Nikon executives have been pacing the floor today as they expect a huge drop – perhaps as much as 20-35% – in the company’s share price at the market’s opening bell. Over the weekend, Nikon frantically attempted to reassure some of its largest investors and retail partners there was no reason to panic. What happened? By all respects, Nikon has been on a roll with the D800 and D4 model introductions. Most experts have attributed Nikon with hitting it out of the park. The issue uncovered this weekend, however, is that the D800 is actually much better than originally thought or reported thus far. Surprise, surprise… the D800 is actually capable of an effective resolution of 108MP!
Conveniently left out of the original product marketing material and technical details, was the fact that the D800’s sensor has a substrate capable of capturing additional detail. When combined with sophisticated interpolation software (also not revealed to the public), it is able to triple the camera’s resolution. No doubt this newly discovered feature will lead to increased D800 sales. But the more troubling concern is the potential impact on the sales of Nikon lenses. When a photographer can take pictures with a 24-70mm f/2.8 lens, and is able to obtain high resolution crops similar to what a 105mm macro, 300mm, or 200-400mm lens can produce, why purchase additional lenses?
This capability, affectionately known within the Nikon Engineering ranks, as “turbo mode”, was apparently going to be introduced in approximately six to nine months. D800 owners would have been able to activate it after paying an additional $750. This would have marked the first time a camera manufacturer charged a fee for activating a feature after the camera had been shipped from the factory. Nikon customers would have been required to purchase a software key unique to their camera to enable this feature, so as to prevent people from sharing the code. But one of the Nikon engineers accidently stumbled upon a menu and button sequence that enabled this capability, thus bypassing the need for an activation code. In the software industry, such capabilities are often purposely inserted into the code. They are known as “Easter eggs”, since they require a bit of hunting to find. Most of the time, they are rather innocuous and simply result in a humorous message flashing onto the user’s screen. In computer games, Easter eggs may reveal some additional options not available in the menu. Nikon’s Easter egg, however, unlocks a significant capability – one that it was counting on for additional revenue. As with most modern day secrets, once the menu and button sequence was discovered, it went viral on the internet. Although we have yet to see the substrate and interpolation software engineering specifications, we can say that the initial test results are nothing short of jaw-dropping!
Nikon has pulled off what may be the most significant photography-related engineering feat of the last 50 years. It will undoubtedly garner extremely positive press as more details regarding turbo mode emerge. But Nikon’s Easter egg, in the form of the button sequence unlocking this feature, will likely result in a significant hit to Nikon revenues. Nikon was seeking to lay the groundwork for a new type of product – one that could be upgraded in the field by unlocking capabilities already present in the device. It was also seeking to fundamentally change the structure of DSLR pricing. While software companies have enabled customers to upgrade their software via encryption keys (for a fee), few hardware companies provided similar capabilities – at least not without some additional equipment such as CPUs, RAM, or other hardware. Should Nikon continue to pursue this strategy, it will no doubt be much more careful in the future!
How will turbo mode impact affect Nikon lens sales? This is a huge source of profits for both Nikon and its retail partners. DSLRs often have a relatively small mark-up, but lenses, particularly the higher end models, carry a hefty margin. The high resolution capabilities have some concerned that the D800 may enable someone to get by with one or two lenses. The unbelievable detail captured would allow them to crop to ridiculous levels and still have stunningly sharp images. Some are concerned that the D800′s turbo mode may fundamentally change people’s perceptions regarding the number and types of lenses they need, particularly if they don’t print images beyond twenty four inches.
Nikon will likely see the stock price recover over time, as people revise their original calculations of lost revenue from the discovery of the turbo mode Easter egg. It may, however, take some additional time for the market to understand the impact of turbo mode on lens sales. For now, Nikon and its investors can count on a roller coaster ride as the stock price ebbs and flows with the uncertainty of the moment.