Canon and Nikon have been fighting in the SLR and DSLR market for several decades. From the 60s to mid 80s, Nikon dominated the professional film SLR market share. When Canon came out with better technologies such as auto focus and other electronics automation after the mid 80s, many pros (especially those who shoot sports) switched to the Canon EF-mount system. For the next few decades, Canon SLR (and lately DSLR) dominated both the pro and consumer SLR market. Today the competition is just starting to heat up. Every few months, both companies come out with something better and/or lower priced than the other brand. Both companies get a bulk of their revenue *not* from their professional grade camera equipment, but with a flood of plastic, cheaply made consumer grade equipments (sub $500, sub $750, and sub $1000 SLR cameras and cheap kit lenses).
The consumer grade segment of the market is most vital to both companies because they account for a bulk of their revenue and thus is their bread and butter. One way to gauge the competition is to go to a store. I go to Costco frequently and chuckle whenever I see both Canon and Nikon DSLR boxes side by side. As of late 2008, the two consumer grade cameras that Costco sells are the Canon XSi and D60. While both try to compete for similar price range, looking at the boxes, one may feel that they're actually aiming for different types of consumers!
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Below is the exact same item as above but has a different packaging, in 2009. Look at the fancy jargons like "Optical Image Stabilizer Double Zoom Lens Kit", and below, a bunch of fancy stuff like "12.2 MEGAPIXELS", "Digic III", "3 inch LCD", "3.5 Frames per second", "EOS", "Picture Style". Wow! If I were a guy who loves to look at specifications all day, I'd get a Canon Rebel because it's obviously better on a spec-by-spec comparisons.
Let's now look at the Nikon D60. You see a woman with a bunch of smaller images on the side (baby smiling, flower, kids, etc). There's no sports. There's no emphasis on frozen action. There is no fancy jargons to woe you. There IS however lots of emphasis on people... portraits... softness... prettiness... connection to people. No jargon, just "FAST, FUN, & EASY." Nikon's strategy is about connecting to people in the simplest possible way.
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Let's look at another Nikon, the D5000 (2009). Unlike Canon that screams technical jargons and specifications, Nikon box simply says "Smart, Sharp, Simply Brilliant." Again the emphasis is on people. Happy people, with happy emotions.
Let's look at yet another Nikon, the D3000. Similarly, it's got happy people. Kids. The camera captured the moment. "Incredible pictures, incredibly easy."
So what's going on? Canon's strategy is to use what they're traditionally good at: sports and specs. Do you remember the late 1980s when Canon EOS Rebel flooded TV with their ads blitz? "It's so easy to use, amateurs can capture Andre Agassi like a pro!" Canon loves to show pictures of sports, frozen in time. In addition, Canon uses higher specifications (higher megapixel, more frames per second, higher processor name, etc) to lure certain types of buyers-- the Specification Peepers. Boys. Men. Guys. People who generally want the highest megapixels, biggest LCDs, most horsepower, most torque, biggest lens, biggest of everything. Canon is the ultimate boy's toy, because boys can brag to each other that they have a biggest spec'ed camera, the Canon. You know,"my cannon/piano/whatever is at least 3 inches longer and thicker than yours so I'm a more dominant male", that sort of thing. Spec for spec, Canon will have more features, for the same price or lower. Canon [on paper] is the most incredible machine on earth. Not surprisingly, Canon is an engineering company where engineers design and optimize the camera by spec, and they will out-spec any competitor, period.
What does that leave Nikon with? Nikon's strategy isn't to use specification to sell. Nikon doesn't need to compete on specs, because not all specs are relevant to the discerned buyer. For example, higher megapixels doesn't mean better image quality (in fact, more megapixel means more noise at night). There are other things to consider, like contrast and color rendition that Nikon excels at. For example (on similar settings), Nikon tends have warmer and more accurate auto white balancing hence psychologically more eye pleasing portraitures (this is all according to DXO Mark). In addition, Nikon tends to have lower megapixels but better night time capability (higher ISO with lower noise), whereas Canon tends to have higher megapixels (great during day time) but less night time capability (higher ISO with higher noise). Of course, color/contrast/night pictures are difficult to sell so instead of trying to describe it as specs, Nikon marketing decides to simply put portraiture of people on their boxes hoping people could just see how great their cameras are. There are other intangible items that Nikon hopes discerned users can feel such as better built quality (vs. the cheaper plastic housing of Rebels); Nikon is traditionally known to be more rugged and this has been true since the 60s when more journalist used Nikons to take pictures of Korean and Vietnam war than any other brands, and that more Nikons went to space & NASA than any other brand. They are also known to have excellent usability, and usability consistency in their product lines (a consumer D40's UI isn't too different than that of the professional D700).
None of the differences should be a surprise. The two camera brands have had very different philosophies since the 50s and 60s. Canon embraces the latest and greatest technologies while mass producing them (at the cost of durability) whereas Nikon is conservative and will only embrace new technology when absolutely necessary. Also, they have had very different philosophies in what types of images their cameras should capture. In the old days for example, Canon traditionally values more resolution (at mid-aperture), whereas Nikon values more contrast at wide-open. Below is an illustration of a 1950's pictures (directly from Dante Stella's article on resolution vs. contrast trade-offs in lens design, http://www.dantestella.com/technical/nikoleic.html):
On the left is Canon, which gives great resolution at mid-aperture. On the other hand, to the right is Nikon which gives great contrast wide-open. There is no "wrong" choice in trade-offs, just preferences. Photographers shooting sports or landscape is likely to opt for the company that values great resolution (higher MTF 30 lp/mm and higher megapixels on the Canon), and photographers shooting portraits and/or at night is likely to opt for the company that values contrast (higher MTF 10 lp/mm and better ISO on the Nikon).
Today, the differences in contrast and resolution between the two companies is no longer a big factors in choosing the "right brands". Both companies employ engineering techniques to yield some of the best products that we have seen to date, and both companies make lenses that yield very similar resolution and contrasts. Today, what makes them different is that Canon is consistently making higher megapixel cameras (21MP) that looks amazing during day time and decent at night, whereas Nikon is consistently making lower megapixel cameras (12.1MPP) that looks decent during day but superb at night. Like the old days, Canon still uses more plastic parts today to save costs and pass the savings to consumers (e.g. 5Dmk2, T1i) whereas Nikon has slightly better built quality to endure harsher conditions better (e.g. D700, D90) but cost more.
In short both companies embrace very different philosophies and employ different engineering techniques and both create great products. Sometimes there is no right camera to use for every single possible situation. For certain situations, Canon can be marginally better than Nikon, and vice versa. I for one prefer Canon and its superior pro-telephoto lens selections for events such as sports/bird shooting, but at other times I prefer Nikon for their Creative Lighting System for shooting portraitures, product shots, and night time.
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Links to other sites:
Trade-offs in lens engineering:
http://www.luminous-landscape.com/tutorials/understanding-series/understanding-mtf.shtml
Contrast vs. resolution philosophies of Leica, Contax, Canon, and Nikon:
http://www.photoethnography.com/ClassicCameras/index-frameset.html?focusing.html~mainFrame
