Losing the Beat: Sony, the Walkman and Digital Music
Sony lost their market-dominating position as the digitization of music changed how consumers stored, played and shared their music. How could a company who invented a product category, and subsequently sold 200 million Walkmans become an also-ran in portable music players?
The introduction of the Walkman showed what Sony could do best: design innovative products that consumers desired and charge premium prices. Sony was able to maintain market leadership as compact discs began to push analog tapes out of the market by adding the popular Discman to their product lines.
Nobody Beats the Wiz - Sony MiniDisc commercial
As consumers began the widespread adoption of CDs, Sony was already developing a follow-on storage format, the Mini-Disc. Unlike CDs, MiniDiscs could be re-recorded by consumers and could store up to 80 minutes of music, above a normal CD. However, after CD-RW drives proliferated and the use of cheap CD-Rs became widespread, the novelty of MiniDisc wore off and it never really caught on in the United States. Sony's bet on MiniDisc further faltered in the late 1990's, when the development of new audio compression techniques culminated in the widespread adoption of the .mp3 format. Now a person's entire music collection could be stored on their computer and individual songs, whole albums, or entire libraries could be shared among multiple devices and users. Suddenly storage options such as Sony's MiniDisc looked even more unattractive. By the time Creative began releasing portable music players with large storage capabilities, Sony had already begun to cede its position as the premier name in portable audio.
One reason for Sony's failure to adapt may have been their engineering expertise. As the developer of multiple proprietary technologies (MiniDisc, Blu-ray, MemoryStick, BetaMax, etc), Sony has shown that it is willing to take risks to pioneer a storage technology, hope that it becomes an industry standard, and profit handsomely from the licensing of the technology. This strategy has had varying degrees of success (See Blu-Ray over HD-DVD on one hand, and VHS over BetaMax on the other).
Additionally, Sony may have failed to forecast that the price of storage (whether flash or HDD) would fall precipitously and allow consumers to carry their entire library in a single, pocket-size player.
The failure of a technology to catch on with competitors probably had damaging impacts on Sony's financial performance as they would be unlikely to recoup the substantial R&D costs incurred by developing a new technology. By spending resources on storage media technology, Sony likely did not foresee a future where people could store their entire music library on one portable music device.
Sony was also affected by the rise of use of contract manufacturers. Facing competitors such as Apple that did not own their own manufacturing capacity, Sony was burdened by a different cost structure. Perhaps Sony's manufacturing could not keep up as the pace of technological innovation sped up. Sony has faced this same limitation in their TV business, as labels such as Vizio are able to use cheaper manufacturers whose quality has caught up with Sony's.i
The move to storing music libraries on computers exposed a crucial vulnerability to Sony's personal music player dominance: it lacked a core competency in software. Apple's rise to dominance in the portable music player space relied in part on the ease of their file transfer system and the seamless integration of the iPod with the iTunes ecosystem.
Perhaps this weakness in software played a part in Sony's whiffing on the dawn of the smartphone era. Sony should have been able to deliver a smartphone that combined the best elements of their camera, music player, and video game technologies, and yet, Apple was able to define the category.
Ultimately, an inability to predict how digitization would continue to change how people stored and listened to music coupled with a narrow focus on hardware development caused Sony to lose its beat.