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What’s Wrong With These People? #4 – Sony

  • Lost opportunities began with the iPod
  • Current Android offerings solid, but unexceptional
  • "A life insurance company with a money losing TV business"
Written by Adam Wajnberg
03/07/2012

Nokia can boast that it once dominated the economic portfolio of a small but wealthy country, as can BlackBerry. Sony, on the other hand, was once a  lynchpin of the world’s 2nd largest economy, and the first thing the world thought of when it came to ‘Brand Japan’. Sony represented the peak of miniaturization, the excellence of Japanese engineering, and above all, efficient design. Though it never dominated the mobile world, it was a significant player in the pre-smartphone era. More significantly, Sony had the greatest opportunity to marry up the two mainstays of the mobile pocket; portable music and making calls. That they managed to let this opportunity slip through might provide more of an answer to their current woes than the more familiar story of departmental disharmony. But whatever the reason for their (still-in-process) collapse, the fact that it happened at all is alarming, and a perfect example of how to make the invulnerable, vulnerable.

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Humble Beginnings

                                        sony beginnings

                                         Ibuku and Morita. Sunny Boys.


Steves Jobs and Wozniak might have built Apple up from a garage workshop in pleasant 70’s California, but Sony’s founders did it from a bombed out office in post WW2 Tokyo. Masara Ibuku and Akio Morito started their radio repair shop in May 1946, and grew it into the Tokyo Telecommunications Engineering Corporation (TTK, based on the Japanese name). They built Japan’s first locally made tape recorder, and licensed transistor technology from Bell Labs in the US for use in Japan.

In 1956, TTK released the first widely sold transistor radio, the Sony TR-72. Sony was derived from sonus, latin for ‘sound’, and as a callback to the word ‘Sonny/Sunny’, an English loan-word used to refer to enterprising, clean cut Japanese businessman (‘he’s a sunny boy’). The TR-72 sold everywhere, including Australia, Europe and the US. Subsequent revisions followed, focusing on making the radio smaller and more elegant. The TR-63 was the one that broke open the US market in a big way, and had sold 5 million units by 1968. By now, the company had been re-christened to Sony, and was expanding into new technologies and markets.

Made in Japan

Japan became a manufacturing powerhouse in the 1920’s, but mostly of very small items. Umbrellas, canes, some textiles, toys – if this pattern looks familiar, don’t be surprised. Before World War 2, and through the 1950’s, ‘Made in Japan’ had about as much cache as ‘Made in China’ had 10 years ago. Sony and Toyota were amongst the first brands to bring unique Japanese aesthetics to their manufacturing, relying on miniaturization and highly efficient processes. The Japanese approach to combine cost effectiveness with elegant engineering appealed in the 60’s and 70’s in the US, when conservation of resources became a real concern after the fat post-war period. Japanese cars that ate less fuel, electronics that were smaller, less garish and cheaper – these elements lead to a reversal of the ‘Made in Japan’ image, as did emerging brands like Kwannon (Canon), Matsushita (Panasonic) and Toshiba.

Walk like a man

                                  sony walkman

                                                              BAM


By the 80’s, Sony had grown into a conglomerate in its native Japan, where it provided life insurance and other financial products. The cash cow was still electronics, which is where Sony distinguished itself abroad. In 1979 they launched The Walkman, and it arguably became the greatest superstar in the history of electronics to that point.

The Walkman was one of those utter hits that can’t be planned for. As a matter of fact, Akio Morita, who now headed up the firm he founded by himself, hated the name and only acquiesced to its global branding on the basis that it would have cost too much to scrap Walkman advertising for one of the other variations (Soundabout for the US, Stowaway for the UK). The global recession in the early 1980’s would have normally suggested a downturn for a maker of flash gadgets like Sony, but the Walkman was revolutionary. It wasn’t a gadget, it was a lifestyle.

The Walkman also embodied everything that was Japanese – it was small, high tech, beautifully engineered and extremely cool. For those who knocked Japanese ingenuity, it also represented the ability of the Japanese to be excellent refiners, but poor innovators – the personal stereo had been invented by a Brazillian in 1978. But regardless of what one thought about Japanese inventiveness, the Walkman symbolized that they were hardware masters. In the years that followed, no-one could quite match the mix of usefulness and attractiveness of the Walkman’s several iterations. Walkmans could be small and elegant, or bulky and waterproof. They played tapes and radio. They evolved to incorporate digital displays in the late 80’s, an innovation that has to be considered alongside the fact that anything with liquid crystal in it at this time was either used by the government  or worth a month’s salary.

Goin’ it alone

Right now, if you wanted to plot Apple’s demise, it would be related to Standards. There are two ways of making it in the electronics biz – one is to react to new leaps in technologies made at universities and submitted to the IEEE (the international electrical engineering society) , paying a license fee and then making the best damn device that uses that technology. The other is in developing your own technologies in your R&D department, making devices that use insider knowledge of how it works, and then charging everyone else for (often limited) access to that technology. And then spending a fortune on lawyers to protect your patents.

The motives of the engineers in both models are the same – the desire to just be the best, and push technology to the fore. But in the second model, the desire for ownership and profit can sometimes get a little loud, and derail the entire enterprise. So it was with Sony, and so it often seems to be with modern day Apple, who are beginning to pop up in the news more for court battles than they are for new innovations. This is a slippery slope, and Sony’s adventures in the world of standards wars should provide some tips.

Sony’s slide from awesome cool to an army of lawyers began with the video format standards war of the mid 80’s. Sony’s Beta was better in every aspect than JVC’s VHS – except it was more expensive and the tapes recorded a maximum of 60 minutes. Sony’s intransigence – burning through heaps of money to promote its technology – did not set a good standard. Subsequent attempts to secure standards, with MiniDisc, MemoryStick and Blu-Ray, all caused Sony to drift.

Decline

                                         sony ericsson W800
                              

                                               The W800. Beautiful, but "Not Built Here"


By 2004, Sony managed to be in a deep state of decline despite still boasting some of the best hardware in the world. Its electronics business  was losing out to Samsung. The only divisions making money were Gaming, with the Playstation, and Movies, which had struck gold with the Spiderman franchise. When Howard Stringer, a British-American former CBS executive emerged as Sony’s first non-Japanese chairman and CEO, he wasn’t prepared for the fight on his hands. The problem wasn’t that he wasn’t Japanese. The problem was that he wasn’t an engineer.

Sony’s original mission statement was to allow engineers free reign to meet their potential. There has been a lot of philosophizing about ‘making things’ as a manly and appropriate evolution of the Samurai spirit. Regardless of how accurate that is for all of Japan, within Sony at least that was the deal. The media units lived in a high paid, sleazy world of nebulous Hollywood deals, while the honest engineers applied their superior knowledge to making the world a better place. Stringer didn’t even realize he wasn’t in charge of the electronics business until about a year into his stay.

Likewise, the Gaming unit was their own little enclave; originally conceived as a joint venture with Nintendo, the Playstation team were considered by the other engineers as inferior, while the team considered themselves superior for being the only unit making money. And so it went with mobiles as well; Sony scoffed at the team which mainly applied design and content, while Swedish interlopers built all the actual components. ‘Not Built Here’ became the main reason to ostracize adopted children in the Sony Universe. You make radios? Good, join us for lunch. You incorporate the Beatles catalogue into a music platform for mobiles? Stay out of our way.

Missed Opportunities

By contrast, Apple was harmonious under Jobs. Teams worked together, with greater respect paid to the softer arts of design and software. The iPod packed modest internals, which would have drawn snickers from the folks at Sony, and a blazingly simple user interface that would have brought stifled yawns. But as it turns out, electronics were no longer just for hobbyists and engineers; they were essential to our lifestyle. How the makers of the Walkman missed this is beyond comprehension.

By the mid 2000’s, it was commonplace for the modern pocket to be carrying an iPod and a Mobile. Some mobiles could carry a little music with a lousy interface; to kill off the iPod with a phone music player seemed unworthy of attention to most. Motorola was the first to attempt a partnership with Apple, with the embarrassing ROKR, which integrated with iTunes and otherwise looked terrible.

Sony didn’t need Apple. They had their own music division, their own portable music division, their own phone division and enough capital to kill the iPod stone dead, AND gain an unassailable advantage in both the phone and portable music markets. The only problem is they didn’t care. They didn’t care about user interface. They didn’t have to stake their business on it.

Still, even with the general malaise about music players, phones and the combination of the two, Sony’s Walkman Phone still beat everyone else’s attempts. Even when they weren’t trying, Sony made beautiful stuff. The W series were pretty, solid and worked great. Just not great enough. And there were no options to buy music or browse catalogues.

Similarly, many were murmuring that it was time we all stepped into digital e-readers. Reading novels on phones and even through the Notes feature on classic iPods was most popular in Japan, actually – why Sony gave such a half-arsed effort on their early e-readers is frustrating to contemplate. For whatever reason, Sony’s general distaste for anything that lead to greater consumption of digital content just did not seem important, even though Sony owned a lot of digital content!

Now

Needless to say, the iPhone killed Sony’s phone business, and then Samsung beat them to the Android game. Sony’s XPERIA line is everything Sony is these days – well made, with a little attention paid to user interface and content, and otherwise unexceptional. Likewise, their Bravia line of TVs are superb, at a high price, and offering less interactivity than Samsung models that are a third cheaper. ‘Made in Japan’ still has cache, but ‘Made in Korea’ does as well. And even ‘Made in China’ is shaking off its stigma, with Huawei and HTC at the forefront of Chinese innovation.

As for Playstation – even the concerted effort of Playstation’s team, mostly poached from Nintendo, can’t shake off Sony’s stubborn refusal to downplay software and oversell hardware. The PS3 was so overbuilt that they had to sell it at a loss just to bring it under $1000 in most markets. Games that took full advantage of the extra power were hard to develop, and heavily priced. The sunnier, more kid friendly Wii sold like gangbusters, appealing to those who wanted to play games that were fun and challenging. Then Microsoft’s XBOX came along to appeal to those who wanted great hardware, but not at the expense of excellent games. The PS3 is the 3rd best selling of the last generation of consoles. And with console gaming starting to fall off as people turn to ever more powerful phones for their gaming needs, the PS3 may be the swan song for Sony’s gaming division.

Sony decoupled from Ericsson this year. Sony’s handset division isn’t EVEN trade bait. Apple and Samsung have so completely demolished the competition in phones that pretty much everyone else, except maybe HTC, is on the verge of dying. Nokia and RIM are stuck, LG is an afterthought, Huawei cater to the cheaper ends of the market, Motorola is in a holding pattern until Google finds a place for it, and Sony comes after all that. Sony might have to close shop on mobiles as well.

So Sony might soon have no gaming, phones or portable music divisions. Even in televisions, where they’ve never led the pack, might have to close up. What else is there?
There’s the Spiderman franchise, which they’ve had to activate this year just to hang on to the rights. Did they continue the series, which is not quite 12 years old? Nope. They ‘rebooted’ it. Sony may be even more out of ideas than your average Hollywood studio.
There’s the Sony Entertainment Network, which seeks to marry Sony’s content stable with devices that no-one wants to buy anymore.

Is Sony Bad?

Sony created the world we live in now. The very idea of carrying around tiny devices that do so much originated in their labs. But they’ve certainly lost their way. As Jeff Loff, an analyst from Macquarie succinctly put it last year, “Sony is a life insurance company with a money-losing TV business.”

So in a nutshell, yes, Sony is bad right now. They got to this point by being stubborn. They failed to capitalize on an embarrassing amount of opportunity, and they’re currently losing more money (about $600mn USD) every quarter than most companies make in a year.

Can they recover?

Not in any real way. Apple owns the cache that Sony once held, and Samsung owns the engineering spirit (albeit tempered with a greater respect for the end user). Sony can recover as a company, but only by divesting its electronics business. A sad end for a company that once made the future.

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