The thinking went something like this: Most people buy P&S cameras and hence there are more R&D dollars to develop them. P&S cameras were improving at a faster rate than SLR cameras and you could see the day when the quality of the images and auto-focus systems would mostly equal that of the expensive cameras. Back in film days there was no difference between the light sensitivity of P&S cameras and SLR cameras since they both used the same film.

Cannibalization from the low-end is a common phenomenon in technology. As technology improves and prices come down, the low end, mass market product eventually satisfies the performance needs of most applications, marginalizing the high end product. I saw this painful effect first hand when I worked for Silicon Graphics. Every year the PC graphics boards satisfied the needs of more and more people and the market for graphics workstations shrunk.

Digital Photography reset the camera market. Camera prices more than doubled overnight. In 1999, entry level P&S cameras were $700. Digital SLRs that could rival film were $10,000. For all the enthusiasts moving over from digital, there were some painful choices to make. Digital had clear advantages in immediacy and the incremental cost of shooting, but most enthusiasts were priced out of the cameras that could deliver image quality equal to their $700 Canon A2E film camera.

As prices dropped and technology improved, Digital SLRs became the tool of choice for the enthusiast. Starting with the Canon D30 in May of 2000, which was priced at $2400, enthusiasts gradually started buying digital SLR cameras.

Digital SLR cameras came down in price over the years. Now once again, digital SLRs cost approximately what prosumer film SLRs cost in the 90s ($700-$900). In the last few years DSLRs were one of the fastest growing segments of the digital camera market. Only a digital SLR could offer the shot-to-shot time, auto-focus speed, and low light performance that enthusiasts demanded.

But there is no fundamental technological advantage to the SLR format where you look through the lens through a pentaprism equipped with a mirror. In fact, the whole concept of having a mechanical mirror that pops up to expose the sensor is a complicated mechanical contraption that seems almost odd in a modern digital camera. Furthermore, the SLR format has some disadvantages, including size, weight and frame rate (you have to move that mirror out of the way).

Why can’t point and shoot cameras produce images that are as good as an SLR in a smaller form factor? Well the answer is that they can. Panasonic and Olympus have led here with the introduction of the micro 4/3rd format, which is really nothing more than a line of point and shoot cameras with interchangeable lenses and big image sensors.

The Panasonic GF-1, which I own, is the first camera that makes me want to leave my 4.5 lb Canon 5D Mark II with 24-70 f/2.8L at home in some situations. Not all situations mind you. But some. the GF-1 is 1lb with its 20mm f/1.7 lens. It can take a photo in low light. It autofocuses well. Challenges remain. Auto-focus speed is not equivalent to what a DSLR can deliver. Low light performance is not equivalent to a Canon 5D Mark II. But you can see where this is going.

DSLRs are not getting better at any significant rate. They are already amazing. The gap between P&S camera performance and DSLR performance is closing. When P&S cameras deliver anything close to the performance (image quality, low light performance, auto-focus speed) of SLR cameras, the market will once again shift back to point and shoot cameras.

Why? Because consumers mostly don’t care about tinkering with settings (aperture, shutter speed). They care about image quality, auto-focus speed, and low light performance. Once point and shoot cameras close the gap, the market will shift away from the heavy, clumsy digital SLR cameras.

I believe that when we look back, Panasonic’s GF-1 will be seen in the industry as heralding the second rise of the point and shoot camera. In five years, I predict the DSLR market will actually have shrunk relative to the market for compact, 1 lb point and shoot cameras with digital viewfinders and amazing performance. These cameras will be under $400.

And after that? well, technology is merciless. Don’t count the smart phones out. It will just take a long time before they satisfy the performance needs of the mainstream.

First, I buy mostly from B&H photo in NYC. I like them because they plainly mark whether an item is USA warranty or gray market, and they have never shipped me used equipment passed off as new. They are also super knowledgeable on the phone if you have a question before purchase. Friends tell me that Adorama is also excellent. I am pretty much an Amazon shopper these days, but for cameras, I still buy at B&H.

I own a 5D Mark II, but I have used the digital rebel cameras and they are all excellent, if not quite as sturdy or full featured. Today, my recommendation would be to buy the Canon EOS Rebel T1i (Body Only). Avoid the kit lens. It is not very good.

The question of which lens to buy is actually much more difficult. If you want a zoom, the one to buy is the Canon EF-S 17-55mm. I still live in the world of 35MM in my head (old habits are hard to kick). The sensor in the Rebel is smaller than a 35mm sensor. If you multiply the focal length of your lens by 1.6, you get the 35MM equivalent focal length. That puts the zoom in the range of 27.2mm to 88mm, a great range for walking around.

The 17-55 lens is also f2.8, nice and bright, which contributes both to low light performance and the ability to auto-focus.

Finally and most importantly the 17-55 takes beautiful photos. I primarily look at sharpness, vignetting and distortion personally and that lens is pretty good all around. The chromatic aberration is also under control. I have found that the ratings at Fred Miranda are pretty reliable. If you look at Canon Zoom Ratings, you will see that the 17-55 scores a 9.1 and is on the first page of zooms. Although the 17-55 is not a professional L lens, it scores higher than some L zooms in the Canon lineup. By comparison the kit lens is second from last of all the zooms rated. Avoid it.

In terms of cost, we have spent $960 on the lens and $799 on the camera, coming in at $1760.

If you really want to spend that $2000, buy a 50MM prime. The Canon 50MM primes perform beautifully. On a cropped sensor camera, that lens will provide the field of view of an 80mm lens, the perfect wedding and portrait lens.

Most primes, even fairly inexpensive primes, out perform even the best zooms in image quality in my experience. I own mostly L zooms. The big difference I have noted is auto-focus speed and build quality, which is far better on the L glass. I own a few L primes, and I can’t see that much of an image quality difference relative to my consumer primes. But the L primes are heavy and focus fast.

In terms of a 50MM prime, the two consumer choices are the f1.4 and f1.8. Both earned a 9 rating at Fred Miranda, but the f1.4 is far more popular. The 1.8 version is notable mostly in that it truly feels like a piece of junk. B&H is charging $399 for the 50mm f1.4 and $114 for the 50mm f1.8.

As you can see, the f1.4 brings us a bit over our $2000 budget, coming in at $2160. The f1.8 brings us in at $1875. You could even buy a hood for the zoom, which you really should buy. It helps increase the contrast of photos.

To be fair, the hood for 17-55mm hood is a bit of a compromise. It has to accommodate the lens in wide angle mode and hence is not as tight as it could be when zoomed in. (The ultimate hood design is the hood for the Canon 24-70mm f2.8L. The lens projects out as you go wide, so that the hood is always the perfect size for the focal length. Note that this is my ‘walking-around’ lens, but it’s darn heavy. It works best onf a full frame camera like the 5D Mark II. On a rebel, it would become a 38-112mm, which is great on the tele side but a bit not wide enough for my tastes. But I digress)

Don’t buy a front filter for the lens. Many salesmen will try to sell you a daylight or UV filter to protect your lens. The lenses are already coated for glare and most issues with white balance can be fixed after the fact. Putting a filter on a $1000 lens to me is like putting a plastic cover on your sofa. Who are you saving it for? But the hood can protect the lens if you drop the camera or hit it against a wall, so might be a nice investment regardless of whether it is well designed or not.

If you choose to step up beyond the Rebel, keep in mind that the 40D and 50D do not take video. Although the video features on my 5D Mark II are quirky, I truly love having video available and find it very useful for shooting quick clips. It works best when the subject is not moving away or toward you (no re-focusing required) like when shooting someone on stage or blowing out the candles at a birthday party.

Any modern DSLR will provide you amazing photos compared to a point and shoot. The low light performance is where its at. But don’t waste that by getting a dim zoom lens. Make sure you use a lens that is at least f2.8. If you can’t afford the nice canon zoom, buy a cheap Canon prime lens. For example, the 35mm prime lens will turn your rebel into a 56mm fixed focal length camera. For many years the 50mm was the standard lens shipped with SLRs.

When I worked at SGI, our best customers were not asking for low-end cheap PC card graphics. But every year those Nvidia and ATI cards got better and better, and eventually, our customers bought those.

Kodak’s best customers in the early 90s were not asking for digital cameras; they were inadequate in terms of quality. And Kodak had a huge chemistry, paper and film business to protect. They were scared that if they offered digital solutions, their traditional businesses would suffer.

When Craig’s list got started, the advertisers of the NY Times classifieds had no interest in the relatively small online audience. As a result, the NY times and other mainstream media outlets missed the opportunity for online classifieds, losing the business to Monster, Hotjobs and Craig’s list, none of whom had been in the classifieds business previously.

The leaders in auctions before the Internet were Sotherby’s and Christie’s. Ebay had no experience in auctions.

Zagats owned populist restaurant reviews but they did not want to cannibalize the sale of their books so refused to do a completely free version on the internet. That opened up an opportunity for Yelp, and the rest is history. Now their book sales are going to zero and they lost the online business too.

In technology and in life, underdogs often drive innovation. This makes sense. People with less to lose take greater risks, and are hungrier. Sequoia capital, the VC behind successful companies like Apple, Google and Cisco, says they prefer first time entrepreneurs because they are hungrier. Many of their most successful founders have been first-generation Americans, with very little to lose.

Steve jobs, in his address at Stanford’s commencement in 2005 talked about lightness of being a beginner after being thrown out of Apple. “Stay hungry, stay foolish” he advised. This is all the same effect, at a personal level versus a corporate level.

I love that entrenched, successful players continue to miss disruptive opportunities. Entrenched players have so many advantages in terms of capital and brand. Disruptive technology levels the playing field, giving promise to the words in the Declaration of Indepence that “all men are created equal.”

In Digital Photography, we are seeing the power of disruptive technologies play out right now.

Panasonic is leading the pack in introducing micro four-thirds cameras that take photos approaching that of an SLR, while dispensing with the mirror, pentaprism and mechanical shutter. Makes sense. Panasonic is an also-ran in digital cameras. You don’t see Canon and Nikon racing to remove the mirrors and put electronic viewfinders in their SLRs. Why would they?

Shutterfly, Snapfish and Kodak all but owned mainstream consumer consumer photo and video sharing with their print-oriented offerings. Then one day they woke up and realized that facebook, something they had not considered photo sharing at all, was the largest photo sharing network in the world. Oops. Did it hurt them they they did not innovate their core sharing capabilities for 5+ years? You bet it did.

And finally, the one nearest and dearest to my heart: smart phones are attacking point and shoot cameras from the low-end. And of course, Canon, Nikon and the other traditional camera companies are mostly ignoring the opportunity because their best customers are not asking for these types of devices.

You can see where this is going. Put a slightly better camera on an iPhone, add video and an LTE or Wimax network connection and smart phones will be better consumers cameras, with more convenience and lower cost (since consumers are all going to carry smart phones) than traditional point and shoot cameras.

The camera companies did not miss the transition from film to digital (well, most did not miss it, Leica and Hasselblad did). It was a fairly straight forward transition for them. Film cameras were becoming increasingly electronic anyway, and digital photography just brought a few more components over from analog to digital.

But the movement to smartphones is a completely different animal. Because these are sold differently. The smartphone is a subscription-based device that runs on the public networks and has a significant service component. The traditional camera companies have no experience providing high quality software and services. It would require a tremendous amount of learning on their part to make the transition, and a hunger to do it.

What does it take to not have disruptive technology put you out of business? It requires vision and the willingness to cannibalize your own business with what will likely be a lower margin product competitor.

Who does it well? The first example that comes to my mind is Amazon. They are ruthless. Knowing that electronic books will someday replace paper books, they entered the electronic book market and had the lower-priced Kindle versions of the books compete with the paper-based books on Amazon’s site. They invested significant money in doing the Kindle development, entering a field they knew nothing about: the design and manufacturer of portable mobile devices with wireless connectivity.

Seeing the possibility that Google could effectively compete with Amazon by selling links to Amazon’s competitors, Amazon sold links to their own competitors right on their pages! Amazon market place sellers who offer a lower price are ranked ahead of Amazon’s own offerings in search results. I bow down before them. They get it.

Everyone likes to bash Microsoft for missing the internet and paid search. True enough, they were protecting their business model of shrink-wrapped software and failed to embrace ad-supported software as service quickly enough.

But Microsoft did see the potential for game consoles to replace personal computers and invested heavily there, building the class-leading Xbox system into a profitable business.

Just happened to be that their vision was wrong there. Turns out that game consoles don’t replace PCs. They are additive to the consumer’s home. It is smart phones like the iPhone, probably in larger form factor, that replace PCs, and that opportunity they did miss. Or more accurately, they invested but could not see beyond the windows paradigm when developing windows CE.

Apple is no underdog, but in smart phones, they were the underdog. They had no business in mobile phones, nothing to protect, and certainly no mobile customers to lead them the wrong way.

I wonder what will get disrupted next? Exxon by solar energy?

What first strikes you about the camera is that it looks like an old Leica rangefinder. it has more heft and a more traditional design then a Canon digital elph. it also has a hot shoe, which seems a waste of space. If I am going to put an external flash on the camera then I will just carry the SLR.

Indoors, shooting with available light you need a low noise sensor and a fast lens. The LX3 has one of those; the f2.0 lens is fast enough that you can often shoot at ISO 400 and below, where the noise is manageable. But you pretty much need to stay at wide angle (24mm equivalent) to avoid having to use ISO800 indoors. The lens slows down to f2.8 when zoomed. At f2.8, typical home lighting requires ISO 800 or higher, something my digital SLR handles just fine but the LX3, not so much. The LX3 is supposedly less noisy than most of its competitors at ISO800 but compared to a digital SLR like the Canon 5D or 40D, there is a ton of noise.

Where does that leave me? I like the camera. It fits very nicely between the Canon 880IS that I carry when skiing and the digital SLR that I take out when image quality is my number one concern. I see myself using it when hiking, when going to indoor parties and other casual events. I do wish the camera had a lower noise sensor, which means that I wish it had a physically larger sensor with a lower pixel density. But for some reason, manufacturers don’t want to build a compact point and shoot around the sensor found in the Canon 40D. In the interim, this camera is probably the closest thing to my dream camera.

The Canon 880IS is still my choice when i want to carry a camera that will disappear entirely when not using it. The LX3 certainly won’t fit in your pocket. They know that. It has a full strap like an SLR. The Canon 880IS has just a wrist strap.

Oh yeah, the camera takes video too. performance in 4×3 aspect ratio mode, where it shoots 30 FPS, is excellent. Performance at 720p, 16×9 ratio, 24 FPS (the other option) is not quite as good. there seems to be some stuttering and motion does not seem quite as smooth. There are more artifacts in the video at 720p too to my eye. Both modes produce motion JPEGS in a quicktime container, a pretty dense format with lots of wasted space, but Phanfare’s video conversion takes care of that for me.

You can’t zoom while shooting video, pretty typical for the genre. But I don’t find that a big problem.

My biggest complaint about the camera so far is that i can’t change the ISO without going into the menus, but I read that I might be able to re-assign a button to do that.