You may know of a certain guy named Thom Hogan. On his web site he predicts what is going to happen in the camera industry the coming year, and often succeeds... then again, some things aren't that hard to predict! ;-) What he does not predict is the longer term overall state of the photo industry... and I thought I'd give that a try, with a specific Sony twist.
Right now, the industry is absolutely wild. Looking back ten years, before everyone shot digital, camera product cycles were between one and five years long -- pro SLR cameras released every five years, consumer SLR cameras in a specific class released every one to three years, and new compacts arriving almost every year. Then came the digitalization of photo technology, of course not only in imaging technologies but in processing, storage and support systems. Once a leisurely market, it was now catapulted into the same type of market as the general IT industry -- six month product cycles, ruthless competition, and fast elimination of the weaker players combined with stiff competition from other markets.
The outcome is that compact cameras are sold at very bad margins -- very short product cycles and similar feature sets combined with a lot of players is good for consumers but supremely bad for corporations. Some players have been forced out of the game altogether; all source parts from outside companies; and many sell complete rebranded units from Chinese OEM manufacturers -- in fact, you can see a lot of surprisingly similar models out there if you know what to look for... even from the big names.
But that's not all (and here comes my first, more modest prediction). Compact cameras face their biggest competition from cellular phones. These phones, starting as very sad imaging devices indeed, grow in quality for every year and some have approached a surprisingly decent image quality at three megapixels (disregard the noisy multi-megapixel models). As the perfect resolution for compact cameras is around five megapixels, as consumers are starting to notice this, and as we are seeing more refined compact optical systems (side-ways twistable optics as in the Nokia N90, "folded" optics featured in several current compact cameras) I predict that the cellular phone will have eradicated most of the market for compact cameras (spare a few "luxury models") in five years. By the way, in the process they will also have killed off the standalone compact mp3 player, but that's another story. ;-)
My prediction is that in five years, we won't have many dedicated still photo SLRs at all, but combined media devices capable of taking still photos, recording video, recording sound, and playing it all back on diverse devices. They will of course use the existing mounts, but specialty video lenses will have been added to the lineups. Built-in hard disk drives are coming, perhaps even hot-swap interchangeable (why not?). This of course needs lots of competence not present in the traditional camera manufacturing corporations. With this in mind, the companies not working together with a major consumer electronics brand are doomed. And the alliances are forming right now!
I'll break it down, company by company, and finish with Sony, describing the kind of devices I can see them (and others) release.
Canon, of course, is in a supreme position to keep dominating. With a modern mount, effective marketing, the most extensive optics lineup, solid consumer electronics knowledge from their existing video division and in-house sensor research (probably manufacturing, too) it's hard to see Canon losing their number one position. Two things can threaten their dominance; a complete screwup with a mass-market product line or good old-fashioned underestimation of the competition. Lately there has been a terrible fragmentation of the product line, too: three differing sensor sizes and a complete mismatch of, for example, color consistency across the line. Still, Canon fans don't seem to be interested in such petty problems.
Of the old school "big four" players, Nikon is in my opinion the least likely to succeed right now. If Sony are serious in getting into the DSLR market, they will of course stop selling their more advanced sensors to others -- and Nikon's main sensor source is Sony. So, no access to sensors for Nikon, no access to advanced electronics and processing know-how as they have no current alliances. Nikon have made exactly one sensor themselves, the LBCAST sensor used in the D2H, which was a failure in every way I can come to think of. Now, getting sensors made by an outside party isn't impossible, there are lots of fabless semiconductor design houses specializing in imaging technology and lots of fabs to make the actual chips in (at least if we're talking CMOS) -- but to get a sensor made in the quantities required for a D50/D70 level of sales isn't that easy when you have two outside parties to rely on. And they still have a problem being what they are: a traditional and very conservative classic camera manufacturer. Look at where that got Minolta.
Pentax, always a quirky company with an ambivalent attitude to camera making (pro cameras irregularly appearing but always lacking in some way), but with a selection of fantastic optics, will likely sell off their camera division to Samsung or form a joint venture where Samsung will make all electronics and Pentax supplies optical parts (less likely, in my opinion). The thing is, without the cameras, there's not much of Pentax left. So Samsung could just buy the whole lot; it makes a lot of sense to the Korean giant, who would gain a precision optical manufacturer and be able to compete with the likes of Canon and Sony, and to the owners of Pentax, who can't make much money nowadays. Pentax buy sensors from Sony but Samsung has everything Pentax needs for the future. It will take a gargantuan effort to stay in the game but if anyone can pull it off it's probably Samsung.
Olympus and Panasonic must merge if they are to survive as camera manufacturers, but they bet on the wrong horse from the beginning -- there is no future in the 4/3 system. They had a market window where they could have "sold in" the new digital format, but they never capitalized on the sole strenght of the small format: small camera size. Instead, they made somewhat-smaller-than-normal-DSLR cameras with much worse image quality. Canon will muscle them into the ground in two years and Sony will stomp on the remains. They also have a slim chance of surviving if they release a "video SLR" before anyone else -- Panasonic is a very sharp company -- but I remain sceptical. Where Leica will be in this mess in five years is hard to predict, but they will probably try over and over with dwindling sales, fail and be sold in a number of takeovers, until they are completely Rollei-fied.
Now for Sony. The funny thing is, in my opinion Sony is most likely to succeed long-term in this business, regardless of Konica-Minolta being in a very bad position before the takeover (due to the combined trademark efforts of "Konica supreme neglect" and "Minolta bad marketing"). The Sony-Minolta team have all the know-how, they have the resources and the marketing, they produce everything in-house with the possible exception of the shutter. Then again, future cameras may not even use physical shutters. The only question is -- will Sony the mother company survive?
First a short breakdown of the past. Minolta, traditionally an innovative but marketing challenged company, merged with Konica in 2003. As time passed, it became clear that Konica (the dominant part in the merger) didn't see the camera division as a main priority; instead, the merger was probably only a way to strenghten their position in the copy/print market. So, in 2005 it was announced that Sony would cooperate with Konica-Minolta in DSLR camera systems, and in 2006 it was finally announced that this "cooperation" was in fact a full blown buyout of the former Minolta photo division.
In June, 2006, Sony announced their first DSLR, the alpha-100. Together with this camera, which is clearly a rebranded Minolta in almost every way, Sony reannounced around twenty of Minolta's old lenses as their own together with a couple of Zeiss branded lenses (the actual manufacturer of these "Zeiss" lenses is still unknown). This camera is an entry-level model, pitched at the Nikon D70s and Canon EOS 350D. Sony have promised to release more lenses and higher-level bodies and plan on being the number two in the market in 2008 -- a very bold statement regardless if they mean DSLR sales only or customer base. However, Sony marketing has already begun and they will stop for nothing.
What's interesting is not this camera -- it's a "traditional DLSR" except a few tweaks such as dynamic range optimization and unusually high resolution for its class -- but Sony's parallell research in related areas. They have recently released information on new CMOS sensor designs with 60fps readout; they have done research on image stabilization with such high-speed sensors (essentially comparing images at high speed); and they have already manufactured personal video cameras with built-in hard drives, both in the shape of traditional camcorders and as smaller "personal recording devices" (compact camera sized).
The natural first thing to do would be establishing a new class of cameras; a Minolta A2/Sony R1-sized camera with the full Alpha (Minolta A) mount. That means a large sensor (but somewhat smaller than traditional DSLR sensors), high speed sensor readout and an electronic viewfinder. A few power zoom lenses tailored to the sensor could be made to more easily facilitate video imaging. This hypothetical camera has a built-in hard disk drive. You would then get access to a full system of lenses for serious imaging, live preview, and high-quality video recording direct-to-disk; it's hard to imagine a more interesting proposition for a serious hobbyist interested in both still and moving imagery. This camera could also be made very small -- no mechanics to speak of, especially if Minolta's legacy in-camera autofocus drive is abandoned in favor of the newer in-lens SSM motor drive. Such a camera would never be a threat to Sony Broadcast machines, but appeal to the wider demographic wanting a high quality video recording device with stills capability.
This kind of device would also enable something that Minolta pioneered in their Z1 model in 2003, then called "Progressive Capture". Simply speaking, when this mode was enabled, the camera continuously saved images to the buffer as long as the shutter release button was depressed, and when the buffer filled it silently threw away the oldest image to replace it with a new one. When the shutter release button was released, the camera saved the buffer to the memory card. This enabled the capture of moments gone, if you knew how to use it! Of course, with a true live view, a future Sony camera could be set to just enable this mode by default without even pressing any buttons, saving the last x seconds in y increments -- the perfect sports and kids feature. Just point the camera in the approximate direction of something happening, push the button after you saw it happen, and it will be captured! Time travels were never easier. Hey, I need to trademark that phrase.
The second step is a full blown DSLR with video recording capabilities and live preview (on the screen) when the mirror is flipped up. AF on such a model would be passive phase detection in "normal" mode and contrast detection in video mode; a touch sensitive screen would enable focus (and exposure metering) on the exact point you touch when using the live view. All other functions could, of course, be the same as on the smaller device described above. This device would be marketed to the more serious amateur due to its real SLR heritage.
I don't think dedicated still camera photography equipment will survive for many years more; not necessarily because customers demand the development of such features I have described but because technologies are converging. Combining photography, consumer electronics, and a large dose of computer technology makes for the "featurelization" of photography equipment. It will never be the same again, only the big names will survive -- and the camera manufacturers aren't big names on their own.