Sunk Costs and Mature Markets

In doing my usual reading of other media this morning, I came across two short phrases that I find apply to the photographic gear market.

Let's start with Neil Irwin, a senior economics correspondent for the New York Times: "the thing about a mature product is that improvements tend to be marginal rather than transformational."

The DSLR was transformational. Many in the pro ranks resisted at first, but I'd argue that the DSLR era starting with the Nikon D1 changed so many things for photographers, that it was nothing short of game changing. As much as I complain about lack of good connectivity, workflows changed almost overnight for the pros, and it was far faster (though expensive) for us to move images via the Internet to our publishers. 

The instant feedback—chimping as the sports photographers soon christened this—helped close learning loops and increased our ability to know whether we had nailed a shot or not, or needed to keep shooting.

Mirrorless cameras are not transformational. Oh, sure, there are some nice touches and features that will make a mirrorless camera seem better to some than a DSLR. But serious digital interchangeable lens cameras are a mature product—witness the Nikon D850—and just removing the optical path and replacing it with an electronic path is a marginal improvement. 

I've been shooting a Nikon D850 (DSLR) and a Sony A7Rm3 (mirrorless) side by side for coming up on a year now, and I'll say this: most of the differences in images I take are distinguished far more by lens selection than any feature of these two cameras. That and whether I can control the camera quickly (e.g. ergonomics). It took me a long time to get my A7Rm3 configured well enough that it approaches the tool I have in the D850, and those small buttons are still an issue even when configured well, particularly in winter.

So when Nikon's teasers for their new mirrorless system uses words like "Nikon is now aiming for new heights" and "new system further embodies Nikon's spirit of manufacturing without compromise", I take that as a marketing message, not an indication of another transformative product like the D1.

Indeed, I'm not sure I want a transformational product at this point. If I do, it's not going to look and operate anything at all like the modernization of traditional ILC designs we're getting.  

I welcome change that's positive, I don't worship it.

Which brings me to sunk costs. 

The actual line that got me thinking was one that pointed out that good economists have no problems walking out of the middle of a movie or restaurant if things aren't up their expectations.

Why? Sunk cost can be delusional. If you paid for a theater ticket and then didn't like the film/play/musical half-way through, most people stick around because "they've already paid." But that's undervaluing their time, best case. Instead of realizing they wasted their money and moving on to do something they'd find more entertaining or useful, they just sit in their seats and "get full value" from the thing they actually don't value at all. 

Lenses tend to be sunk costs in photography. You've bought 10 lenses and refer to them as "investments" (they're not, unless you think that investments almost always decline in value ;~). You stick with the camera brand/type that uses those lenses because, well, you paid for all those lenses. Quick question: how many of those lenses did you use this past month?

Canon and Nikon have been living off this somewhat irrational behavior on your part for decades going back into the film SLR era. They became a duopoly because they were successful at this: once caught in the EF or F web, most users felt they were stuck there. This had a tremendously negative effect on Minolta, Olympus, and Pentax, to name three. Once you didn't have as many folk with your lenses carrying the sunk cost flag, that meant that you needed to be...

...you guessed it, transformational. 

Olympus originally tried to do that with so-called bridge cameras (e.g. the so-called ZLRs, starting with the iS-1000). The modern equivalent to that is the Sony RX10 model, by the way. 

Thing is, the bridge cameras were really just SLR-style cameras with a fixed superzoom up front. Not transformational.

I'm drifting off topic though; back to sunk costs. 

Sunk costs are useful to understand. I'm still driving a 2005 vehicle. Why? Because in terms of function (getting from point A to point B carrying stuff) it still functions perfectly fine. The fact that it depreciated so heavily the minute I drove off the new car lot with it certainly speaks to sunk costs, but to change to a new model you have the additional cost of buying something new to consider. Would buying a more-expensive 2018 vehicle improve things any for me? Surprisingly, not really. My running costs on my older vehicle are low, it still does what it was designed to, and some of the things I might desire in a new vehicle (e.g. a backup camera) can be added to mine. 

I can't recover my sunk cost in the vehicle, but I can avoid replacement costs because the product is still performing.

We have a lot of that going on in photography, too. I get the "I have a D4s should I buy a D5" type of questions a lot. Well, you have a sunk cost in the D4s and the lenses you use with it, and a D5 is going to be a high replacement cost. The question is what value are you going to get from the D5 you wouldn't from continuing with the D4s?

And we're back to that "marginal versus transformational" thing all over again. The benefits are marginal, but the costs are real and substantive. This is one of the reasons why I've long advocated not buying every generation of camera, but skipping at least a generation (e.g. D1 to D3 to D5, and not D1 to D2 to D3 to D4 to D5).  

Like a lot of folk who study economics, I've been a bit perplexed by the fact that rapid technology advances don't seem to be driving rapid productivity gains. 

I think back to the word processor. Compared to using a typewriter, Electric Pencil (yes, I go back that far with personal computer word processing) was transformational for me. WordStar pushed my productivity even higher. But realistically, has anything that's come down the pike in word processors since really done the same? 

No. Not Word, despite it's WYSIWYGness. Nope, I've been getting marginal gains from each new word processing tool that's come down the pike, coupled with marginal losses as I spend time installing and learning them, and often dealing with bugs. 

Cameras are much the same. Was my photography all that much better with a Nikon F100 as opposed to the Nikormat FTN I started with? Not due to the camera. My gains were mostly due to my training with people such as Galen Rowell. Did a D1/D100 change things? Yes, absolutely. I learned more quickly when experimenting and got more control over my workflow and processing.

Why is it that I complain about "moving the cheese" in my reviews? Because the newest and latest DSLR (and now mirrorless) camera is almost always a marginal improvement over the previous one, but now I lose time figuring out the new tool when things about it arbitrarily change. 

Today's takeaways: understand your sunk costs and evaluate them properly; respect the difference between a marginal gain and a transformational one. 

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