It Isn’t Nice to Kick Someone When He’s Down…

…but the woes at Sony Corporation remind me of a couple of my posts about the path this company has been taking.

From March, 2005:

The New York Times (3/13, registration required) quotes Sir Howard Stringer, the new chief executive of Sony, arguing for mutual benefit between his company’s electronics and entertainment divisions. At the Consumer Electronics Show last month, Sir Howard said, “A device without content is nothing but scrap metal.”

Following the chain of logic he seems to be developing, we could also argue that a car without fuel is scrap metal…and therefore, auto companies need to own oil companies. Or that computers are useless without software…so all computer manufacturers need to possess large software operations.

Randall Stoss, author of the NYT article, observes that Sir Howard’s remark is “a platitude beneath mention–unless, perhaps, one were a mite defensive about owning both a widget factory and an entertainment factory.” Stoss goes on to credit the success of the iPod (far greater than Sony’s competitive product) to the fact that Apple has not pursued synergies between device and content…

A company thrives when it has all that it needs to make a compelling product and is undistracted by fractiousness among divisions that resent being told to make decisions based upon family obligations, not market considerations.

From September 2012:

In his Financial Times article Why Sony did not invent the iPod, John Kay notes that there have been many cases in which large corporations saw correctly that massive structural changes were about to hit their industries–attempted to position themselves for these changes by executing acquisitions or joint ventures–and failed utterly. As examples he cites Sony’s purchase of CBC Records and Columbia Pictures, the AT&T acquisition of NCR, and the dreadful AOL/Time Warner affair. He summarizes the reason why these things don’t tend to work:

A collection of all the businesses which might be transformed by disruptive innovation might at first sight appear to be a means of assembling the capabilities needed to manage change. In practice, it is a means of gathering together everyone who has an incentive to resist change. 

I’d also note that the kinds of vertical integration represented by the above mergers don’t exactly encourage other companies–which were not competitors prior to the merger but have become so afterwards–to participate in an ecosystem.
Kay references the work of Clayton Christensen, whose book The Innovator’s Solution I reviewed here.  See also Mergers, Acquisitions, Princesses, and Toads.


19 thoughts on “It Isn’t Nice to Kick Someone When He’s Down…”

  1. “so all computer manufacturers need to possess large software operations.”

    CompUSA learned the opposite when it started as “Soft Warehouse” and learned that the business wasn’t viable. It switched to hardware but that wasn’t either. What it was actually good at was training people to use software. I took a whole series of their classes on Microsoft products when I came back from New Hampshire in 1995. They were very well done but probably didn’t generate enough revenue to keep the whole elephant in the air.

    The training business is still viable and has been carried on by others. It seems to be going well for them.

    After some unlucky slumps during the first few months there, they had launched by 1995 to answer questions about their books. Perhaps more importantly, they started teaching computer classes, renting out parts of Thatcher School on weekends, and were an immediate hit, with more than 60 people coming to each session. The Vatican even sent pupils, and so did Martha Stewart. Gradually, the Web site and the classroom merged, evolving into’s massive success.

    Big corporations rarely are nimble enough to shift gears. The IBM “Blue Magic” only lasted a few years.

  2. Michael, I think IBM has actually done remarkably well at surviving the twists and turns in the technology and marketplace…first, the shift from punched-card equipment to stored-program computers, and second, the introduction and popularization of the PC.

    In the first case, they came close to missing the turn: for one thing, Watson Sr (according to Watson Jr), while he was all in favor of electronic computers for scientific applications, didn’t like the idea of replacing punched cards by invisible magnetic storage (tapes), in large part because the punched card (or “IBM card”) was a key part of IBM’s “unique selling proposition.” But his sales instinct…”never lose an important account”..was strong enough to overpower this reluctance.

  3. Sony never was suited to computers. They are a commodity and Sony does well building “nice stuff”, not commodities.

    Hopefully this will help in the turn around they are in the midst of.

    I will buy their a7R camera soon, I have already bought the FE 35mm 2.8 lens, and it is a game changing device. Nikon and Canon took one to the nuts when it was announced.

  4. “I think IBM has actually done remarkably well at surviving the twists and turns in the technology and marketplace”

    The PC thing really was a fluke. The group was formed in Florida to get away from the corporate types and they were regarded very suspiciously from Armonk. The book “Blue Magic” is actually very good. Also good is “Who Says Elephants Can’t Dance ?” by Gerstner. It’s been criticized as too superficial but it’s a rare book by a CEO that isn’t.

    It’s too bad that Don Estridge was killed right after the PC rollout. He was the guy that made it happen and it was his vacation trip.

  5. Sony’s thinking is so….1960s. Other corporations have shed themselves of everything but their core interests – I am trying to think of the huge company of the 1960s that was the epitomy of diversification – and you don’t hear about them today.

    I was thinking the other day – with this absolute horror of a Sony GPS device for the car – thinking that if they had just distributed some pre-production samples they could have fine-tuned their software.

    At one time Sony was the gold standard for consumer electronics. At one time they would have rolled out something equivalent to the iPod – before Apple.

    I guess one could say that their Walkman is the iPod’s ancestor.

  6. MK, I think establishing the IBM PC operation as a separate business unit and putting it a long was from Armonk was absolutely the correct thing to do, organizationally-speaking. Failing to establish exclusive rights to the operating system, not so much.

    PenGun, computers are now a commodity, but iPod is not (or at least was not) for several years, and if Sony had been smart they would have created such a product as a successor to WalkMan, etc.

    Re diversification: I think diversification can be okay, but forced synergy, rarely so. Imagine if the people at the GM research lab came up with a magical new fabric…both the physics and chemistry of the product itself, and the process for manufacturing it. It could well make sense for GE to establish a new line of business making the stuff. But imagine someone proposing that since they control the market for this wonderful new material, they should also enter the market for making clothing out of it…everything from workaday garments sold at Wal-Mart to very expensive high-fashion items…in the name of Synergy. I think, and certainly hope as a GE shareholder, that he would be laughed out of the room.

    And imagine that the synergy proponent took it even further and suggested modifications both to the GE washing machine line and the fabric itself, so that the fabric could be washed only in GE washing machine, “using our coming dominance in the fabric and apparel markets to also create a much stronger position in major appliances.” The guy would clearly be a candidate for the lunatic asylum, but Sony’s thinking about the content and device markets seems to have been fairly similar.

  7. I’m a big fan of vintage Sony audio gear – I cherish my Sony amps, pre-amps, tuners, SACD/CD players, receivers, and turntables. when they hit the US market in 1965, they were competitive in quality to the best US manufacturers (McIntosh, Magnavox, Sherwood, etc). They carried this “build the best” policy until they discovered the low sound quality, big market people and shifted emphasis to economy of scale production.

    They had their reasons – increasing labor costs in Japan and the opening by the US of other Asian markets with even lower labor costs. They can still innovate some great engineering but it just doesn’t pay for a huge corporation like it does for a smaller outfit.

    Size does matter.

  8. “But imagine someone proposing that since they control the market for this wonderful new material, they should also enter the market for making clothing out of it…everything from workaday garments sold at Wal-Mart to very expensive high-fashion items…in the name of Synergy. I think, and certainly hope as a GE shareholder, that he would be laughed out of the room.”

    This is what Obamacare is doing to medicine and health care. The hospitals have been buying up physician practices since 2009. The Electronic Health Record has been made mandatory in spite of the fact that it is clumsy and poorly designed. It is reducing physician productivity by 25% in most estimates. Now, the “narrow networks: have made the vertically integrated health systems into clumsy overgrown cost centers. When I was in practice, I would do surgery at surgery centers or other hospitals if the time factor was significant. I also accommodated patient requests and other matters. Some hospitals had good ICU and anesthesia services while others might have better amenities. Now, there is no choice.

    Take a look.

    It’s nice to be retired but I have to teach students how to deal with this without showing my opinion too obviously.

  9. While I hope that Sony can recapture some of their original glory, the company deserves whatever happens to it at this point.

    It’s not just the good things that the company hasn’t done that are coming back to haunt it, it’s all the bad things that it has done.

    Sony has been actively shafting its customers — and by extension itself — for over a decade now. I don’t have the time to put together a list of examples here, but the pattern is clear: the Entertainment business unit is driven by bad actors (pun not intended, but acknowledged) who not only chase away their own customers, but drive all sorts of damaging behavior in the Electronics business unit.

    I can’t say whether an integrated devices-plus-content model couldn’t work to the company’s advantage, but it’s painfully clear by now that it hasn’t worked, and I don’t see how it’s ever going to work with the company structured the way it is.

    The only hope Sony has left is to spin off the Entertainment and Publishing businesses before they drag the whole company under. Getting out of PCs as they have announced may be a good idea, but it doesn’t address the structural problems. It may already be too late.

    The bright spot for me is that the company’s current predicament is proof that there is at least some justice in the world.

  10. “I can’t say whether an integrated devices-plus-content model couldn’t work to the company’s advantage, ”

    The federal government ended the only successful example I know of when they broke up the movie studios theater chains. That was the end of the studio system and probably would have killed off the business model even if TV hadn’t appeared on the scene.

  11. }}} Stoss goes on to credit the success of the iPod (far greater than Sony’s competitive product) to the fact that Apple has not pursued synergies between device and content…

    Wow. Astoundingly blind for an observation. Amazingly so.

    No, Apple does not generally PRODUCE content. They just use their control over the hardware to maintain almost jackbooted control over the MARKETING of content.

    1) This is why any software developer who develops first for iOS is an idiot. Granting anyone unilateral control over the power to sell your product is not too bright, especially when that’s your only market. If you have any sense, you develop first for Windows and/or Android, and then, AFTER you have a cash flow, take the time to port it to the Apple.

    2) As a consumer, sorry, I don’t like not being able to have multiple sources for things available to me. While the Android marketplace is the dominant place to get things for your Android device, it’s hardly the only one, and, if they tried to do something to seriously exert control over that marketplace, some other organization would leap to the rescue as an alternative source. or that to happen with iOS, the market would have to exist AND people would have to take the step of jailbreaking their iP device, which voids the warranty. Yeah, that’s gonna happen. So, as a consumer, I’d rather have an Android device.

    On the whole, this is why Apple is doomed. They are making the EXACT same mistakes with regards to the mobile market that they made with the macintosh. I mean EXACTLY the same mistakes. Those practices and policies had doomed Apple to the dustbin of formerly significant computer companies, until Steve Jobs came back and saved their asses.

    …If Jobs can come back and save their asses again, well, that’s a portent of much more serious things going on. :-/

    Mark my words — Apple is “Dead Man Walking” — It’s just a matter of WHEN. I would give them five years before they are clearly in trouble, and up to 10 before they get absorbed by some other company. But that writing is on the wall, practically chiseled in stone.

  12. }}} Failing to establish exclusive rights to the operating system, not so much.

    Actually, David, this is what made it into the massive success it was. If IBM had retained control, they would have screwed it up completely in its nascent stages by doing something remarkably stupid.

    They had their second chance to regain control, don’t forget, in 1995.

    Microsoft’s Windows 95 was delayed, over and over — it barely made it out in 1995, finally gaining wide release in December, IIRC.

    And IBM had OS2/Warp, which was getting TREMENDOUSLY good reviews.

    IBM had a PERFECT market window to steal the OS away from Microsoft.

    Did they start giving away a lot of copies to get people to switch, despite having the kind of pocketbooks that could have done this, AND the marketing acumen to know that would be a Real Good Idea?


    Did they at least give away copies to developers, to get them busy working on apps for it?


    No, they went one better — they charged $500 (that’s about 775 bucks today, with inflation) for the developer’s kit.

    Yeah, they were that stupid.

    IBM, for example, would NEVER have been able to beat Apple the way Microsoft did.

    (I’m about to digress — twice, no less)

    In fact, it was Apple’s arrogant retention of control over their systems — which IBM would likely have attempted to segue into at some point — which KILLED Apple.

    Wired – Issue 5.11 | Nov 1997
    They Coulda Been a Contender
    By Jim Carlton
    The full, inside story of Apple’s biggest, most strategic blunder.

    Once upon a time, Apple Computer was the undisputed king of the computer industry,
    the leader in nearly all areas of technology and innovation. The time, actually, was not so long
    ago, but it sure seems like it now.

    As you read that, recall that Apple lost on market share. While, for the longest time, no single company produced more computers than Apple produced Macintoshes, it is a relevant fact that Apple Macs were never selling more than the aggregate sales of the IBM PC clone market.

    Realize also, that, at one point, there were rumors of “Macintosh clones” — that is, people reverse-engineering the Mac to make and sell low cost alternatives. So Apple sued Microsoft over the “look and feel” of Windows being “too much like the Mac”. Now, if Apple was prepared to sue Microsoft, with its deep pockets, what would it do to some startup company with something that INTENTIONALLY looked and worked like the mac? Right. Nothing more was ever heard of Mac clones.

    …And the IBM PC clone market marched on, ever increasing its market share, and slowly, but surely, catching up to the Macintosh in the better qualities of its interface.

    Note that the solution to Apple’s dilemma was obvious, and I was saying this even then, not just now in retrospect. The key heart of the Mac at the time was the ROMs, which had a lot of tight, well-written, exceptionally optimized code which made the hardware capable of doing far more than typical hardware of the time was capable of. We use today’s machines and forget there was a time — namely, the mid-1980s — when the graphics of “Money For Nothing” were STATE OF THE ART.

    The solution was obvious — Apple should have licensed the ROMs — not the “newest” ones, but ones a generation or two back — to clone makers. This would have captured a lead-in market, and the low-end, “expenses are important!!” market, and locked them in to Macintosh technology, all the while it guaranteed Apple could continue to skim the top end of the market for itself. Having a Mac would still have been an expensive status symbol with the cache they wanted to retain.

    IBM would have made the exact same mistakes as Apple. They would have failed to grasp the importance of market share, and never caught back up to Apple’s lead, in that case. And their attitude would probably have been the same one that prevented Xerox from being the Big Boy Of Computing that they should always have been — “We can make more money from our investment dollars if we put it into ‘x’ instead of the computer market.

    The whole WIMP interface was hardly Xerox’s only major influential product effort. The Sigma 7 mainframe was also a notable and critically impressive machine, a key competitor to the IBM System 360 in its time… But XDS — Xerox Data Systems — killed it. Mainly because the same money in Xerox machine development would net them more ROI up front. Ditto the Palo Alto Xerox work that developed what essentially morphed into the Macintosh and Windows interfaces. Xerox was the China of early computer development… They came up with all these brilliant ideas… which someone else then took and ran the world with.

    But back to the original proposition — The key point is, IBM would NEVER have been able to do what Microsoft did with Windows — they would never have taken the time and effort to develop a competitor to the Macintosh in the first place. And so we’d probably be a much poorer world, with Apple mainly still in charge of computing, but with far less innovative development than they were initially. Apple was already, when Scully took over, well on the way to becoming a stodgy old tech company. And by the late 90s, they had fully become that, helpless to innovate in the face of Microsoft and Windows. Only Jobs saved them. And he ain’t doing that ever again.

  13. }}} MK, I think establishing the IBM PC operation as a separate business unit and putting it a long was from Armonk was absolutely the correct thing to do, organizationally-speaking.

    Oh, no question — but you have to grasp that IBM never EVER imagined what would happen. If they had, they would NEVER have done the very things that made it such a smashing success. It would never have been open architecture. And it would never have allowed the OS to be sold to work on non-official IBM equipment. They would have attempted to retain absolute control over its production and sales. And that would have killed the innovation and entrepreneurial work that created the Compaq and Osborne, and bootstrapped the nascent portable market. It would have destroyed the innovation that kept driving prices relentlessly lower, not just in the whole computer market but also the all-important add-in market that vastly increased the functionality and versatility of the IBM Clones, but also drove the video card capabilities higher far faster. IBM’s last significant input into the video card market occurred in 1987, with VGA. After that point, the entrepreneurs developed and changed capabilities so quickly that IBM could no longer keep up or dictate standards to the market. “Windows accelerators”, in particular, took control as several companies jockeyed to be the best, and fastest, at optimizing Windows operations.

  14. On the subject of Sony, I confess to being rather surprised that Sony did not use the purchase of Columbia at all well. They had all this content they owned with that purchase, and could have used it to drive sales by reworking the copyright model substantially, as it should have been done long ago. An actual synergy of stuff that it COST THEM NOTHING TO SELL… because, as with all IP, the production costs are entirely front-loaded, meaning you can sell 10,000,000 almost as cheaply as you can sell 1,000. So Sony could have taken all that older IP they now owned and worked towards making up on volume what other companies were trying to do by jacking up the price by 10,000% over production costs.

    Instead, they seem to have gotten “stuck on stupid” and pushed the existing issues on and on even when it should have been clear that they were failing and there was no “fix” for it short of a complete reworking of copyright law. And Sony was one of the companies with both the tech knowledge, the longer-term view, and the financial capacity to push that along. But no, “Let’s do nothing positive with our IP.”

    So yeah, they deserve whatever crap happens to them.

  15. Forced collaboration among divisions is poor substitute for action based on market reality. A lesson that has to be relearned

    Regarding IBM today, I know few customers who prefer to work with them re outsourcing services while IBM expands services and sells off hardware pieces–one inch off the tail pipe every year to improve margins while growth slows.



  16. I’m not sure what ‘CBC Records’ was. (Did Canadian Broadcasting have a record producing subsidiary?)

    I think Sony purchased ‘CBS Records’ along with Columbia Pictures.

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