The Business Blog at Intuitive.com

Dave Taylor has been involved with the Internet since 1980 and is widely recognized as an expert on both technical and business issues. He has been published over a thousand times, launched four Internet-related startup companies, has written twenty business and technical books and holds both an MBA and MS Ed. Dave maintains three weblogs, The Business Blog at Intuitive.com, focused on business and industry analysis, the eponymous Ask Dave Taylor devoted to tech and business Q&A and The Attachment Parenting Blog, discussing topics of interest to parents. Dave is an award-winning speaker, sought after conference and workshop participant and frequent guest on radio and podcast programs.

The slow, painful death of Sony Corporation

The World of Sony? Maybe not for long... In a weird sort of convergence, lots of what I have read in the last few days has been about former consumer electronics superstar Sony Electronics. Capping it off, I was in the local CompUSA this morning buying some new gizmos and had a chat with one of their sales managers about the much lauded Sony Playstation 3. His comments were not good.

I asked how they were selling and he said "terribly. We have six just sitting on the shelves", a stark contrast to the crushing first-day demand that the PS3 saw on release. The problem? Games. It's the NeXT Computer problem all over again: it's the software, stupid. It doesn't really matter that the PS3 is an extraordinarily powerful IBM Cell-processor, Blu-ray enabled computer, if there aren't cool games for the device, no-one's going to buy it.

"How about the Nintendo Wii?" I asked. "Oh man, we can't keep them in stock. I could sell 100 of 'em this morning if we could just get enough!" So, while the Nintendo might be less technologically capable, it's a splendid example of how Nintendo nonetheless knows that the software's critical, and the Wii [pronounced "wee"] has lots of great games, hence its great sales.

Okay, so the big video game system from Sony isn't doing well. The problem that's got me thinking is that the smaller unit, the Sony Playstation Portable (aka Sony PSP) is doing terribly too.

The amusing and entertaining PSP Fanboy blog reports that that PSP sales are way down, saying:

"Newly released figures today revealed that the PSP shipped 1.76 million units the holiday period from October to December. While that's certainly not a small amount, it's dwarfed by the incredible performance of the PSP the year before, where the system shipped 6.22 million units... Sony CFO, Nobuyuki Oneda commented on the surprising plummet in PSP sales by stating that Sony will not give up on the platform. He noted that Sony is still implementing new ideas for the constantly evolving system."

Ouch. It's gotta hurt when your CFO has to say that they won't give up on a platform, rather than that they were pleased with the sales figures or looking forward to the new hardware release or, really, anything that explained crummy sales figures.

Back to the PS3 for a minute too. Asian-based Business Times reports in Sony's Q3 profit down on PS3 sales that:

"The profit fall was expected as Sony had said losses at its game unit would balloon to about 200 billion yen for the business year to March due to costs related to its new PlayStation 3 game console and slow sales of PlayStation Portable handheld players."

[Update: The story is being reported more widely, with a smart analysis in The New York Times and geeky Ars Technica]

To be fair, video games are a classic example of "give away the razor, sell the blades" because it's the license fee on games that are really the profit center for these gaming devices (and why even modest games cost $50 or more), but still, what happened to Sony Corporation in the last decade?

And I won't even give more than a passing mention of how Sony completely fumbled the portable music player market when it froze into complete inactivity over digital rights management anxiety and let Apple Computer move into a position of complete world dominance with its blockbuster iPod players. I write about gadgets for a living, but nonetheless will admit that we have six iPods and zero Sony audio players. Heck, I even have a [discontinued] Dell DJ and an RCA Lyra, but nothing from Sony in this area. And where's Sony in the blossoming market of portable media players or PMPs? Surely they can do better than Creative Labs or even Microsoft??

I really believe that we're seeing the slow burn of Sony Corporation, a gradual shift in the consumer electronics marketplace where nimble Korean companies like LG are eating Japan's proverbial lunch in the critical billion-dollar market of consumer electronics.

This trend was demonstrated at the Consumer Electronics Show at the beginning of the month too: everything that Sony prides itself on is now a commodity offered by fifty companies or more. Sony is no longer a leader and their fabled Trinitron technology no longer powers TVs or makes people yearn for a bigger budget.

My prediction of the future: Sony corporation is a harbinger of the evolution of the consumer electronics marketplace. We started out where American firms like RCA and Zenith created all the technology worth buying, then it migrated to Japan in a terrifying economic shift (for those of you old enough to remember the xenophobic fears created by Japan stealing all our manufacturing), and now it's leaving the shores of Japan and moving further east, to Korea and other Pacific Rim nations.

Within a few years, the Japanese aisles at CES will be the least interesting in the show, and it'll be the small, nimble manufacturers and researchers in China and Korea that will be giving us a glimpse of the future of consumer electronics.

Companies mentioned: Apple (Nasdaq: AAPL), Sony, Nintendo, LG, IBM (NYSE: IBM), Dell (Nasdaq: DELL), RCA and Microsoft (Nasdaq: MSFT).

Posted by Dave Taylor at January 30, 2007 1:26 PM

Comments

They have to be regretting the blu-ray by now. It delayed the release, restricted supplies, cost them a packet of money on each console sale and people don't really want it. You've got to wonder how much more competitive this console would be with a good old dvd player in it.

Posted by: Vincent on January 30, 2007 10:28 PM

I actually contemplated buying a Wii today (too close to WWII). The Best Buy didn't have it in stock & I guess I will have to wait. Why I was interested in the Wii:

1. The controls seem to make you more involved in the game.
2. The games are relatively simplistic. And while the graphics may indeed be better with many consoles, does it actually do anything re: playability with the games? My comments in #1 are reflective of the sporting games that actually require some physical activity to play them.

reminder to tech guys: k.i.s.s.

Korean companies have shown a lot of innovation in the consumer electronics arena. If I were Japan, or even the USA, I would focus on what these guys are doing to increase their market share. Being an incumbent doesn't mean that you're the best....

Posted by: Damon Billian on January 30, 2007 11:50 PM

Vincent: I have to disagree completely. The Blu-Ray drive is a brilliant addition to the console. In the long run it puts the 360 at a disadvantage, and it's one of the top selling points for the console.

In fact, last time I checked, it's the cheapest standalone blu-ray player on the market. So even if you don't like video games at all, it's a steal.

Posted by: Jason Preston on January 31, 2007 1:43 AM

Subject "Sony completely fumbled the portable music player market".
It is so hard to understand why Sony could not continue the success in this area. Yes, they were very successful! Remember the good old WALKMAN cassette player? I still have mine. Nice, sleek and rock solid technology. Back then, if you wanted to take your music with you for jogging, biking ect., the WALKMAN was a must!
When mp3 got popular, the iPod was just for Mac users and suddenly Apple realized that they had something they could sell to Windows based PC users. After making that move, the iPod was unstoppable.
What did Sony do? They came with the Network Walkman NW-HD1 and I bought one after reading some reviews and compared specs. It was smaller, lighter and had a longer battery life then the iPod. One review even called it the iPod killer!!! I did not pay much attention to the warnings about some special ATRAC format...
You could only enjoy your music after converting your mp3's by using the supplied sony software and then transfer to the NW-HD1. A very annoying process. This unit was simply not capable of playing mp3's, a standard that everybody was already using. Guys like me had all there CD´s already ripped to the harddrive ìn mp3.
When the NW-HD2 was released it had native mp3 support and you could sent your HD1 to Sony for an upgrade to direct mp3 support. By that time, Apple was already the unquestionable leader of HD based mp3 players.
Did Sony think they could make the end user completly switch to another music format just because their product was a little better in the beginning? A very bad idea that cost them this market area alone.

Posted by: Hans on February 1, 2007 9:35 PM

Sony has always succeeded by focusing on the mass and the enthusiast consumer segments. The PS has always been a machine for the enthusiasts, because the market has been small. Nintendo has managed to make a machine that appeals to the broader mass market, not least because they lost in the last generation of console wars. So, yes, it's the Next problem, in that Next concentrated so high upmarket that their segment was tiny and self-limiting.

I wrote a little bit about Nintendo's more successful segmentation on my blog at http://wadearmstrong.com/archives/business/the_nintendo_wii_funny_name_good_market_segmentation.php

Posted by: Wade on February 2, 2007 5:32 PM

Gotta agree about Blu-Ray problem. Most (tho certainly not all) of the movies currently available on this format are faling into the "more fluff than substance" category, presumably to cater to the PS3 market. Yet the segment you'd really want to cater to are the film buffs for whom dropping a few grand on a home entertainment system (to take full advantage of the high def capabilities) is fully justifiable.

And I've also read that Sony is controlling (censoring) what can be released on the Blu-Ray platform. That's certainly a bad move that'll likely backfire and hand even more market share to the HD-DVD camp.

Posted by: Rob O. on February 3, 2007 3:45 AM

It's slipping through Sony's hands, sadly.

I had to correct myself the other day, when I referred to my kid's iPod as a Walkman. Old habits die hard. Sony *owned* that market.

"Dad, when are we getting a Wii?"

Posted by: Daniel Gray on March 10, 2007 10:47 AM

Perhaps this Sony story is a sign a constantly growing economic market is unrealistic. What will it take for people to understand this? Such a revelation may be humbling. What if more widespread economies generally took a down turn? The time will come where the sales of particular products will begin to matter less because of what it represents in the much bigger picture. How many people see the changing state of the electronics market as a kind of illusion? Hmmm.

Posted by: Liara Covert on March 12, 2007 7:06 PM

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