November 27, 2004 by Allen George
Quick! What’s the most trusted brandname in the United States?
All right, so the title was a big giveaway. In a survey conducted a few years ago, US consumers rated Sony as the clear frontrunner. And why not? After years of hawking Playstations, Walkmans and Wegas, the Sony brand was indelibly linked with quality. You could buy a Sony product and trust it to keep working, and working, and…
Sony knew this and they milked it for all they were worth. Products were priced at a premium to both their Japanese competitors and especially those upstart Koreans – who everyone knew made inferior products. They fed at the trough, grew fat and diversified, investing heavily in the entertainment business. Sony music and film were major players in Hollywood. The top dog became arrogant.
And then it all started going wrong.
We’ll start off with a classic Sony mistake – what I call the “Betamax failing”. Everyone’s heard of Betamax. It’s market economics 101 and has been applied to every situation imaginable from Apple vs. Microsoft to Rambus vs. the world. There were many contributing factors to Sony’s failure but the oft cited ones are:
- The “Sony knows best” attitude.
- The “Sony can go head-to-head with the world” attitude.
- Insistence on supporting a proprietary format.
If we polled most techies on the true significance of Beta vs. VHS you’d get one consistent answer – proprietary standards cannot survive in the face of open, widely supported alternatives, no matter how inferior.
Unfortunately Sony never really learned from its mistakes and it cost them. Think Minidisc, Memory Stick, ATRAC3 and now their latest and greatest – a massively encumbered DRM format. Oh I know that Minidisc is extremely popular in Asia, but it never caught on in either the US or Europe. Also, while everyone and their brother started using Compact Flash and Secure Digital, Sony again chose the path less traveled and designed their own proprietary memory format – Memory Stick. If you want a quick guesstimate regarding its success, simply look at digital cameras. Anybody outside of Sony using a memory stick? Mmmhmm.
Ahh…ATRAC3. Well. That was a debacle. Sony posititioned it as a worthy MP3 alternative – power efficient, ‘better’ quality, Sony backing. They incorporated it into all their Walkman products.
And became a ‘never-ran’ in the digital music player marketplace.
Why? Well…they ignored reality. Everyone had MP3s. Filesharing was MP3s, the format was relatively (no longer) open and there were a huge number of CD rippers, taggers and more designed to work with MP3s. On the contrary, only Sony had the low-down on ATRAC3. To make matters worse, none of their Walkmans supported MP3s. Instead, to get your MP3s onto your Walkman you had to first transcode them to ATRAC3. You can imagine how much time that takes…
Next problem? DRM. Sony entertainment holds massive sway down in headquarters and it’s surmised that there’s enormous tension between that side of the company and its electronics division. Certainly the products reflect who has the upper hand. The new Sony Librie is so encumbered that it’s practically DOA. Who wants a book reader that allows you to read a book for 60 days maximum? SonicStage – the product bundled with Sony’s MP3 players – is a textbook example in user interface and DRM enforcement horror. Practically no one likes it. Their new almost-DSLR cameras (think F828) have a proprietary, encrypted RAW format. Sony loves its secrets.
Oh yeah. Those Korean manufacturers grew up.
Which electronics manufacturer is pushing the envelope with price, features and [shock][horror]listening to what consumers want? I’ll give you a hint – it’s another ‘S’ company.
Yeah. Samsung. Ten years is a long time and Samsung focused, designed the products consumers wanted, priced lower and built market share. Now, it’s 2004 and guess who’s the ‘new Sony’? Samsung’s moved upscale and right onto Sony’s turf. What’s more – they’re everywhere – monitors, computer components, cellphones, digital cameras… You name it, they’ve got a piece of it. What’s more, their strategy’s translated into higher margins and they’re mentioned in the same sentence as the ‘premier’ Japanese brands. Quite a change for the Korean company that wasn’t.
So what’s Sony’s biggest ace in the hole? Why isn’t it running scared? One word and one word only….
It’s the most successful gaming console worldwide and it brings in huge royalties and profits for Sony. Their game collection is unrivalled and the existing user base is entrenched.
But all’s not kosher in Playstation-land.
In developing the PS2, Sony decided to – again – take the proprietary route. They developed their own chips, graphics cores and other components. Then to make matters worse, they never really released an SDK for the PS/PS2, relying on third parties to do the job for them. After all, when you’ve got a massive installed userbase, everyone had to swallow their reservations and simmering dislike at your heavy-handedness and develop for you anyways. They decided to forgo network compatibility and decided to stick with a 2 controller format. Sony rested on its laurels.
Then MS showed up.
By all accounts, the XBox is having its ass kicked by the PS2. It has a smaller userbase, is severely outgunned in Japan and a smaller games library. BUT… It has the backing of a 900lb gorilla with more liquid assets than most third-world countries. A 900lb gorilla with the will to break Sony’s grip on the living room and the backing to do it. It has 4 controller ports, network connectivity by default and better graphics. It has an MS supplied SDK. It’s newer.
And it has Halo 2.
Yeah. If you wanted to target the young male teenager/early 20 year-old…you’ve got their attention now. Halo 2 is the single game that has received 9.5+ ratings on every gaming website out there. 9.5+.
And if you want it – you need an XBox.
Is it desired? Yes.
Did it sell like hotcakes? Yes. Most places sold out.
Will it drive XBox Live? Probably. Hello continuous revenue stream…
Does Sony have an alternative? No.
It’s the chink in the armor and MS is targeting it for all its worth. XBox owns the console FPS segment and they’ll push into every area they can think of. Sony’s answer? A rebadged, thinner, cheaper PSTwo. Yeah. Great job. I’m sure that’ll bring out the crowds.
Sony’s done a great job in ignoring reality, consumers and developers. It’s going to bite them in the ass…