HP's digital photo strategy risky

Armed with a panoply of products, Hewlett-Packard intends to become an early leader in the home digital photography market, but the company is taking a big gamble by eschewing the business segment.

Hewlett-Packard (HP) has analysts scratching their heads and trying to figure out whether the company is brilliantly positioning itself as the preeminent digital photography brand in the consumer market of the future, or blindly ignoring business customers, another lucrative segment.

HP is offering a complete line of products it believes will spawn

a home digital photography revolution: Pavilion consumer PC models replete with digital photography software, a PhotoSmart photo printer, a scanner, and the PhotoSmart C20 camera. But analysts say that the pricey PhotoSmart products might play better in the business market, since each item costs more than $400.

"We targeted the home user market," said Pat Kinsey, a spokesperson for HP. "We made an investment in the future."

"They're targeting to the consumer when the market may not be ready for the technology," said Steve Hofenberg, a digital imaging analyst with Lyra Research.

HP's PhotoSmart products are generally thought to be among the highest quality digital photography devices on the market, with the exception of last year's PhotoSmart camera, which failed to offer a LCD display. With the 1998 release of the PhotoSmart C20, industry experts believe that HP has completed a well-rounded line.

But, despite the improvements, the products may be aimed at the wrong market. The PhotoSmart printer, for example, offers extremely high resolution photographs, but isn't designed for more standard printing tasks, probably making it too specialized to catch on with consumers who do not see the need for a dedicated photo-printer.

"A lot of the multipurpose printers have extremely high image quality," said Hofenberg. "HP is targeting the consumer market when a printer of that quality would be better for the business market."

Although few but the most ardent photography enthusiasts will

invest over $1,000 in a suite of products today, the consumer market for digital cameras and peripherals is rapidly expanding, and is expected to continue to grow as the price of high-quality "megapixel" cameras continues to drop. Analysts say the consumer market boom HP is waiting for will happen when high-resolution cameras drop in price to around $400, which is expected to happen within the next two years.

Nevertheless, HP is courting consumers today. Ads for PhotoSmart products feature family events like weddings and birthdays, events that are not likely to appeal to the insurance and law enforcement customers that competitors like Epson are aiming at.

"They're bucking the trend of the rest of the industry," said Hofenberg. "A lot of other vendors have products that are being sold for business applications. HP's strategy might be very smart if the objective is to capture a future market."

"There isn't anybody else who has a branded system that has each of the three items," said Carl Holec, a digital imaging analyst with ARS. "They've really been able to create a reputation as being a leader in the digital photography area."