What went wrong withy Sony (and Japan)?

April 15th, 2012

WHAT went wrong is a tale of lost opportunities and disastrous infighting. It is also the story of a proud company that was unwilling or unable to adapt to realities of the global marketplace.

Sony’s gravest mistake was that it failed to ride some of the biggest waves of technological innovation in recent decades: digitalization, a shift toward software and the importance of the Internet.

One by one, every sphere where the company competed — from hardware to software to communications to content — was turned topsy-turvy by disruptive new technology and unforeseen rivals. And these changes only highlighted the conflicts and divisions within Sony.

With its catalog of music and foundation in electronics, Sony had the tools to create a version of the iPod long before Apple introduced it in 2001. The Sony co-founder, Akio Morita, envisioned as early as the 1980s marrying digital technology with media content for a completely new user experience.

It didn’t happen. Initially, Sony engineers resisted the power of the company’s media divisions. Then Sony wrestled with how to build devices that let consumers download and copy music without undermining music sales or agreements with its artists. The company went its own way: its early digital music players, for instance, used proprietary files and were incompatible with the fast-growing MP3 format.

By the time the different divisions had been corralled into cooperating, Sony had lost its foothold in two crucial product categories: televisions and portable music devices. It was late to flat-panel displays, as well as to digital music players like the iPod.

After disappointing sales, Sony pulled the plug on its answer to Apple’s iTunes, the Sony Connect online store, after just three years. It has not been able to offer up a comprehensive alternative since.

The fall of a giant.

Also interesting is how Sony’s fall is a microcosm of the collapse of the once prolific Japanese tech sector. When I was a young kid, I remember thinking that all the best tech products were Japan. Once invisible, now vulnerable:

Sony’s woes mirror a wider decline in Japanese electronics. Though executives here are quick to blame a strong yen, which hurts exports, a deeper issue is that once-innovative companies seem to have run out of ideas. And when a nation can no longer compete on abundant labor or cheap capital, ideas and innovation are paramount.

Japanese consumer electronics manufacturers “have lost their technology leadership in many areas,” Steve Durose, head of Asia Pacific telecommunications, media and technology ratings at Fitch Ratings, said in a recent industry commentary.

“Ten years ago, these companies were major technology innovators, the creators or leading developers of many electronic products and trendsetting devices such as televisions, digital cameras, portable music players and games consoles,” Mr. Durose said. “Today, however, the number of products remaining where they can boast undisputed global leadership has narrowed significantly, having being usurped or equaled by the likes of Apple and Samsung Electronics.” . . .

Sony’s woes hurt not just Sony, but also Japan. In the United States, new technologies are often developed by young companies not held back by their past. These upstarts eventually replace slow-to-adapt giants. But in Japan, no major electronics manufacturer has joined the industry’s top ranks for over a half-century. And, though struggling, companies like Sony continue to lure some of the country’s top talent.

Still, the creative destruction of global capitalism is a touchy subject in Japan, where public opinion still sides with established names. When Tomoko Namba, founder of the successful mobile games company DeNA, remarked in 2010 that companies like Nintendo and Sony “had reached retirement age” and that she hoped DeNA would be the first new Japanese tech company in decades to go global, she set off a firestorm in the Japanese blogosphere.

And more on why Instagram succeeded where Polaroid (and Kodak) failed.