along with
digital video cameras) for the greatly improved profitability of the company’s camera division. 24
Canon had launched a new DSLR, the EOS-1D, to take advantage of what it said was a doubling
of the market for DSLRs; it even pledged to maintain its lead in the film camera segment by
bolstering sales efforts in Asia, Eastern Europe, and South America—markets where it foresaw
“lasting expansion.” Even at this late date, Canon hoped to “revitalize the global market” for film
cameras by launching new products.25
Canon continued to thrive in the new environment, growing sales and controlling the top

spot in both digital cameras and DSLRs; it stopped developing new film cameras in 2006.
Camera sales more than doubled from 2002 to 2006. In addition, Canon was competitive in the
interchangeable SLR camera lens segment. With its own high-quality optical glass production
and lens machining and assembly processes, Canon offered more than 60 lenses and unveiled
four new interchangeable lens models in 2008.
The company was well suited for the continual product development that was required
due to its in-house production of image sensors and its successful move away from creating
physical prototypes toward designing all products using 3-D CAD technology. The strategy was
to integrate advanced technology with cameras to develop “innovative, high value-added”
products. For example, the technology developed for the professional photography market, such
as the EOS-D1, was incorporated into consumer camera products.26 Canon’s target was to appeal
to a broad range of photographers, from professionals to entry-level users. And the pairing of
technology and innovation helped keep production costs lower.
Although it led in the midrange SLR camera segment, Canon intended to achieve further
innovations through “aggressive investment in developing new models” and introducing more
SLR interchangeable lenses.27 For photographers looking for high quality and a technical edge,
Canon was gaining popularity. The mass-produced SLRs and lenses were popular with
enthusiasts, and by 2008, Canon was on its way to owning a 41.3% market share for DSLRs (the
EOS 50D retailed for USD1,250 for camera body only).28 Indeed, as the Canon tagline claimed,
“image is everything.”
Close on Canon’s heels was another Japanese firm, Nikon. Started in 1917 as an optical
instruments company that made, among other things, lenses for Canon cameras, Nikon began
23
“Canon up to Now,” Canon, http://www.canon.com/about/history/outline.html (accessed August 24, 2012).
24
Canon Inc. annual report 2002, 31.
25
Canon Inc. annual report 2002, 2.
26
27
28
Technology Outlook 2009, JPMorgan Chase & Co., December 11, 2008, 87.
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producing its own camera bodies in 1948. In 1959, it released the legendary Nikon F SLR. An
innovation at Nikon was the development of the F system of lenses and accessories, which
appealed to professional photographers.29 “Nikon is the leader when it comes to compatibility
among cameras and lenses of different decades,” photojournalist Ken Rockwell said. “Most of
today’s lenses are compatible with ancient cameras, and most ancient lenses can be made to
work fine on today’s digital cameras.”30
By 2003, Nikon was a diversified firm with 57% of its sales in the Imaging Products
division, which comprised mostly digital cameras. Though the company was operating at a loss
and even suspended its dividend that year, it blamed the weakness on a slowdown in the
Precision Equipment (digital steppers) division and spoke of “excellent business conditions” for
digital cameras. A major manufacturing plant was established in Wuxi, China, so that more

components could be built in-house, reducing the risk of depending on third-party suppliers.
Nikon strengthened its position in the “high-end consumer digital” niche with its D100 SLR
(USD1,999 for camera body only) and planned on venturing further into the “middle class” and
“popular class” camera markets. Nikon credited its sales increases and gain in operating income
to the high-margin DSLR cameras and cost-reduction efforts; sales in the Imaging Products
division rose 23% to (Japanese yen) JPY272 billion, with operating margins of 10%.31
By 2005, Imaging Products sales had grown to JPY354 billion, but operating margins fell
4.7% (JPY16.8 billion).32 Management spoke of an “urgent focus on raising profits in the digital
compact camera sector” and an “urgent need” to “compress development and production lead
times to cope with shrinking product cycles.” It intended to increase profits in the SLR segment
by focusing on interchangeable lenses and related services. 33 Nikon also acknowledged its film
loyalists by launching a USD2,500 F6, which it hoped to make “long-selling and popular.”34
By 2008, net sales in the Imaging Products division had risen to JPY586 billion (with an
operating income of JPY84 billion or 14%), seemingly in sync with the Nikon tagline “at the
heart of the image.” The company launched three new DSLR models and reported a
“considerable” rise in the sales of existing models (D3 professional flagship for USD4,999). In
addition to increased camera sales, lens sales also rose.35
Management revealed an important change in its approach to design that demonstrated its
customer focus: “Products were formerly created under the direction of the design department,
29
“Corporate History,” Nikon, http://www.nikon.com/about/info/history/chronology/index.htm (accessed
August 24, 2012).
30
Ken Rockwell, “Nikon Lens Technology,” http://www.kenrockwell.com/nikon/nikortek.htm (accessed Oct.
11, 2012).
31
Nikon Corporation annual report 2003, 17.
32
33
34
35
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but now the marketing department presents ideas to the designer based on market needs.” 36
Nikon was accelerating its product development and was driven by the belief that a “full lineup”
of products—from high-end to entry-level models—would be key to its success at capturing a
larger share of the SLR camera market. The less-expensive and easier-to-use SLR cameras
expanded Nikon’s market to reach more amateur enthusiasts, and its top models continued to roll
out for those who purchased them based on features, not price—the traditional SLR camera
market of serious photographers such as Galen Rowell. Nikon controlled 39.9% of the global
market for DSLRs in 2008, and over 40 million of its interchangeable SLR lenses had sold by the
end of the fiscal year (March).
After Canon and Nikon, market share was split among smaller players such as Pentax
(6.5%), Sony (5.2%), and Olympus (4.5%).37

European Competitor: Hasselblad
Leica was not the only storied European company making high-end cameras and lenses
for professionals and collectors. Started as an import firm in Gothenburg, Sweden, in 1841,
Hasselblad had discovered that photographic equipment was a growing line of business. Viktor
Hasselblad, son of the company founder, was honeymooning in Europe when he happened to
meet George Eastman. Eastman was about to found Kodak, the American company that would
play a major role in making photography available to the masses. Hasselblad became an
important distributor of Kodak products in Europe.
Viktor’s son Victor Hasselblad, by then a self-styled photography expert, took over the
company in the early 20th century. By that time, Hasselblad had become the blue-blood global
camera brand of many a professional photographer. After a stint making cameras and clocks for
the military during World War II, the company introduced its first consumer camera in 1948.
Called the 1600F, it was an SLR designed to work with Kodak lenses. Over the next 60 years,
Hasselblad became known as a maker of “medium-format” cameras featuring film that was
larger than the industry-standard 35 mm. Medium-format cameras were most often used by
professionals who required higher-resolution images that they could significantly enlarge for fine
art displays or billboards. With its integrated system, each camera was weather-sealed and
featured a lifetime warranty and dedicated help if replacement parts were needed.
Hasselblad manufactured its lenses through partnerships with highly skilled optical
makers—Carl Zeiss, for example, engineered some of the lenses and the shutters. More typically
though, the lens would start as collaboration between Hasselblad and Fujinon, Kodak,
36
37
Technology Outlook 2009, 87.
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Rodenstock, or Schneider and was designed and manufactured to Hasselblad’s specifications.38

Hasselblad would build and assemble the central shutter and iris diaphragm, and its partner
would grind the lenses and assemble the rest of the parts.
Hasselblad was a relatively small firm, with about 500 employees, that produced cameras
for professionals throughout the 1970s and 1980s; it supplied the camera that took the first
photos of Neil Armstrong walking on the moon in 1969. In 1981, CEO Jerry Öster saw the first
digital camera (the Sony Mavica) but was unimpressed by its image quality. Increasingly,
though, Hasselblad became concerned that it did not offer such modern functionality as
autofocus. Management eventually concluded that the firm was too small to afford the R&D
necessary to develop a modern camera.

By the 1990s, a new CEO with an electrical engineering background was installed to
develop a digital camera. Company officials realized early on that, while digital image quality
was lower than that of analogue, the business utility was potentially higher, so they targeted
professional studio photographers who could benefit from digital technology’s ease of sharing
and ability to make multiple prints quickly and cheaply. Hasselblad used its strong brand
reputation to forge a partnership with Philips to provide digital sensors.
In 1996, the Swedish Bank UBS bought Hasselblad and realized that, while the company
had focused on digital development, it had lost its leadership position in film cameras (“we only
had one budget…and money had to go to either the digital camera system or the mechanical
camera system,” one product manager recalled).39 UBS cut off all digital development,
concluding that the Japanese were the only ones equipped to address the image-quality problems
that plagued digital and threatened to harm the Hasselblad brand. Internal resources were turned
back to developing analogue cameras; digital was pursued via a “digital back” joint venture with
Fuji and a product dubbed the H1.40
For four years, the H1 was plagued by delays and budget overruns; it finally launched in
2002. By that time, digital technology had improved, and the H1 was a cumbersome, expensive
combination. Wedding photographers once loyal to Hasselblad had switched to Canon.
The Shriro Group, a Hong-Kong-based distributor, acquired Hasselblad in 2003 and

downsized quickly to avoid bankruptcy. Knowing that it could not produce a new digital system
camera in its weakened state, Shriro acquired Imacon, a Danish maker of digital camera backs,
38
Michael J. Hussmann, “The Evolution of Lenses,” Hasselblad USA, March 2009,
http://www.hasselbladusa.com/media/1663143/the_evolution_of_lenses.pdf (accessed Oct. 11, 2012).
39
Christian Sandström, Mats Magnusson, and Jan Jörnmark, “Exploring Factors Influencing Incumbents’
Response to Disruptive Innovation,” Creativity and Innovation Management 18, no. 1 (2009), 11.
40
Sandström, Magnusson, and Jörnmark, 11–12.
-12- UVA-S-0225
the following year.41 This had the effect of depriving longtime rival Leica of a key digital partner
and allowed Hasselblad to compete in the digital race.
At photokina 2008, Hasselblad’s longtime partnership with Kodak was still on display as
it announced the H3DII-50 medium-format digital camera with a Kodak 50-megapixel sensor.
“If you’re into cameras, be prepared to faint as you feast your eyes on Hasselblad’s high-end
H3DII-50 Pro DSLR,” said Andrew Tingle, photographer and website designer, “offering a
staggering 50-megapixel 36 × 48 mm Kodak sensor and a price tag of equally colossal
proportions.”42 The price announced was USD27,995. Acknowledging that “the only reason not
to have a Hasselblad was that you couldn’t afford one,” the company also announced lower
pricing for its entry-level H3DII-31 model: USD17,995.43 The Stradivarius of cameras was now
available to consumers. Yet the longtime company creed—“to put the best cameras possible into

the hands of the people who use them”—remained.
Hasselblad would forever be associated with the best of the best in the world of
photography. Its relationship with NASA spanned 40 years and produced photographs from
space that scientists depended upon to expand their knowledge. Victor Hasselblad’s foundation,
formed after his death, was committed to promoting research and academia in photography. Each
year it awarded its most prestigious honor to deserving photographers. The Hasselblad was the
serious professional’s tool, particularly in the fashion industry and among commercial
photographers, and its mission statement—“to be the preferred choice among professionally
minded photographers”—supported that notion.
Outsourcing at Leica
Perhaps taking a cue from its Swedish neighbor, Leica had also ventured into outsourcing
and manufacturing partnerships over the years. In 1998, Leica introduced the Digilux, a USD500
entry in the point-and-shoot digital camera market. It was manufactured by Fujifilm and was
dismissed by loyalists as a simple “rebadging” of the Fuji MX-700. By 2004, Leica was
partnering with Panasonic to make additional Digilux models with Leica-designed lenses and
Panasonic bodies and electronics. Sold by Panasonic under the name “Lumix,” the Leica version
(dubbed the D-Lux and V-Lux or PanaLeicas) sold for up to 45% more with the red Leica logo
and special packaging but was essentially the same camera.
41
Digital backs were electronic image sensors that fit analogue camera backs thus facilitating the transition
from analog to digital imaging.
42
Andrew Tingle, “Hasselblad Unveils High End H3DII-50 Pro DSLR Featuring Kodak 50 Megapixel Sensor,”
July 8, 2008, http://nexus404.com/2008/07/08/hasselblad-unveils-high-end-h3dii-50-pro-dslr-featuring-kodak-50-
megapixel-sensor/ (accessed Oct. 2, 2012).
43
Hasselblad, “Hasselblad Announces New Products, New Technology and New Directions,” press release,
September 24, 2008, http://www.hasselblad.com/news/hasselblad-announces-new-products-new-technology-and-
new-directions.aspx (accessed Oct. 17, 2012).
-13- UVA-S-0225
In 2004, Leica used the photokina show to announce a partnership with Danish
manufacturer Imacon and Kodak to produce a digital camera back for Leica’s R8 and R9 SLRs.
It was called the DIGITAL MODUL-R. A digital back was designed to mount to the back of
analogue R-series cameras to give them digital functionality but still allow the user to choose
between digital and film. Though the cost was over USD5,000, the device got good reviews from
users; but it was discontinued following Hasselblad’s acquisition of Imacon later that year. The
R9 (USD3,473), with its manual wind, remained Leica’s “masterpiece” SLR camera according
to one reviewer who noted, “it is the last high-end film-based SLR camera ever made.”44
As Leica seemingly searched for the correct exposure on a DSLR, many camera makers
were putting out new DSLR models so quickly that one prominent magazine picked a camera
that was no longer being made as its “camera of the year.” To that, Leica responded, “We could

be the shelter for people who react to the changes of model every six months.”45 Yet the launch
in 2006 of its first digitized camera in the rangefinder series—the M8 (USD5,000)—provided
some SLR users the nod they were hoping for. Leica had maintained the structural characteristics
of the M-series body and constructed powerful lenses to go along with it (despite limitations the
camera design placed on the lens).46
The firm credited the enthusiastic reception of the M8 (in spite of the infrared glitch) for
its increase in sales volumes and for setting Leica back on track toward sound financials (see
Exhibit 1 for sales and operating result comparisons). Demand exceeded M8 production
capacity leaving orders backlogged by March 2007.47 The company that had long been associated
with street photography may have found its stride again. Yet the M8 left Leica’s small upmarket
niche of SLR users asking, “Would the R series be next?”
It was clear to Andreas Kaufmann that the future of Leica was not just in digital cameras,
but in selling more units to more people. So what would that look like? What products would
secure Leica’s future? Did it mean continuing to manufacture the R lenses and persuading
enough new customers to buy it to make it worthy of investment? Would offering a lower-end
range of Leica products attract enthusiasts who might later upgrade? Would expanding capacity
and producing larger quantities of the digitized M series be wise? What about a new line—was
there development potential for a new universal system? All of this weighed heavily on
Kaufmann’s mind as he wandered through the 2008 photokina show.
44
“The LEICA DIGITAL-MODUL-R,” http://www.leicapages.com/novelties.html (accessed Oct. 17, 2012).
45
Ian Chapman, “A Camera Focused on Luxury,” Financial Times, March 31, 2003.
46
Stefanus, 24.
47
Leica Camera AG annual report, 2006/07, 11.
-14- UVA-S-0225
The End of the R?
A mere six months later, Leica quietly posted this statement on its website: “New camera
developments have significantly affected the sales of Leica R cameras and lenses resulting in a
dramatic decrease in the number sold. Sadly, therefore, there is no longer an economic basis on
which to keep the Leica R System in the Leica production programme.”48 That announcement
started a firestorm from R camera users who had demand for it (Exhibit 2). Should Leica
reconsider or hold steady with its discontinuation?
48
Leica, “Leica Ceases Production of R9 and R Lenses,” press release, March 25, 2009, http://en.leica-
camera.com/news/news/3/6378.html (accessed Oct. 17, 2012).
-15- UVA-S-0225
Exhibit 1
Camera and Lens Sales, 2006–08
(currency amounts in millions)
Net Sales ’06 Net Sales ’07 Net Sales ’08

Reporting currency JPY* USD JPY* USD JPY* USD
Leica 106 127 145 197 156 245
Canon 1,041,865 8,960 1,152,663 9,798 1,041,947 10,419
Nikon 415,686 3,575 448,825 3,815 586,147 5,861
Hasselblad NA NA NA
* Leica figures are expressed in millions of euros rather than in millions of yen.
Camera and Lens Operating Income, 2006–08

(currency amounts in millions)
Operating Income ’06 Operating Income ’07 Operating Income ’08

Reporting currency JPY* USD JPY* USD JPY* USD
Leica (6.1) (7.3) 4.9 6.7 7.7 12
Canon 268,738 2,311 307,426 2,613 187,787 1,878
Nikon 34,369 296 45,678 388 83,974 840
Hasselblad NA NA NA
* Leica figures are expressed in millions of euros rather than in millions of yen.
Data sources: Canon Inc., Leica Camera AG, and Nikon Corporation annual reports, 2006–08, and historical currency data
from Oanda.com.
-16- UVA-S-0225
Exhibit 2
Comments in Response to Leica’s R-Series Termination Announcement
“Leica R lenses are actually very marketable and if they can put their ego aside a little they could have do
what CZ has done -and much better- by releasing the Leica R lenses for the Nikon and Canon mount.
That would have saved the lens line up for sure. They are all FF high end and MF lenses. I don’t see how
they could have a conflict with the Panasonic AF 4/3 and m4/3 line. Even Panasonic released an R to
m4/3 adapter to encourage lens owners to use them on the m4/3 bodies. The R got some very nice ultra
wide, macro, and tele longer than 135. All these were probably not going to be done on the M line. It’s a
shame, really.”1

“Has anyone noticed that Leica Camera has totally removed the link on their website to the R Series?
(http://en.leica-camera.com/photography/) Anyone know more about what’s going to happen? Will
Photokina reveal a new series? Is it the end of the R series? Darn!!!”2
“The R10 with a 35 mm full-frame sensor and focus confirmation, at a reasonable price (take the M8 as a
reference) is all that is needed now, and it is not so difficult to do. I am sure Leica is working (at the
design stage) on it from a long time ago, and they know very well what to do and how to do it. The only
problem is where to find the resources for that project. They need to make profits this year. I hope they
can present the R10 this year, even if it effectively ships next year. 20 additional months of development
is too much for the R line at this moment if no information is provided to actual and potential owners of R
lenses.”3
“If Leica shows a DSLR R camera, I’ll be a ‘monkey’s uncle.’ Having used the SL/SL2/R series for eons,
many waited on Leica’s (Kaufmann’s) words for it, and waiting, and waiting, and waiting, and all we got
was a really lame answer about swimming with sharks of C and N.”4
“Leica has been kept alive not necessarily because it makes hardnosed business sense, but because it
DESERVES to be kept alive. One hopes that the eventual model will mimic Harley-Davidson...an
important historical marque that nearly went bankrupt and eventually came back strong based on lifestyle-
and brand-marketing as well as good products. There is no other Leica, and there never can be.”5
1
love_them_all, August 12, 2010, comment on Kausthub Desikachar, “Leica R Series: Is It the End?,”
DPreview Forum, July 31, 2010, http://forums.dpreview.com/forums/post/36024423 (accessed Oct. 17, 2012).
2
Kausthub Desikachar, “Leica R Series: Is It the End?,” DPreview Forum, July 31, 2010.
3
Neimo, February 10, 2007, (4:27 a.m.) comment on Mike Johnston “Leica Module R Discontinued,” The
Online Photographer blog, February 10, 2007, http://theonlinephotographer.blogspot.com/2007/02/leica-module-r-
discontinued.html#c117114177713766057 (accessed Oct. 17, 2012).
4
Nobody Special, March 21, 2012 (11:01 p.m.), comment on LR Admin, “What to Expect from Leica on May
10th, 2012, Leica News & Rumors blog, March 21, 2012, http://leicarumors.com/2012/03/21/what-to-expect-from-
leica-on-may-10th-2012.aspx/ (accessed Oct. 17, 2012).
5
bayareafilmguy, February 10, 2007, (6:17 p.m.), comment on Johnston, “Leica Module R Discontinued.”
-17- UVA-S-0225
Exhibit 2 (continued)
“The one thing that none of this has ever been able to quite eclipse is that the R line of lenses is the all-
time highest quality lens line ever made for 35 mm photography. Not all the lenses are equally good, not
all of them are affordable, not all of them are terribly practical, and isolated lenses by other makers are as
good as, or in rare cases slightly better than, their R counterparts; but considering the line as a whole you
can’t do better purely for optical quality.”6
“That the Leica R8 and R9 does not have the sales figures in the top of the range Canons and Nikon is
near comical in its tragedy especially when considering that the cameraman who did the Canon
commercials did them on a Leica R9.”7

6
Mike Johnston, February 10, 2007, (3:09 p.m.) comment on Johnston, “Leica Module R Discontinued.”
7
Karl Ivan Froestad Nes, February 10, 2007, (7:01 a.m.) comment on Johnston, “Leica Module R
Discontinued.”

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UVA-S-0225

Rev. May 16, 2014

LEICA CAMERA: A “BOUTIQUE” FIRM FACES A WORLD OF CHANGE

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Distributed by The Case Centre North America Rest of the world

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Leica traced its origin to a mid-19th-century German microscope manufacturer Ernst

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Rise of the SLR

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20th-Century Camera Industry

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By the end of 2002, approximately 23 million U.S. households—nearly 20%—owned a

Table 1. Global unit camera sales in 2007.

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Leica Confronts Change

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Rise of Japan: Canon and Nikon

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Rodenstock, or Schneider and was designed and manufactured to Hasselblad’s specifications.38

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The Shriro Group, a Hong-Kong-based distributor, acquired Hasselblad in 2003 and

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The End of the R?

Net Sales ’06 Net Sales ’07 Net Sales ’08

Camera and Lens Operating Income, 2006–08

Operating Income ’06 Operating Income ’07 Operating Income ’08

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