Faulty Business Model

I just watched CNBC interview the CEO of a company that has introduced a disposable digital camera. The camera is inexpensive, and the idea is that you take pictures, then bring the camera to a Ritz Camera store to have the images printed and copied to CD.

Reviews (e.g., here and here) have been skeptical. The CNBC interviewer, who for a change knew what he was talking about, pointed out that the digital disposable combines the worst features of digital and film: the camera lacks an LCD preview/review window, is costly to use and still has to be taken to a store to have the pictures developed. The CEO, when questioned on these issues, replied with marketing spin.

The apparent idea behind this product, which seems generally inferior to conventional digital cameras and even disposable film cameras, is to make money for the retailer by forcing the consumer to pay to have his photos printed. (Given the flimsiness of the camera, I suspect there is also substantial markup built into its price.)

This business model won’t work, for the same reason FedEx’s ZapMail business model didn’t work. In both cases the merchant attempts to rent technology that consumers find more advantageous to own outright. Once you own a fax machine you eliminate any need to rent someone else’s. Once you own a digital camera and printer you remove the photo finisher from the print-production loop. There is no reason to go back, and attempts to convince people to go back — via gimmicks like “single use,” which has little if any benefit for digital cameras — are doomed to fail.

Clay Shirky wrote a brilliant essay about ZapMail and similar schemes. The gist of his argument: businesses that set themselves up to compete with their own customers are not likely to succeed. I think this argument applies perfectly to the business model here.

UPDATE: Kevin Brancato posts a thoughtful response to my argument. He is less skeptical than I am about the viability of this business model. I have some thoughts about his response and will post them later.

UPDATE 2: Here are my thoughts on Kevin’s argument.

Kevin argues that disposable digicams compete mainly with disposable film cameras, and that

There are two ways I see that Ritz can make money with the digital disposable model–both require lowering the total costs of disposable camera renting and printing. The first cost savings will come from the elimination of film development. The second could come if inspecting and reusing the “disposable” camera is cheaper than making a film throwaway.

Certainly there is a benefit from eliminating film development and from reusing cheap digital cameras. The problem for Ritz is that it can’t prevent consumers from capturing this entire benefit for themselves by buying their own digicams and printers. All that is necessary is for someone to introduce a cheap reusable digicam, which is surely not more difficult to develop than a cheap digicam that is fitted with devices to prevent consumers from downloading their photos on their own. (There are already $20 reusable digicams. Image quality is low, but there is no reason to think price and quality won’t improve.)

Kevin continues:

I think this will be profitable only when they 1) upgrade the picture quality to meet disposable film camera standards, and 2) get enough volume to pay off their fixed investments in technology.

Any technological improvements here will apply to cheap reusable digicams as well, so it’s unclear to me what Ritz’s edge is.

Kevin finds my argument — that a business model, based on merchant attempts to rent technology that consumers find more advantageous to own outright, will probably fail — unconvincing in this case because many consumers already show a preference to rent cheap camera equipment that they could own:

Consumers are already renting a particular technology (disposable film cameras) because they find it cheap and convenient to do so. The existence of digital cameras that people can own has not changed their minds. (In fact, since 19% of all film developed is from single-use cameras, customers demand to rent disposable technology is high).

Do customers who want the convenience of a disposable camera care how their pictures are stored inside the camera?

If you have to bring the camera to a store for processing, single-use film cameras still produce better results than does Ritz’s digital. They also take more pictures (27 vs. 25) and you can get the film developed anywhere, not just at Ritz. Against these advantages, the Ritz disposable digicam allows you to delete and retake the last picture, a minor benefit. But, as Kevin points out, it lacks the LCD preview/review screen that digicam users find so important (though there seems to be no reason why this feature won’t eventually be added).

But the big question, still, is not whether consumers will prefer single-use digicams to single-use film cams — it’s why anyone would pay for a single-use digicam if similar reusable digicams are available for comparable cost, as will inevitably become the case. Single-use is an artifact of film: the fact that inexpensive film cameras are cheaper to make and easier to use if they are not reloadable. Digicams face no such constraints, so why would consumers prefer to rent when they can buy at around the same price?

Once you have a choice to buy a cheap reusable digicam and download the photos to your own computer and print them (or bring them in to be printed), or repeatedly buy single-use digicams and have no choice but to bring them to a particular shop for printing, why would you continue to buy disposables? Ritz’s scheme may work for a while but seems unlikely to succeed in the long run. Simple reusable digicams of snapshot quality are going to cost $3 in a few years. It’s inevitable. Ritz might be smarter to go into the ink-cartridge business.