Sony Melts Down

Rob Enderle picks apart Sony?s strategies to find out why the once-mighty empire is crumbling.

Sony isn’t in great shape. It just reported a mammoth $2.9 billion annual loss, the kind that typically results in some massive soul searching. The fact that Apple didn’t do that badly certainly indicates Sony could do better. This kind of financial result typically causes executives to depart, especially when Sony was forecasting a mammoth profit as late as October.

So why is Sony in the toilet, and does this mean the end of Blu-Ray, or the PlayStation 3, both of which are contributing strongly to this massive amount of red ink? Some are clearly betting PlayStation goes first.

The Problem with Sony

With most companies, you can point to the economy and say it is the problem. With Sony, you typically point to Sony. Here is a company that should own the MP3 and smartphone markets, should lead with HD, and certainly should still lead the market for console game systems, and yet in all areas they are getting kicked around rather badly.

The reason Sony should be kicking Apple butt, and not the other way around, is that Sony owns a large chunk of popular media, both movies and music, and should have been able to use that ownership to provide access both sooner and more seamlessly than Apple has. But it didn’t. 

In addition, Sony is well-penetrated on the production side of movies and TV, and so should have a mammoth advantage on TVs, video recorders, and personal video players. But it doesn’t. The company largely lost market leadership after the Walkman, and while it had some really beautiful MP3 products, they were historically hard to use, and crippled by some of the most aggressive DRM of their time. Apple cut through Sony with the iPod like a hot knife through butter.

On PCs, Sony had the opportunity to take their market leading PlayStation platform and wed it with the PC, making both more attractive. But the two groups went to war instead. As a design leader, Sony should be able to exceed Apple in PCs, and yet it overpowers its VAIO’s with crapware and surrounds them with service that is so bad it is near legendary.
   
Sony owned the gaming market with the PlayStation 2, but forgot what Nintendo remembered: that game consoles don’t move in volume until they drop below $200. Instead, Sony released its offering at the nose-bleed $600 price. Execs did this to assure the birth of Blu-Ray, which languished for much of 2008 anyway, and many of us still have the format on death watch at the moment. An externally hired turn-around manager would probably kill both products in order to reduce the amount of red ink Sony is bleeding, yet both were intended to be company stars. And, not so long ago, the PlayStation was. 
 
With 2009 expected to be massively worse for everyone, Sony enters the year is deep trouble that will only get worse, and will need to make some hard decisions to survive. But Stringer, Sony’s CEO, is hoping that this will shock Sony into making critical changes to the old guard of near-insane managers who have been killing the company. He could be right.

What Sony Could Learn from Steve Jobs

Sony clearly has a number of massive problems. The corporation lacks strong central leadership, largely because CEO Howard Stringer doesn’t have the authority he needs to make critical changes. In addition, the firm is constantly its own worst enemy. And finally, it is way too complex to manage out of the mess it is currently in.

When Steve Jobs took over Apple, he did two clear things early on: He cut all the non-essential products and retained only those lines he knew he could sell. He also got rid of anyone he didn’t think would follow his orders.

Sony needs to make similar choices.  Eliminate or replace products that simply are not performing well in the market, and get rid of the executives that refuse to take corporate direction. This will result in a leaner Sony, but one with fewer, better products, possibly including PCs without crapware, and executives who will  follow orders. Then, and only then, can the company follow a strategy which pits the company at customer problems and at competitors’ throats, rather than creating customer problems and pitting executives at each other’s throats. That’s what Steve Jobs would do, and Sony desperately needs a lot of  Steve Jobs magic.

Wrapping Up:  Will VAIO, Blu-Ray, or PlayStation Survive?

Yahoo is an incredibly difficult turn around to craft, because even the market the firm is in can be questioned. With Sony, it is much clearer what needs to be done, but the authority to do it doesn’t appear to reside anywhere in the company. This makes Yahoo incredibly difficult, and Sony arguably impossible, because having an easy goal doesn’t do you any good if no one will work to accomplish it. This is what Sony’s CEO is trying to fix. But, up until now, he has gotten way too little support. 

Over the next year, I expect to see a number of top level executives depart, and a number of high-profile products get cut to both address the execution problem, and bring expenses in line with revenues. But the longer it takes to turn Sony around, the more Vaio, Blu-Ray, and PlayStation are at risk of going to that great technology graveyard in the sky, along with Sony. Sony did get a $1.5B loan, but having a loss of almost exactly twice that doesn’t give you a lot of confidence that the money will last that long.  Sony is too good a company to allow to fail, but that doesn’t mean they won’t.