The Camphone Revolution

These wildly popular devices will transform the world of photography

Juha Putkiranta still remembers the lonely days back in 2001. When mobile-phone giant Nokia Corp. (NOK ) introduced its first handset with a built-in digital camera that November, Putkiranta, head of the company's imaging business unit, felt like his was a solitary voice in the wind. He was convinced camera phones would take off, but critics thought the devices were just pricey toys. "People didn't believe us," Putkiranta recalls.

They do now. Last year sales of camera phones from all makers topped 84 million units worldwide -- nearly twice the purchases of conventional digital cameras. Consumers turn out to love the convenience of having a point-and-shoot camera wherever they tote their phones. This year, says Strategy Analytics, a research company in Newton Centre, Mass., camera phone sales should double, to 169 million units, or about a quarter of all handsets. By 2006 the number could top 380 million. People aren't shy about clicking the shutter, either. According to InfoTrends Research Group Inc. in Norwell, Mass., consumers will snap a staggering 29 billion photos with their camera phones this year. "This is a revolution," says InfoTrends analyst Jill Aldort.

"DISRUPTIVE TECHNOLOGY". The shock waves are rippling through the imaging business. Sales of film and traditional cameras -- already hurt by the rise of digital photography -- could suffer further blows. Digital camera makers are being forced to move upmarket as camera phones take over the lower end. And a whole new industry built around camphone snaps is starting to whip into gear. Mobile operators from Britain's Vodafone PLC to Sprint PCS Group (PCS ) in the U.S. have launched services that let customers upload photos from cell phones to online sites, where the pictures can be stored or sent off to be printed. Manufacturers such as Hewlett-Packard (HPQ ), Seiko Epson, and Canon (CAJ ) are rolling out inexpensive color photo printers that connect wirelessly to handsets -- with no need to store pictures first on a PC. Just snap a photo, zap it to the printer via Bluetooth short-range radio, and 15 seconds later you have a copy to send to Grandma.

Photography giants Eastman Kodak Co. (EK ) and Fuji Photo Film Co. (FUJIY ) are also getting into the act. With more to lose than anybody in the shift away from film, both are rushing to install in-store kiosks that churn out high-quality reproductions of photos taken with digital cameras and cell phones. Such kiosks will be a draw for travelers who want prints right away, or to anyone without a PC. "We are changing the imaging industry," says Nokia Chief Executive Jorma Ollila. "This is a classic case of disruptive technology."

The disruption is accelerating. In the last month, seven phonemakers have announced new models that incorporate megapixel cameras, which shoot pictures with a million points of resolution. That's three times the quality of most camphones on the market -- and comparable to digital cameras of a few years back. Most will cost $400 to $600 at retail. Combined with new photo printers, kiosks, and online services, they're laying the groundwork for an historic makeover of the photography business. "Camera phones will be a huge catalyst for people to convert from analog to digital photography," says Gregg Patterson, vice-president for technology solutions at Hewlett-Packard Co.

The change won't happen overnight. Strategy Analytics figures revenues from so-called multimedia messages sent between phone subscribers amounted to just $157 million last year. By 2006, though, some 12 billion such messages should be careening around the planet, bringing in $3.2 billion for carriers. Phone users also aren't yet saving many snaps for posterity: Analyst David Haueter of researcher Gartner figures only about 2% of pictures taken on phones today are printed.

Yet trends in Asia point to the potential. In Japan, where camphones first appeared in 2000, 10% of images are printed. If that ratio applies elsewhere, says Kodak European marketing manager Atul Patel, Europeans will print out 3 billion camphone pictures a year by 2006 -- generating more than $500 million in revenues for photo-service providers. The fad is catching on in the U.S., too. "The entire infrastructure is gearing up for digital photography," says Patel.

Nokia wants to hasten that process. It entered an alliance with Kodak last summer to put tens of thousands of kiosks in stores around the world. The machines, done up in Kodak yellow and Nokia slate, accept digital photos from CDs, memory cards, or via wireless connections and print 4-in.-by-6-in. or 5-by-7 photos for about 40 cents each. Nokia also just announced an assortment of gizmos that help consumers enjoy their photos at home without a PC. One, called the Nokia Image Album, is the size of a hardcover book and stores upwards of 20,000 digital photos on a 20-gigabyte hard drive. Attached to a TV, it lets people view images and organize slide shows. "It's a digital shoebox for snapshots," says Putkiranta.

What does all this mean for makers of digital cameras? Some are already selling camera components to cell-phone makers. All are moving to sell higher-quality cameras with zoom lenses and other features unlikely to migrate into handsets. By 2006, says Lyra Research Inc. of Newtonville, Mass., two-thirds of digital cameras will boast resolutions of 4 megapixels and above. Katsumi Ihara, president of cell-phone maker Sony Ericsson Mobile Communications, says Sony Corp. (SNE ) has ceded the low-end camera market to mobile phones. "This is good news overall for the digital-imaging business, because the number of photos people take will keep growing," says Lyra analyst Edward Y. Lee. It's better news for phonemakers barging into another market.

By Andy Reinhardt in Paris, with Hiroko Tashiro in Tokyo and Ben Elgin in San Mateo, Calif.

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