In the eighties and nineties, if youwanted the best consumer electronicsthe high street could offer, the chances

are you’d buy a Sony product. Its televi-sions, video recorders and Walkman musicplayers were trailblazing and cool. Sony wasa prestige brand. It was the Apple of its day.

And back then, Apple wanted to be likeSony, with Steve Jobs telling Fortunemagazine in 1998 that “the whole strategyfor Apple now is to be the Sony of thecomputer business”.

Apple is now valued at £321bn – makingit the most valuable company in the world.While Sony – which was worth £75bn in2000 – is now valued at only £7bn.

And, just last week, credit rating agencyFitch downgraded Sony’s corporate bonds to“junk” status, citing its high debts combinedwith “loss of technology leadership in keyproducts, high competition, weak economicconditions and the strong yen”.

So what has gone wrong at the once all-conquering giant?

Days of gloryFounded on 7 May, 1946, by Akio Moritaand Masaru Ibuka, Sony came to the fore-front of consumer electronics by creatingproducts that had not previously existed.

It dominated the TV market for decades,created the personal audio market with theWalkman in 1979 (which eventually soldover 220 million units worldwide) and thenachieved another industry breakthrough inOctober 1982 with the release of the world’sfirst Compact Disc (CD) player. It beat offNintendo and Sega in the games marketwith its PlayStation console in the 1990s,building on this success with the introduc-tion of the PS2 – which is the best-sellingconsole of all time, with about 153.6million systems sold worldwide.

The master is now the pupilIn 1961, Sony had 3,703 employees and a

net income of ¥720m (£5.5m). By 1991, ithad 19,811 employees and a net income of£924m. It now has more than 162,000 staffbut reported a net loss of £202m in theApril-to-June quarter this year.

In April, newly elected president and CEOKazuo Hirai stated that the firm would cut10,000 jobs as part of a restructuring project.A month later the company’s sharesplummeted to a 31-year low after it reporteda record annual loss of £3.5bn.

According to industry analyst Display-Search, in the second quarter of this year,Sony’s market share in plasma and LCD TVswas just 8.3 per cent – coming in thirdafter Samsung and LG. Meanwhile, SonyMobile – which acquired Sony Ericcson inFebruary 2012 – reported a net loss of£175m in the 2011 financial year.

Last week, it was announced that Sonyhad sold 70 million PlayStation 3 (PS3)consoles, still lagging behind the NintendoWii, which as of September had sold 97.18million units worldwide.

So why has Sony stumbled from leaderto follower?

Nature has played a significant role inits decline. The Japanese earthquake andtsunami of 2011 hit Sony hard, with a Blu-ray disc factory and a research and devel-opment lab damaged by flooding, and sixother factories thrown into chaos bypower outages. The devastating floods in

Thailand later that same year also causedmajor disruption to its operations.

However, Jordan Selburn, analyst atresearch firm IHS iSuppli, believescommoditisation in China is largely toblame for Sony’s woes, and those of fellowJapanese strugglers Sharp and Panasonic.

“It is just a tidal wave that you can’thold back. There is almost nothing Sonycould have done to have positionthemselves better in today’s consumermarket,” Selburn says.

However, while many recent setbackshave been beyond Sony’s control, otherscould be said to be self-inflicted. In 2011,the PlayStation Network was attacked, and77 million customers’ credit card detailswere leaked online. It cost the firm areported $171m (£107m) to repair andsecure the network. Other attacks attrib-uted to hacktivist group Anonymous alsoaffected the firm’s reputation. Throughoutthis cyber security crisis, Sony came acrossas ill-prepared, ill-equipped, and just plainbad at communicating with its customers.

Bad decisionsBut while all big firms make mistakes,Sony has made more than most, including

Sony: where didit all go wrong?Why did the all-conquering trailblazer that so inspiredSteve Jobs become just another electronics firm, and will itever be able to reclaim its former glory, asks Sooraj Shah

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26 computing.co.uk 29 November 2012

VendorfocusSony

£75bnSony’s net worth in 1991

£7bnSony’s net worth in 2012

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many that were eminently avoidable.For example, in the late 1970s Sony

stuck by its Betamax video cassetterecorder (VCR) format long after it wasclear to everyone else that the technologyhad lost out to JVC’s VHS product. Despitea rapidly dwindling market share, Sony

refused to introduce a VHS line until theend of the 1980s.

This self-defeating stubborn streak alsocaused Sony to cling to its failing MiniDiscplayers until 2011, a full 10 years afterMP3 players had effectively consigned thetechnology to the dustbin of consumer

electronics history.Perhaps Sony’s greatest mistake was

allowing Apple’s iPod and iTunes serviceto dominate the market that the Japanesetitan created. The company’s attempt tohit back with the Sony Connect musicstore failed miserably.

This failure was partly down to a turfwar within Sony, according to InterscopeRecords chairman Jimmy Iovine.

“How Sony missed this is completelymind-boggling to me, a historic fuck up.Steve [Jobs] would fire people if the divisionsdidn’t work together, but Sony’s divisionswere at war with one another,” Iovine toldSteve Jobs’ biographer, Walter Isaacson.

In March 2011, the electronics giant saidit would combine its TV, entertainment,mobile and PC businesses into one unit ina bid to resurrect its fortunes. But accord-ing to several reviews on social careerswebsite Glassdoor, the managementculture at Sony remains problematic.

One employee complains that Sony is avery hierarchical organisation that has notadapted to recent changes in the market.

“If you are non-Japanese, you alwayscome second to them – and if you are awoman, you come last. Do not just say thatyou want to change how the company isworking, actually do something. You needto adapt to how the market place is todayor you will not survive in the long run,”the employee says.

When asked to comment on this, Sonysaid it was unable to locate an appropriatespokesperson.

IHS iSuppli’s Selburn believes Sony’sleadership is more enlightened than thefirm’s critics allege. “Of the Japanesecompanies, Sony was supposed to be theone with the more flexible, more Western-like management system. When acompany is struggling it is easy to citeproblems with the management,” he says.

The here and nowSony’s stubbornness has most recently beenfound in its decision to back the Blu-rayformat. Its determination to use thetechnology in the PS3 delayed the console’slaunch and significantly added to itsproduction costs. Indeed, Sony makes verylittle from its games hardware, but what itloses on its consoles it now hopes to regainin the longer term. Much of its entertain-ment division’s profits come from licencesfor games, while by pushing the Blu-rayformat to putative dominance it hopes toreap the rewards of selling more movies.

But while this strategy may work, Sonystill has work to do to catch up with the

VendorfocusSony

One of Kazuo Hirai’s first actsafter becoming Sony CEO inApril was to announce plansto cut 10,000 jobs

Experts believe Sony mustfocus on developing a multi-device, single sign-onentertainment ecosystem

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28 computing.co.uk 29 November 2012

likes of Apple and Samsung. Its Tablet Sand Tablet P devices are relativelyunknown, and the fact that gaming isbeginning to move away from dedicatedmachines and onto tablets and smart-phones is also a concern.

But according to Ovum analyst NickDillon, all is not lost.

“Sony is in an enviable position; it hasarguably the widest range of connectedconsumer electronics devices, an estab-lished brand and an extensive range ofcontent services,” he says.

But while Sony can offer excellentcameras and laptops to go along with itssexy HDTVs and sleek smartphones, theseproducts are invariably let down by amarketing operation that is put to shameby rivals like Apple. Sonytends to have many similarproducts with unmemorablenames like the “BraviaKDL40HX853”, while Applehas only a few devices in itsproduct ranges, simplifyingthe choice for buyers.

Selburn believes Sony hastraded off its name for toolong, to the detriment ofinnovation.

“Sony TVs used to look betterthan the competition becauseof the ‘secret sauce’ they putinto the image processing andvideo processing chips on the TV, but nowthe gap has closed and a top tier companylike Samsung or LG has just as much ‘secretsauce’ to put in,” he says. “Also, companieslike Vizio are able to get off-the-shelfprocessors and chips to do the majority ofwhat is good but at a lower price point. Sothere is less reason to pay the premiumprice for the Sony brand.”

Regaining its crownTechMarketView analyst Richard Holwaybelieves the only way that Sony can reviveits fortunes is by coming up with more“special sauce”.

“They can only do it by inventing a wholenew genre. The TV is overdue a reinven-tion. Smart TVs are rubbish. There is awhole new market in connecting the ‘Inter-net of everything’ – really effective controlcentres for everything in your homecontrolled via your smartphone,” he says.

This is a view shared by Ovum’s Dillon,who argues that the firm’s salvation couldlie in the development of a truly integratedmulti-screen experience.

He says all Sony devices should comewith a Sony Entertainment Network (SEN)

app that allows users to access contentusing a single ID.

IHS’s Selburn believes the PlayStationconsole is the ace up Sony’s sleeve. “Sonyshould focus on a position that it is strongin, its consoles. And it could mean playinga game on a big screen but have a map orinventory list on your tablet or smart-phone,” he suggests.

Sony’s recent attempts to, in Holway’swords, “reinvent the TV” have met withlittle success. Alongside Logitech, Intel andGoogle, Sony was the first manufacturer tolaunch a smart TV running on Google’soperating system. But this was a flop,prompting Logitech to quit the programmestating that the platform was “not ready”.

Sony has persisted with the alliance,once again showing its stubbornness butperhaps more worryingly revealing anover-dependence on Google.

“The problem is, even if the initiativetakes off, where is the value for Sony? Is itreally Google’s value that is causingpeople to buy the set and, if so, thenSamsung, LG and Vizio can offer GoogleTV, too. Sony tried to be a leader with thefirst generation Google TVs but in the

“Cutting off your limbs to savethe rest of you is as painful to acorporation as it would be toany human. Do I think Sonycan do it? NoRichard Holway, TechMarketView

second generation it won’t be the onlyplayer, so all it does is keep Sony fromfalling behind rather than putting it in thelead,” says Selburn.

Dillon says that Sony is entirely relianton Google to provide its smart deviceplatforms, and that this poses a “signifi-cant risk” to the company.

Is Sony’s future make.believe?Despite all its problems, Selburn believesthat Sony can be more optimistic than thelikes of Panasonic.

“I don’t see Sony as the Titanic. I think ithas struggled, and is still at the mercy offorces beyond its control. I don’t know ifany management changes will fix this butI don’t see it as a sinking ship,” he says.

Holway is less sanguine, arguing thatSony must sell off its unprofitablebusinesses in order to save itself.

“IBM is very good at killing off bits ofitself, for example selling PCs to Lenovo,”he says. “But cutting off your limbs to savethe rest of you is as painful to a corpora-tion as it would be to any human. Do Ithink Sony can do it? No.”

@Sooraj_Shah

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