I love the consumer electronics industry. Most people look at the industry and hate it… they say that there is too much competition, it isn’t all that profitable, intellectual property is hard to retain, and your firm can be too dependent on outside factors (gov’t regulation, complementary products, etc.). While these attributes make it difficult to compete in the marketplace, think about the power of a great consumer device; they can literally change the world. The cell phone has revolutionized the way we communicate; the iPod has taken the country by storm changing the way people enjoy music, digital cameras are leading a revolution in the photography world, etc. And I love the idea of creating world changing products.
Decades ago Sony created a product that changed the world: the Walkman. From the huge success of the Walkman, Sony began its long march to becoming the world’s most powerful consumer electronics company. Year after year Sony created products that were meeting consumer needs and they appeared to understand global markets better than any other firm in the industry. I believe that we are in the midst of watching a giant fall, and that Sony today is making decisions that will be used in business schools around the world for what not to do. Lets walk through a few of those decisions:
- Sony was so late to the flat panel TV market that they were recently forced to lay off 20,000 employees globally and shut down numerous cathode ray tube (CRT) factories that produce the old bulky TVs seen in most houses today.
- After shutting down these CRT factories the firm found itself so far behind in the flat panel market they were forced to partner with a market leader… in this case Samsung (more on them shortly)
- Name a company in a better position to manage the transition to digital music better than Sony. Sony owns a major music label as well as the know how to create a great CE device to play the music. They recently launched their Connect music service which is just terrible. (Please see my review here.
- Over the past few years Sony has continued to try and push proprietary formats on consumers to lock them into their products. Just look at the Connect service and how it only work’s with Sony devices and the ATRACK format, look at the memory stick format, their proposed portable television product (closed architecture), etc. Firms that try and lock consumers into their platform clearly don’t understand that consumers don’t want to be locked into buying from one company. There are times when creating a closed proprietary standard can be beneficial to consumers, but this isn’t one of them… there are clearly other options / platforms for consumers to choose from that work well… and Sony doesn’t understand this.
The fall of Sony is not only being driven by bad managerial decisions but also a rising star from Korea… Samsung. Over the last five years Samsung has transformed itself from a commodity player to a producer of high end products across numerous segments. Just think about the following facts:
- According to DisplaySearch Samsung is the worlds largest manufacturer of flat panel displays.
- It sells more TVs than Sony and Philips Electronics
- It is now # 2 in the world in cell phone revenue behind Nokia… an incredible accomplishment given that they have only been in the industry for around 5 years.
- Samsung has been the fastest growing brand in the world for two years in a row according to the survey done by Interbrand and BusinessWeek
I worked at Samsung last summer as a MBA intern, and I really believe that the company has the products to remain differentiated to provide great experiences to consumers. The executives at Samsung have Sony in their cross hairs and if they continue to execute while Sony continues down their path of proprietary products that are late to market then it is only a matter of time before Samsung rises up to the top of the CE world and kills today’s king.
No comments:
Post a Comment