How do you see Leica moving after Leica M10 introduction?
Oliver Kaltner: I said yesterday that the Leica M is our backbone, and it is, in our portfolio. But we have to enrich our portfolio all the last three years with introduction of Leica Q, SL, and the forthcoming S actually. We can separate our business into three type of dimension. One dimension is professional segment, like Leica S and SL, sometimes also Leica M, the other segment is photo segment or consumer segment: Leica M, Q, TL, X, D-lux, V-lux, and C, and obviously Leica Sofort. And then we have sports optic category like rifle scope and other product for birding and hunting.
So I would say for the first time we have a very rich portfolio. But all products that we have, specifically on the camera side, we also kind of cross with Leica M. Because again, Leica M is really the backbone there.
Does it mean it can’t be a more performing camera than Leica M? Yes it can. From key performance perspective and professional aspect, Leica SL is a fantastic product. But we always really need to figure out how does the Leica SL relate to M. How to Leica Q relates to the M, that is a little bit the strategic thinking behind the portfolio.
Is there a fear that you might spreading yourself too thin, and may not getting the best margin on each product line?
Actually, the customer structure is kinda spreading out now in the world. If you would like to have nice business coverage across the different customer segments with 3-4 product line only, you won’t succeed. Because you have to have different line that addressing very specific and unique customer needs that you have in that specific area.
If we are looking into the next 3-5 years what we see in the market stats, entry model are fading out. we see that the compact system are fading out. That’s mean we see tremendous change in the industry anyhow.
As a small, premium niche manufacturer like Leica you need to have a clear answer and vision right now. Because when we are going to work on our product, we need to have impact in next five years. When we see the overall market opportunity for Leica, it is quite simple.
We know that we are premium, we know that system camera market is still increasing, we know other segment are declining. That means we are going into the core center of our portfolio anyhow, that’s mean system camera.
Then, obviously the Leica Sofort. It is fantastic product I can tell you. Is it the most serious camera in the world? No. not at all and it not supposed to. But it is the first analogue camera in the hand of young consumer that have raised up from smartphone. It is a fantastic smartphone generation product. Because what you see on the hand of young consumer when they use Sofort, immediately they take their smartphone to shoot a photo of their Sofort picture to share them in Facebook.
With our collaboration with Huawei in smartphone is also kinda an answer for us to really go into that type of customer segment. That customer segment is so attractive. Because for the first time in the history of human being, People raised up with photography, not being trained in photography. It is intuitive access to photography via smartphone. and smartphone will limited in photography anyhow.
What we see right now, is that young consumer that purchase Huawei smartphone co-engineered with Leica ask us for Leica system camera. Because they like to have smartphone and system camera by Leica. So, I would say our key strategy both in term of product strategy and distribution strategy is really paying off here.
But you’re right, we always need to consider that, whatever Leica were doing, it will be different from other big parties. Because they are doing volume business, while we are doing very specific niche business, and there you have in some way more reluctant when it comes to broadening the portfolio. you have to be more precise when it comes to.. Is this exactly the right product in the portfolio? Yes or no? to be quite frankly when I sit down with my product manager people, I tend to say eight times no.. simply to limit it.
What are some of the things that you say no to?
Anything that has no specific connection with Leica. Leica’s DNA is optical engineering. So we always need to have product that are really state of the art when it comes to optical engineering part. Like Leica M10 is delivering at it best or Leica Q did. Leica Q is a big surprise in the market and demand is still three times higher than our supply.
And that means when we have internal tendency. I need to after this product because I need to make some business. this is the moment that I say No. We rather say no to some business opportunity, but yes to relevance of Leica product.
And the good thing about this company is we are not after market share. I don’t care about market share at all. I dont care about volume business at all. But I do care is that, what ever product that we launch today must have relevant point for 20-30 years, and most of the product that we already launch are still in the second hand market, you might see in auction in 20 years. So it is completely different perspective or developing and launching product.
Since you’ve mention Huawei couple times, the biggest news that rob the photo DJI buying Hasselblad. Will Huawei playing a bigger role in Leica?
It is very easy question to answer, you need to ask our shareholder. Because we are AG and I am not suppose to talk about our shareholder structure. I can tell you that I am heavily involved in contract with Huawei. The technical collaboration is really paying off for the both parties. AS a matter of fact only after six months we decided both we gonna invest on into innovation lab. this is amazing.. I can tell you, we didn’t have so much time to come up with camera module in the P9 and you see the reaction on P9 worldwde. now you see the reaction of Mate 9. it will be the best product on CES this year. It is amazing what we achieved.
Why? It is for two reasons. Number one: We both share philosophy of photography. Number two: Since we do that, from there we take it aboard. What I like about Huawei as a partner is their engineering capability is really high but they don’t think about hardware, they think from usability and network capability, and then they turn in to a hardware solution. The hardware is at the end of the day is your instrument. You heard also yesterday in our speeches. Leica camera always considered instrument. you should have strong point of photography first, before you start engineering.
Do you plan to work with other phone manufacturer?
We’re getting many requests since the collaboration with Huawei is making the difference in the market. It’s clearly we help Huawei to become more premium. Because they are… quality of the product outstanding, and they never talk about it.
I believe Huawei will be the next number one in the market. I am sure they will. Second thing is that.. at the end of the day, whatever you do nowadays is becoming relevant. You can have successful product in the short term but you can also be fading in the market immediately in the short term. If you are relevant you will succeed, and to figure it out.. that is something we spend a lot of time on.
There is so many potential growth. Coming from Microsoft, I know all the parties, I know all the factories. since I joined Leica 2 1/2 years ago, they are approaching us all the time..
We’re not interested in volume business. we are interested in premium, quality business. And also with Huawei.. our effort, our engineering capability in all Huawei product. only doing that in top product of Huawei. Because we’re premium/luxury brand. We can’t go mass..
If go mass, I can easily double the revenue in two years, but I will kill the brand.. My job here is to do something for the brand that the one before that have been successfully for 103 years. it’s no 12 months it is about actually the next 100 years.
How do you intent to maintain Leica’s heritage and history and prestige against the commercial side?
There is nothing wrong about commercial, it’s feeding our kid. It is simple answer on the question. We are limited by the fact of our production. The total volume of product that we can develop and manufacture is limited by fact we have manufacturing here and in Portugal. This is it. That means we know our capability on both of our facilities, what we can built on. very simple.
Second thing.. I strongly believe across all the industry as an manufacturer you have to make a very concious decision right now in comercial either entry or premium, anything in between is going to get killed. you see that in fashion industry, automobile industry, camera industry.
Fortunately, very smart people, have put Leica in a premium niche segment. It is lovely I would say. For the first time I don’t have to after market share.
We are investing 11% of our net sales on R&D. Usually people will tell you we are going to invest about 5-6%. Because what we have to deliver is fantastic product.
Now, what we have achieved in last three years is that building up on tradition but become more modern brand. Leica is seen as old fashioned, very traditional. But if you ask young consumer. They are now talking about Leica, they doing it on a very respectful way and passionate about it.
What I am so thrilled of because to really have that balance between amongts age group is a the best thing you can have as a brand. Nothing wrong commercial. I need to pay 1600 employees worldwide, and it’s all good.
But we’re not in mass business, price eroding business, we are not into three months lifecycle business. We see product from other electronic manufacturers only for three months. Look, Leica M 240 has been 4 years in the market. Leica M can easily, even in digital world 3-4 years. None of our competitors talking about camera that stay relevant in 3-4 years. We can, and we have to. Because we’re not in fast moving, fade away business, and that is nice position.
Also with Leica Akademie , Gallery, Leica hall of fame award, all these element are preserving that traditional aspect of the brand.
How do you see movie making in this digital era?
Leica has sister company called CW Sonderoptics. They are very successful using optical engineering for cine lenses they are really achieving, take Oscar almost every year like Revenant Leonardo diCaprio shot by Leica lenses. Yes, it is an important business, it is different business tho… because none of these guy will show up in the Leica store. We need to have salesforce to go to rental houses, you have to have different business model, different financial services but the industry is absolutely interesting.
It’s not all about Hollywood and Bollywood anymore, it is not all about Netflix and Amazon. The industry has change but it comes from relevant of movie, is more relevant than ever.
Did you know that there is no video function in the Leica M? We put it out, don’t you find is funny? We did mistake, because we don’t ask the community what they expect and require. Now we listen to them because we ask. Ok, obviously we do not need it in M, but we need to have it on SL, we need to have 4k, and then 6k and 8k…
The good thing is that you remember that was one song. in the seventies. Video kill the radio star, and now video will kill still… But it’s not true. Consumer, users are not interested in single solution or experience. They would like to have the freedom and variety of any type of experience.
It is fantastic what we see from our young photographers on Oscar Barnack award . How they mix video and still. It is our job from pure technology perspective to deliver product for photographer. You are going to decide how do you mix your video and audio. We only need to give the right instrument for that.
Which product line that you consider to focus on 5-10 years from now?
All the product line that we have now are important, that’s why we have them. It is a bit inside information, but I am willing to share that. We have some years in the past, when Leica m business stands for 60% of total business of the company. This was very unhealthy. Leica M business should stands for about 35%.
How can you increase the total size of the business by decreasing the dependency of one product line? It is coming with other relevant product line. That exactly what we want to achieve. Are we too broad? No… Because I would even talking about certain kind of cascade.. start from S, SL, M, the Q and so on.
And if i would put a personal bet on the most important future line that our current have in our portfolio, we have and definitely will remain in our portfolio is the Leica TL. It is the upcoming shining star. Because we are developing further and further into that, it will turn into a mobile device. The Leica Q, with outstanding success story. Leica M, we touchbase on that one here.
Leica SL has still more potential, and camera system outstanding but we need better in term of customer service and financial services. Leica S will remain our flagship on our pro segment. I’m very sure that we will keep those product line.
If we’re making a business decision on a product line is never for three years, always for a decade at least. That’s means when i am involved and i need to sign in with my name, it should be something that still relevant in at least a decade. Because everybody in the next 10 years… oh yeah, Oliver was signing for this.
So what you’re saying L system is important for Leica’s future?
The thing with the SL you can use all the old lenses, including the Leica R lenses. Even with the Leica M you can go back to lens model in 1930. It means eighty years old lens you can put on leica M10. Also type of different business model when it comes to sustainable value.
If you want to succeed in the pro segment, you can’t expect the professional switch from one system simply to another system because they have potentially already invested 50-80-100.000 dolar into one system.
What you need to deliver is and what we do in Leica SL, so you can use your Canon lenses or Nikon lenses. It is all good. Because at the end of the day you will switch to Leica lens anyhow.. But first, you should get experience with Leica SL camera, and from them, you take it further with the lenses. It is different business approach, but again, none of your business would work for Leica if you look only for 6 months.
You recently named president for Asia, Jane Cui, Does that mean Asia is the biggest booming market?
We have growth potential in Europe and our currently biggest market, the United States, but the growth potential in Asia is just awesome.
We have decided to terminate a contract with our distribution partner in Hongkong. Distribution partner that delivering good result for 60 years. quite a long time. But in November 2015, we decided to start our own subsidiary there, for a simple reason. I have a lot of respect in distribution business, but we are not in box moving business. We are in managing and leading and steering the premium, luxury brand business that require we have own subsidiary, own selling points, and staff that is local.
That’s why we built up very strong muscle now in China, we are going to make some changes in the Asia structure. because if you really look into the way Asia people traveling and moving. They don’t remain in their own country. They are moving around, I would like to follow them, and I would like to be able to say doesn’t matter where you purchase the product, the experience is always the same, if you go back to your own country expect a better customer service. That’s why Asia is my number one region. and the only region I have as directly point as CEO. That’s why we put president function in that role.
I am thrilled with China I have to admit it, because China is now kinda waking up, China has figure it out, if you only do production on low cost basis, that is not business model for the future. China has history, tradition and culture 5000 years.. looks like China is now recognizing that is also fantastic opportunity for China. And I know that if China waking up, all other Asia region is also waking up. So Asia is still clearly number one region. the only region that i have personally have direct report. I had 230 flights last year, and most of the flight were in direction to China. Don’t let them know in USA Okay? But that was true.
What is your proudest thing that you’ve done for Leica?
To see my people growing. That’s the best. If you coming up like me, coming from Microsoft, a software guy, is not like all people welcoming you warmhearted. What it is that guy doing here?
And then you are asking them I would like to have switch in your mind. I would like see you guys moving on, remain yourself in the learning experience, the learning curve. If you ask for that, the tendency of people is to say … ahh i dont think it’s a good idea. Because it means I need to go out of comfort zone. But most of people in Leica has stepped out of their comfort zone.
If you talk to optical engineering guys, they responded.. Ow Oliver. thank you because you gave me access with my expertise to mobile devices in the future. Again camera should become a mobile device in the future…
If I ask you a question as a consumer: What are three mobile devices that you have? You start with smartphone, ultrabook, tablet. I would like to have the answer made differently: Smartphone, tablet, camera, and now with optical engineering folks they see… Oh.. mobile devices, we can get access to that, we can deliver something that outstanding. This is what I am proud of, to be quite frankly.
I know how to run businesses, i know how to run portfolio, distribution.. blablabla. But the best thing is you make people grow, and if the people really grow. That the best thing you can do.
Coming from company like Microsoft, which is innovative, off course there is mistake a long the way.. Leica is seen like a dinosaur, not very innovative in some respect. Is that something that bother you coming from a company like Microsoft. Don’t you feel a bit sad?
Everybody doing new stuff will make mistake, if mistake is not your part of development you are not developing. The question is if you can afford it?
To be quite frankly, if you really looking at the software industry.. which company that has come out with biggest innovation
Google, Amazon, Oracle, Microsoft? No.. whenever they coming up the new product or new innovation, they purchase the company before, because they are big corporation, they are big monster..
The real innovation is the startup company, the real innovation is from smaller company that try to avoid to become corporate. the small company that avoid to built up hierarchy. Smaller company is open to collaborate to other company because they believe on open share model.
This is also where the best talent goes after. I am always afraid about if we are attractive enough to attract young talent… The really young talent I wish to have.
Now, Leica is in a pretty good position, because this place here. You might not know that, but it is number place in the world talent for optical engineering. So my talent pipeline is filled. Because I have talent here in this area, like other company such as Zeiss is also taking advantage of. Leica is no.1 company that you want to work for.
When it come software, there is no talent pipeline here. Software industry in Europe is very much up to Berlin, Tel Aviv, Warsaw, not really here in Wetzlar. that also means from pure business perspective. you need to have satellite structure that means you can’t expect the talent moving to Wetzlar, you should come to where the talent live.
We have for the first time, in house design team for almost two years now. They are not located here, they are located in Munich. But I also think about having other type of department being located somewhere else.
This is the real innovation comes from, and the innovation never come from executive board member. No… My creativilty level is very limited because I need to think business. I need to ensure business organization that have the freedom to think differently.
At Leica we have that spirit. Why is it still a challenge? The industry has created a lot of standards in the last 20-30 years, that’s mean people think in standards, and If I interested to turn a new idea immediately turning them into patent? No.. because if you simply ask for the authorization of the patent it takes three years, but in three years I would like to have development and innovation circle at least nine times. that’s a bit of my philosophy here, and also comes back in your question regard to sharing model. If you are not going to share you don’t have access to intelligent of other you will limit yourself. We need to open it up. that’s mean brings something the party, get something out from the party. That’s the model.
That’s why I think it is not to bad to have software guy like me running a company like Leica. Ha ha ha..