Saturday, 10 December, 2005
Ahh, the Sony debacle. How did it all go so wrong for Sony? I bet it all seemed like such a good idea, you have an award winning technology division that makes awesome hardware that plays and records media such as music and film. The question is how do you make more money? The big wigs at Sony decided, decades ago, it'd be a great idea to get in to the music business and actually create the content! In my view, it was that decision that brings us today's public relations disaster.
How? First a small lesson in Microeconomics. In Microeconomics there are things called "Complementary Products"; that is, products where demand for one product drives the other. An example of a pair of complementary products can be seen if you consider Cars and Petrol. Cheaper cars means more cars on the road which drives demand in Petrol or, conversely, Cheaper petrol makes a car more affordable to run so people buy more Cars.
The key thing to appreciate here is that while the products are in symbiosis they are constantly at war. If I'm a car maker, I want Petrol to be the cheapest it can possibly be because I want my punters to either:
If I'm making petrol, my goal should be to make cars as cheap as humanly possible so people buy more cars and hence buy more of my petrol. The Petrol company wants to make the Car company as non-profitable as it can while at the same time the Car company wants to make the Petrol cheap to the point of non-profitability. If they've got any sense, they're essentially trying to make each other go bust!
So how does this apply to Sony? Well the complement of portable media players is music. By nature, the hardware division of Sony should be trying to make its media as easy to copy as it possibly can so it 'destroys' the profitability of making and selling music. Once the music is very very cheap, people will want to carry that music around with them and that drives demand for their portable music hardware.
QED? Not quite, Sony has a music production division to! This division wants the player to be as cheap as humanly possible so their customers don't feel the burn of buying the player and they instead use this money to buy more music.
And we arrive at the contradiction that is today's Sony. It can't commit as ruthlessly as it needs to be to either strategy so it ends up doing an awkward schizophrenic dance between the two. While it was busy listening to voices in its head, it completely missed the revolution that Apple brought to the masses. The IPod, by all accounts, should have been brought to the world by Sony but instead it took Steve Jobs' crew to make it a reality.
Simon