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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?

Photo of Patrick McGinty
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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.  

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.    

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http://www.bloomberg.com/bw/magazine/content/10_18/b4176051946906.htm

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Photo of Steven

good one! The list of things that Sony did which became the opposite of how MP3 players evolved is long. You hit the important ones for sure. One interesting thing is how they saw the potential for content becoming strategic but were unable to tap into this in either music or video.

Ultimately it is too easy to view the walkman as a failure because of disruption. Another view is that it was a massively successful business--they just didn't enter the next phase of portable music.

What is amazing is the number--200M players. Today there are 600M iOS devices all portable music players. Add to that 1-1.2B Android devices and one can see how the market sized expanded because of digital.

An interesting analogy is photography. It is likely that this year more photos will be taken on "phones" than were taking in the entire history of film based photography.

The growth and expansion in use that comes from digital is also magical!

Photo of gaurav

Hi Patrick..your post makes me a little nostalgic.. since I have been a avid fan of Sony in the past. You are right in pointing that Sony did not lay emphasis on software and hence, suffered in the overall user experience.

Sony did learn its lessons from the Beta-max fiasco, which in spite of it being a superior technology as compared to VHS could not take off, since VHS was widely available and for users the switching cost was high. With Blueray, Sony did play it's card right and in spite of an equivalent HD-DVD was able to bring in the key players in the music industry early enough to adopt Blueray and hence, winning the battle of wide adoption of BlueRay standard.

Even though Sony had the technology to store music on hard drive before Apple, it failed to build a successful execution strategy, since it way so heavily invested in the CD type technology, which was their cash cow. Apple before iPod was already on backfoot and had to come up with something drastically disruptive for it to survive. The nail in the coffin for Sony was the introduction of iTunes for Windows platform, which lead to mass purchases of digital media by consumers (90% of computer market in 2004) rather than actually buying music through CDs.

 Besides, Sony was always a group of separate smaller subsidiaries than one big company. Hence, there was no sharing of knowledge between the different entities. I think organization structure was a bigger factor than any specific technology that lead to Sony's failure.

Photo of Jenny

Patrick- great post on Sony. It's interesting to see how a once successful company with such a commanding position in the marketplace could still fail with the inability to adapt. Based on your research, it looks like Sony made a "wrong bet" with the Mini Disc. Also similar to our Nokia case, Sony's expertise in hardware left the company unable to adapt as music's entire ecosystem shifted to center on software. It's interesting to see that once Sony saw they had made wrong bets, they could not pivot quickly enough to adapt. The speed of change might have also been a huge factor. Digitization and adoption within this industry happened so quickly, once a company loses it's leadership "edge" it would have been hard to regain share due to quick saturation of the space with competitors. Therefore with digitization, speed is especially critical to remain competitive.

Photo of John

Patrick - great post. I particularly liked your point about how throughout its history, Sony has shown a willingness to "pioneer a storage technology, hope it becomes an industry standard, and profit handsomely from the licensing of the technology." If that is indeed the case - and I believe it is based on your examples of Blu-ray vs. HD-DVD and VHS vs. Betamax - then in my mind the question becomes why didn't Sony invest more in the MiniDisc to try and aid that technology in becoming the industry standard. When you look at what happened with the proliferation of CD-RW drives and the cheapness of the CDs themselves it is clear why that technology took off so quickly. Sony may have been better served to come up with an integrated, all-encompassing system for the MiniDisc. If they were able to partner with desktop manufacturers and make sure the MiniDiscs fit seamlessly into computers, then maybe they would have taken more of the share from CDs once the industry started transitioning away from analog tapes.

Photo of Lior

Patrick, great narrative of a truly interesting decline story. Sony is yet another victim of the tectonic shifts that happened in the past 20 years, with the consolidation of multiple hardware-enabled devices (music players, cameras, camcorders, handheld computers, and telephones) into a single, powerful, globally connected computing unit with an abundance of software features delivered by a community of contributors.
It could be interesting to benchmark Sony's decline in portable music delivery and failure to introduce a consolidated hardware platform (i.e. smartphone) of its own, to the rise and continued success of current incumbent Samsung. For example, Samsung sold its HDD division to Seagate in 2011, allowing it to focus on advanced flash storage manufacturing as one of the building blocks to its Galaxy phones. This and many other leading hardware competencies, coupled with android's extremely powerful software ecosystem, propelled Samsung to compete head-to-head with Apple at the top of the Smartphone industry.
It is unfortunate that Sony failed to go down a similar route.