I

n the eighties and nineties, if you

wanted the best consumer electronics
the high street could offer, the chances
are youd buy a Sony product. Its televi-
sions, video recorders and Walkman music
players were trailblazing and cool. Sony was
a prestige brand. It was the Apple of its day.
And back then, Apple wanted to be like
Sony, with Steve Jobs telling Fortune
magazine in 1998 that the whole strategy
for Apple now is to be the Sony of the
computer business.
Apple is now valued at 321bn making
it the most valuable company in the world.
While Sony which was worth 75bn in
2000 is now valued at only 7bn.
And, just last week, credit rating agency
Fitch downgraded Sonys corporate bonds to
junk status, citing its high debts combined
with loss of technology leadership in key
products, high competition, weak economic
conditions and the strong yen.
So what has gone wrong at the once all-
conquering giant?
Days of glory
Founded on 7 May, 1946, by Akio Morita
and Masaru Ibuka, Sony came to the fore-
front of consumer electronics by creating
products that had not previously existed.
It dominated the TV market for decades,
created the personal audio market with the
Walkman in 1979 (which eventually sold
over 220 million units worldwide) and then
achieved another industry breakthrough in
October 1982 with the release of the worlds
first Compact Disc (CD) player. It beat off
Nintendo and Sega in the games market
with its PlayStation console in the 1990s,
building on this success with the introduc-
tion of the PS2 which is the best-selling
console of all time, with about 153.6
million systems sold worldwide.
The master is nowthe pupil
In 1961, Sony had 3,703 employees and a
net income of 720m (5.5m). By 1991, it
had 19,811 employees and a net income of
924m. It now has more than 162,000 staff
but reported a net loss of 202m in the
April-to-June quarter this year.
In April, newly elected president and CEO
Kazuo Hirai stated that the firm would cut
10,000 jobs as part of a restructuring project.
A month later the companys shares
plummeted to a 31-year low after it reported
a record annual loss of 3.5bn.
According to industry analyst Display-
Search, in the second quarter of this year,
Sonys market share in plasma and LCD TVs
was just 8.3 per cent coming in third
after Samsung and LG. Meanwhile, Sony
Mobile which acquired Sony Ericcson in
February 2012 reported a net loss of
175m in the 2011 financial year.
Last week, it was announced that Sony
had sold 70 million PlayStation 3 (PS3)
consoles, still lagging behind the Nintendo
Wii, which as of September had sold 97.18
million units worldwide.
So why has Sony stumbled from leader
to follower?
Nature has played a significant role in
its decline. The Japanese earthquake and
tsunami of 2011 hit Sony hard, with a Blu-
ray disc factory and a research and devel-
opment lab damaged by f looding, and six
other factories thrown into chaos by
power outages. The devastating f loods in
Thailand later that same year also caused
major disruption to its operations.
However, Jordan Selburn, analyst at
research firm IHS iSuppli, believes
commoditisation in China is largely to
blame for Sonys woes, and those of fellow
Japanese strugglers Sharp and Panasonic.
It is just a tidal wave that you cant
hold back. There is almost nothing Sony
could have done to have position
themselves better in todays consumer
market, Selburn says.
However, while many recent setbacks
have been beyond Sonys control, others
could be said to be self-inf licted. In 2011,
the PlayStation Network was attacked, and
77 million customers credit card details
were leaked online. It cost the firm a
reported $171m (107m) to repair and
secure the network. Other attacks attrib-
uted to hacktivist group Anonymous also
affected the firms reputation. Throughout
this cyber security crisis, Sony came across
as ill-prepared, ill-equipped, and just plain
bad at communicating with its customers.
Bad decisions
But while all big firms make mistakes,
Sony has made more than most, including
Sony: where did
it all go wrong?
Why did the all-conquering trailblazer that so inspired
Steve Jobs become just another electronics firm, and will it
ever be able to reclaimits former glory, asks Sooraj Shah
www.computing.co.uk/in-depth
26 computing.co.uk 29 November 2012
Vendorfocus
Sony
75bn
Sonys net worth in 1991
7bn
Sonys net worth in 2012
www.computing.co.uk/in-depth
29 November 2012 computing.co.uk 27

many that were eminently avoidable.

For example, in the late 1970s Sony
stuck by its Betamax video cassette
recorder (VCR) format long after it was
clear to everyone else that the technology
had lost out to JVCs VHS product. Despite
a rapidly dwindling market share, Sony
refused to introduce a VHS line until the
end of the 1980s.
This self-defeating stubborn streak also
caused Sony to cling to its failing MiniDisc
players until 2011, a full 10 years after
MP3 players had effectively consigned the
technology to the dustbin of consumer
electronics history.
Perhaps Sonys greatest mistake was
allowing Apples iPod and iTunes service
to dominate the market that the Japanese
titan created. The companys attempt to
hit back with the Sony Connect music
store failed miserably.
This failure was partly down to a turf
war within Sony, according to Interscope
Records chairman Jimmy Iovine.
How Sony missed this is completely
mind-boggling to me, a historic fuck up.
Steve [Jobs] would fire people if the divisions
didnt work together, but Sonys divisions
were at war with one another, Iovine told
Steve Jobs biographer, Walter Isaacson.
In March 2011, the electronics giant said
it would combine its TV, entertainment,
mobile and PC businesses into one unit in
a bid to resurrect its fortunes. But accord-
ing to several reviews on social careers
website Glassdoor, the management
culture at Sony remains problematic.
One employee complains that Sony is a
very hierarchical organisation that has not
adapted to recent changes in the market.
If you are non-Japanese, you always
come second to them and if you are a
woman, you come last. Do not just say that
you want to change how the company is
working, actually do something. You need
to adapt to how the market place is today
or you will not survive in the long run,
the employee says.
When asked to comment on this, Sony
said it was unable to locate an appropriate
spokesperson.
IHS iSupplis Selburn believes Sonys
leadership is more enlightened than the
firms critics allege. Of the Japanese
companies, Sony was supposed to be the
one with the more f lexible, more Western-
like management system. When a
company is struggling it is easy to cite
problems with the management, he says.
The here and now
Sonys stubbornness has most recently been
found in its decision to back the Blu-ray
format. Its determination to use the
technology in the PS3 delayed the consoles
launch and significantly added to its
production costs. Indeed, Sony makes very
little from its games hardware, but what it
loses on its consoles it now hopes to regain
in the longer term. Much of its entertain-
ment divisions profits come from licences
for games, while by pushing the Blu-ray
format to putative dominance it hopes to
reap the rewards of selling more movies.
But while this strategy may work, Sony
still has work to do to catch up with the
Vendorfocus
Sony
One of Kazuo Hirais first acts
after becoming Sony CEO in
April was to announce plans
to cut 10,000 jobs
Experts believe Sony must
focus on developing a multi-
device, single sign-on
entertainment ecosystem
www.computing.co.uk/in-depth
28 computing.co.uk 29 November 2012
likes of Apple and Samsung. Its Tablet S
and Tablet P devices are relatively
unknown, and the fact that gaming is
beginning to move away from dedicated
machines and onto tablets and smart-
phones is also a concern.
But according to Ovum analyst Nick
Dillon, all is not lost.
Sony is in an enviable position; it has
arguably the widest range of connected
consumer electronics devices, an estab-
lished brand and an extensive range of
content services, he says.
But while Sony can offer excellent
cameras and laptops to go along with its
sexy HDTVs and sleek smartphones, these
products are invariably let down by a
marketing operation that is put to shame
by rivals like Apple. Sony
tends to have many similar
products with unmemorable
names like the Bravia
KDL40HX853, while Apple
has only a few devices in its
product ranges, simplifying
the choice for buyers.
Selburn believes Sony has
traded off its name for too
long, to the detriment of
innovation.
Sony TVs used to look better
than the competition because
of the secret sauce they put
into the image processing and
video processing chips on the TV, but now
the gap has closed and a top tier company
like Samsung or LG has just as much secret
sauce to put in, he says. Also, companies
like Vizio are able to get off-the-shelf
processors and chips to do the majority of
what is good but at a lower price point. So
there is less reason to pay the premium
price for the Sony brand.
Regaining its crown
TechMarketView analyst Richard Holway
believes the only way that Sony can revive
its fortunes is by coming up with more
special sauce.
They can only do it by inventing a whole
new genre. The TV is overdue a reinven-
tion. Smart TVs are rubbish. There is a
whole new market in connecting the Inter-
net of everything really effective control
centres for everything in your home
controlled via your smartphone, he says.
This is a view shared by Ovums Dillon,
who argues that the firms salvation could
lie in the development of a truly integrated
multi-screen experience.
He says all Sony devices should come
with a Sony Entertainment Network (SEN)
app that allows users to access content
using a single ID.
IHSs Selburn believes the PlayStation
console is the ace up Sonys sleeve. Sony
should focus on a position that it is strong
in, its consoles. And it could mean playing
a game on a big screen but have a map or
inventory list on your tablet or smart-
phone, he suggests.
Sonys recent attempts to, in Holways
words, reinvent the TV have met with
little success. Alongside Logitech, Intel and
Google, Sony was the first manufacturer to
launch a smart TV running on Googles
operating system. But this was a flop,
prompting Logitech to quit the programme
stating that the platform was not ready.
Sony has persisted with the alliance,
once again showing its stubbornness but
perhaps more worryingly revealing an
over-dependence on Google.
The problem is, even if the initiative
takes off, where is the value for Sony? Is it
really Googles value that is causing
people to buy the set and, if so, then
Samsung, LG and Vizio can offer Google
TV, too. Sony tried to be a leader with the
first generation Google TVs but in the
Cutting off your limbs to save
the rest of you is as painful to a
corporation as it would be to
any human. Do I think Sony
can do it? No
Richard Holway, TechMarketView
second generation it wont be the only
player, so all it does is keep Sony from
falling behind rather than putting it in the
lead, says Selburn.
Dillon says that Sony is entirely reliant
on Google to provide its smart device
platforms, and that this poses a signifi-
cant risk to the company.
Is Sonys future make.believe?
Despite all its problems, Selburn believes
that Sony can be more optimistic than the
likes of Panasonic.
I dont see Sony as the Titanic. I think it
has struggled, and is still at the mercy of
forces beyond its control. I dont know if
any management changes will fix this but
I dont see it as a sinking ship, he says.
Holway is less sanguine, arguing that
Sony must sell off its unprofitable
businesses in order to save itself.
IBM is very good at killing off bits of
itself, for example selling PCs to Lenovo,
he says. But cutting off your limbs to save
the rest of you is as painful to a corpora-
tion as it would be to any human. Do I
think Sony can do it? No.
@Sooraj_Shah
Vendorfocus
Sony
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