When digital cameras hit the mass market in 1997, consumers couldn't get enough of them. Within nine years, nearly 300 million digital cameras were sold, and half of all households in the U.S. and Japan owned one, as did 41% of all European households, making digital photography one of the fastest-adopted technologies of all time. Such dramatic change comes at a price: the icons of photography as we knew it tumbled. Polaroid went bust in 2001. Kodak stopped making film cameras in 2004.

Now, however, it's the sellers of digital cameras themselves who have to worry about possible extinction. With the summer photo-snapping season in full swing, market-research firm IDC is predicting that consumers in Japan and Western Europe will buy fewer digital cameras this year than they did last year (in fact, the numbers already declined in Japan in 2005). Around the world,

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nginx/1.14.0 (Ubuntu) they'll purchase only 10% more cameras than a year ago — 103.2 million versus 93.8 million. That's nothing, considering that in 2005 sales jumped by 27%, in 2004 by 51% and in 2003 by 73%. "We're reaching a saturation point," says Chris Chute, an analyst with IDC in Framingham, Massachusetts. "Some of the weak vendors below 8% market share will have to reconsider their place."

The big picture is one of a shrinking market: IDC predicts that global growth will soon vanish as sales flatten in 2009 at 111.1 million cameras, and then begin to sink in 2010. Things look even soggier through the revenue lens. Retail prices will plummet as they always have, especially as consumer-electronics powerhouses like Samsung, Panasonic and BenQ flex their distribution muscles to grab at market share from the other vendors ahead of them — Sony, Kodak, Olympus, Nikon, Fujifilm, HP and Casio — and from leader of the pack Canon. IDC sees an end to revenue growth for the foreseeable future, as the 10% growth in unit sales will translate into only a 2.2% boost in revenue, to $33.3 billion, after which industry sales will drop 2.6% to $32.5 billion in 2007.

The strain of a shrinking market has already forced at least three notable vendors out — Konica Minolta exited last spring, selling patents and assets to Sony. Kyocera shuttered its camera business in 2005, two decades after entering the photography market by buying Japan's venerable Yashica Camera Co. and its Contax brand. And Toshiba all but stepped away in 2004. How, then, are other digital-camera vendors going to eke out a living? It won't be easy: two weeks ago, Kodak reported a $282 million second-quarter loss, almost twice that for the same period last year. Low industry-wide profit margins mean that competing on price will be difficult. Consumers can already buy a decent camera for as little as $80. Although iSuppli, a California-based research firm, says the cost of producing a camera will continue to decline, those cost reductions won't keep pace with plummeting consumer prices.

If vendors don't want to compete on price they'll have to distinguish themselves in other ways. In the heyday of digital-camera sales, all they had to do was improve a camera's image resolution, measured in megapixels. But now that the march of the megapixels has advanced to at least five or six on most point-and-shoot cameras — a level above which the human eye can't spot improvement — vendors are scrambling to compete on other features.

Some are banking on the digital slr (or dslr) — a digital version of classic single-lens-reflex cameras. Photo enthusiasts pay a premium for slr cameras because they equate them with quality: slrs let users add different lenses, and are known for capturing more light and for snapping exactly what the photographer views through the finder. Canon and Nikon, both strong slr players from the analog days, are leading the charge.

Sony, too, is moving for the first time into dslrs with its Alpha dslr A100, which hit the market in July. The camera uses slr technology Sony acquired from Konica Minolta, and is selling for around $1,000, lens included. Companies think the dslr will whet the appetites of gadget lovers who will eat up higher-margin aftermarket treats, like lenses, flashes and cases. Sony, for one, offers 21 lenses for its new Alpha.

Skeptics say that dslrs are a false hope, because most people consider them too complicated, big or pricey. IDC pegs them at around 4% of the market today, growing to only around 5.5% by 2010. Fujifilm, which in January overhauled its camera division to offset declining profits, is avoiding entry-level dslrs altogether because, notes Fujifilm U.K.'s director of photo products Adrian Clarke, the market is "fiercely competitive."

Instead, Fujifilm is banking on the printing business, a strategy that stems from its heritage as a film provider. Sales of its "minilab" printing equipment to British retailers such as Tesco, Boots and Jessops had been reliable for five years, at about 600 units per year. But in 2005, those numbers halved. The company says that major retail customers no longer needed to buy new minilabs, so Fujifilm is now promoting "in-store ordering terminals" to new customers as part of its "print at retail" push.

Kodak, too, is relying heavily on the printing business. Jaime Cohen Szulc, general manager of Kodak's camera business in Europe, the Middle East and Africa, points out that people print only about 28% of their digital photos, a long way from their habits with film, when folks often printed two copies of every shot. Kodak is selling products that allow printing at home; its EasyShare printer, for example, lets you connect your camera straight to the printer. Kodak makes money not so much by selling printer hardware, but by selling the paper and ink cartridges, which carry higher profit margins than consumer-electronics goods.

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nginx/1.14.0 (Ubuntu) Companies also hope to persuade mobile-phone-camera users to print out their shots. "For the entry level, the mobile is taking more and more of the digital-camera market," says Kodak's Cohen Szulc. There is some silver lining for the industry. Vendors are looking to emerging markets such as Brazil, Russia, India and China. And even in the mature Japanese, European and U.S. markets, a lot of people still do not have digital cameras. IDC analyst Paul Withington in London says that household penetration levels are far from the 70-80% that the industry reached with film cameras. "It's down to the vendors to try to stimulate that growth," says Withington.

That means that consumers are in for a treat of more features at lower prices, as camera makers constantly improve their wares. "It's all a ridiculous affirmation of how capitalism increases selection for low price," says IDC's Chute. Creative destruction, you might say; we'll see how many camera companies survive it.

• MARK HALPER
• Digital-camera makers scramble in a shrinking market, but that could be a boon for buyers