OMDS Potential Profitability

A lot of people are wondering about OMDS potential profitability and if the company can succeed where the Olympus Imaging Division could not. This is a fair question to ask.

NOTE: Click on images to enlarge. Photographs have been added to serve as visual breaks.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 413 mm, efov 826 mm, f/8.8, 1/2000, ISO-500, Bird Detection AI Subject Tracking, Pro Capture L, cropped to 3974 pixels on the width, subject distance 25.7 metres

Now that the OM-1 ‘wow’ camera has been formally introduced, the typical new product debate about features and technology has started in earnest. Much of this ‘debate’ will become emotional in nature and skewed based on someone’s product preference. Olympus/OM System haters will likely always be haters and find something negative about the OM-1. *shrugs* No surprise there.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 560 mm, efov 1120 mm, f/9, 1/1600, ISO-320, Bird Detection AI Subject Tracking, Pro Capture L, full frame capture, subject distance 110.6 metres

When a company cancels a product line like Nikon did with the Nikon 1 system, or Olympus did with their Imaging Division, they are basically admitting that their business strategy for that business segment or product line failed.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 560 mm, efov 1120 mm, f/9, 1/1600, ISO-1600, Bird Detection AI Subject Tracking, cropped to 4850 pixels on the width, subject distance 36.1 metres

The products themselves could have been very good… but the strategy that was implemented simply did not create a sustainable future for them. Fundamentally this comes down to four corporate strategies. Marketing. Finance. Operations. And, Human Resources.

OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 with M.Zuiko MC-14 teleconverter @ 210 mm, efov 420 mm, f/4, 1/80, ISO-2500, handheld in-camera focus stacking, subject distance 1.2 metres

None of us know the internal workings of the former Olympus Imaging Division. So, any specific commentary on that would be purely speculation. What we do know is that the division was unprofitable for many years.

OM-D E-M1X with M.Zuiko 60 mm f/2.8 macro, f/4, 1/40, full frame capture, ISO-200, handheld in-camera focus stacking, subject distance 515 mm

Pressure from some investors resulted in a decision whereby Olympus divested itself of the Imaging Division so the company could concentrate on its medical businesses. Enter Japan Industrial Partners, and the Imaging Division was transferred with Olympus holding a 5% stake in a new private corporation, OM Digital Solutions (OMDS).

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 560 mm, efov 1120 mm, f/9, 1/5000, ISO-6400, Pro Capture H, cropped to 4201 pixels on the width, subject distance 2.6 metres

Since OMDS is privately held we can assume that we will never see any public financial disclosures. No doubt there will be plenty of opinions expressed about OMDS potential profitability. Those opinions will also be speculative in nature. Any business faces the same challenges when it comes to choosing a strategy and generating a sustainable profit. So, let’s have a look at some basic considerations.

OM-D E-M1X + M.Zuiko PRO 12-100 mm f/4 IS @ 16 mm, efov 32 mm, f/5.6, 1/80, ISO-200, HDR version

Gross Margin

Unless a company’s management team is completely inept a business never goes bankrupt because it cannot generate gross margin. Simply put, gross margin is the revenue generated minus the direct costs (i.e. variable costs) incurred to produce the product or service. If the Olympus Imaging Division or now OMDS, doesn’t sell a particular camera body or lens, then no direct costs are incurred for that unit.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS @ 169 mm, efov 338 mm, f/6.3, 1/1600, ISO-2000, Bird Detection AI, Pro Capture L, full frame capture, subject distance 28.5 metres

Fixed Costs

What can kill a company is when its fixed costs become bloated and there is insufficient gross margin to generate a profit. Fixed costs typically include facilities operation, rent/mortgage payments, interest expenses, fixed compensation paid to employees regardless of the hours worked or the number of goods produced, and insurance.

OM-D E-M1X with M.Zuiko 60 mm f/2.8 macro, f/4, 1/40, full frame capture, ISO-200, handheld in-camera focus stacking, subject distance 630 mm

Break-even Point

The break-even point is the number of units that a business has to sell to cover its fixed costs. As a formula it can be expressed as fixed costs/average gross margin. Let’s say a company has fixed costs of $50 million per year and its average margin per unit is $500. Under this scenario it would need to sell 100,000 units to cover its fixed costs. Any units sold above 100,000 would then begin to generate a profit for the business.

OM-D E-M1X + M.Zuiko 12-100 mm f/4 IS @ 80 mm, efov 160 mm, f/4.5, 1/400, ISO-2000

To lower its break-even point companies typically follow a few basic approaches. Here are a few of those tactics:

  • They can raise the prices of their products while trying to hold on to current volumes. Buyers in the market will decide if they are willing to pay more or not. Competitive product positioning and the value proposition of a company’s products come into play here.
  • They can try to increase unit volumes through aggressive marketing. Any price discounting will obviously reduce the effectiveness of this tactic.
  • They can significantly lower their fixed costs.
OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-20 teleconverter @ 800 mm, efov 1600 mm, f/13, 1/1250, ISO-4000, handheld in-camera focus stacked image, cropped to 4537 pixels on the width, out-of-camera jpeg adjusted slightly using the Nik Collection, Topaz DeNoise AI applied

These basic approaches are not mutually exclusive. For example a company could reduce its fixed costs, while at the same time increasing its pricing, and trying to increase volumes through aggressive marketing… perhaps with innovative new products.

OM-D E-M1X + M.Zuiko PRO 7-14 mm f/2.8 @ 7 mm, f/2.8, 1/2000, ISO-200

Obviously I have no way of knowing the average gross margin of OMDS. We do know from a public announcement that on start up the company had 37 billion Yen (~$360.1 million US) in capital and 2,000 employees.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with MC-14 teleconverter @ 403 mm, efov 806 mm, f/8.8, 1/2500, ISO-3200, Pro Capture H, cropped to 3537 pixels on the width, subject distance 4 metres

It is instructive to note that the number of employees under the Olympus Imaging Division was reduced by 66% from 6,000 to 2,000 under OMDS. This would have a significant impact in terms of reducing the fixed costs of OMDS, and also its break-even point… assuming that margins were maintained.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 293 mm, efov 586 mm, f/9, -0.7 EV, 1/640, ISO-250, handheld in-camera focus stacking, out-of-camera jpeg with minor adjustments done in the Nik Collection

Debt

Olympus Corporation booked a significant financial loss when it transferred the Imaging Division to OMDS. This may indicate that OMDS did not have to assume a high degree of debt when the business was started. If this was the case, it would also help to reduce fixed costs and the company’s break-even point.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 346 mm, efov 692 mm, f/9, 1/2500, ISO-6400, Pro Capture H, cropped to 2660 pixels on the width, subject distance 4.7 metres

Marketing Strategy

Based on some comments made by former Olympus Visionaries it appears that OMDS is pursuing a niche differentiation strategy with a focus on outdoor photography. This includes nature/birding, sports, macro, and extreme environment/travel photography. Well known professional nature photographers like Petr Bambousek, Jari Peltomaki, Andy Rouse and David Tipling made the switch to Olympus so the equipment does have acceptance and recognition at professional levels.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 560 mm, efov 1120 mm, f/9, 1/2000, ISO-1600, Bird Detection AI Subject Tracking, cropped to 2653 pixels on the width, subject distance 69.8 metres

Focusing on outdoor photography segments makes perfect sense to me given the IBIS, weatherproofing, size/weight of OM System equipment. Some recent product introductions like the M.Zuiko PRO 150-400 TC1.25 and the M.Zuiko 100-400 mm f/5-6.3 IS also add logic to the company’s choice of market segments. From a pragmatic standpoint the company would not appear to have the financial capability to overextend itself into additional camera formats like full frame.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS @ 400 mm, efov 800 mm, f/6.3, 1/1600, ISO-200, Bird Detection AI Subject Tracking, cropped to 3966 pixels on the width, distance to subject 14.9 metres

A key consideration when determining marketing strategy is to identify the core competencies of a company’s products as well as its competitive position in the market place. Smartphones have decimated some of the more generic segments of the market like everyday travel and family snapshots. There is no point for OMDS to try to compete in markets that are currently dominated by Smartphones. It is far more strategic to select segments where Smartphone competition is weak and likely to remain so.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 235 mm, efov 470 mm, f/8.8, 1/1600, ISO-800, Bird Detection AI, full frame capture, subject distance 18.4 metres

As the average age of dedicated camera owners continues to increase, it is logical that the interest in smaller, lighter camera gear will increase over time. Full frame may be the ‘rage’ on photography websites but it remains to be seen how long that lasts. I think that product improvements seen with the new OM-1 will get some ‘mature’ photographers to reconsider their choice of camera equipment.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with MC-14 teleconverter @ 560 mm, efov 1120 mm, f/9, 1/1600, ISO-2500, subject distance 4.9 Bird Detection AI Subject Tracking

OMDS Potential Profitability

As an outside observer it appears to me that OMDS has good potential to be a profitable imaging company. The organization has taken some aggressive steps to reduce their fixed costs, and by extension their break-even point. For example, if we assume a modest annual per employee compensation of $35,000, reducing headcount by 4,000 employees would lower annual fixed costs by $140,000,000. This is not an inconsequential sum.

Olympus OM-D E-M1X + M.Zuiko PRO 40-150 mm f/2.8 @ 150 mm, efov 300 mm, f/2.8, 1/320, ISO-200, subject distance 725 mm

The company appears to be focused on leveraging the strengths of its products in market segments that don’t face aggressive competition from Smartphones. And, the increasing average age of photographers may work in its favour over the next number of years as interest in smaller, lighter gear may increase.

I don’t have a crystal ball, but I do think OMDS is doing what it needs to do in order to have a sustainable and profitable future. As is often said, “Time will tell.”

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 235 mm, efov 522 mm, f/8.3, +0.3 EV, 1/2000, ISO-800, Bird Detection AI Subject Tracking, Pro Capture L, cropped to 3757 pixels on the width, subject distance 17.3 metres

Technical Note:

Photographs were captured handheld using camera gear as noted in the EXIF data. Images were produced from RAW files using my standard process.  Crops are indicated for most images. Photographs were resized for web use. This is the 1,135 article published on this website since its original inception in 2015.

OM-D E-M1X + M.Zuiko 100-400 mm f/5-6.3 IS with M.Zuiko MC-14 teleconverter @ 308 mm, efov 616 mm, f/8.5, 1/2000, ISO-500, Bird Detection AI Subject Tracking, Pro Capture L, cropped to 4700 pixels on the width, subject distance 34.3 metres

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6 thoughts on “OMDS Potential Profitability”

  1. Hi Thomas
    I’m actually very encouraged that OM systems is on the right track. They don’t need to be everything to everyone, they just need to make great kit for those who “get” the system. I think this new camera will let one capture those WOW moments as well as take handheld landscapes that are as fine grained as the best of any other system. I also like the improvements in the new cellphone app. I often geotag my photos and like to re-live my hikes by looking at my pictures superimposed on the satelite photo. OM systems seems to be more aware of giving good value for money in my opinion. Lastly I get the feeling that many of the people who make the jump to OM cameras quite quickly buy nice lenses. That could give OM systems a dedicated semi-captive market.

    1. Hi Stephen,

      I agree that OMDS in on the right track pursuing a focus differentiation strategy. Rather than producing vanilla equipment that offers ‘me too’ features, OMDS can strive to give its owners unique capabilities that they value.

      Although I haven’t been using Olympus/OM System gear for very long, I have observed that folks either ‘get’ the system or they don’t… so your point is well taken.

      Some bloggers/reviewers have been criticizing OMDS for limiting some operational features to specific M.Zuiko lenses. I think this criticism ignores the reality of brand positioning and achieving product differentiation. Staking out some firm territory based on unique features i.e. computational photography, is a key way that OMDS can drive integrated sales of its cameras and lenses.

      Tom

  2. Tom,
    Having read your posts for some time, I switched from Nikon to Olympus or OM this year. I find your posts to be informative, clear cut and educational. I have also learned, from you, of others who shoot with Olympus gear.

    It is interesting to see who got early versions of the OM-1 to test and were Olympus visionaries or ‘fair’ product reviewers. It seems that some of those who shot weddings or street were not given cameras to test. It might well be that they will drop off the list of visionaries as OM starts to target those who are more focused on where the company feels it needs or can build its market share. I realize fully this may not be the case but, maybe it is something to watch as we go forward with the OM brand.

    Regardless, thank you very much for providing some valuable insight into business models. This is certainly not what you get on many photography websites.
    Ron

    1. Hi Ron,

      Thanks for your comment and sharing your perspectives. When possible, I do try to create some different types of content on this website that would not typically be found on other sites.

      When it comes to camera reviews there are two sides to every story. Existing users and Visionaries have an obvious equipment bias. This is also the case with some gear review websites where there is sometimes a clear an anti-Olympus/OMDS bias. I’ve found that Chris Eyre-Walker produces very good, balanced reviews even though he is an OM System Visionary. Chris produces some pretty extreme work so his ‘hands-on’ reviews have a lot of credibility in my opinion.

      I am aware of a couple of Visionaries who did not renew their contracts with OMDS. My understanding (one based on direct communication I had with the former Visionary) is that these former Visionaries were told that OMDS was focused specifically on nature/birding and other outdoor photography in terms of targeting market segments. Apparently wedding, street and portrait photography genres are not OMDS priorities. So, I think your assessment about the future of the OM System Visionary program is correct.

      Tom

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