The Foreshadowing of Sony’s Pivot

I remember when Apple was near its bottom. Investors, pundits, analysts, and many commentators suggested that Sony should buy Apple. At the time, Sony was the biggest consumer electronics brand around and nearly every category the company entered had tremendous success. There was a culture of innovation, attention to detail with hardware design, and a laser focus on quality. In many ways, Apple and Sony were extremely similar but Apple was not a consumer electronics company at the time, they were just a personal computer company making Macs.

But now, the Sony we knew is gone. Their new CEO has them sailing toward a near-total pivot away from hardware and deeper into content and subscription services. This focus will include an effort to control more of the entertainment content industry in things like music, movies, and games.

The Post Mortem
Looking back, I think the nail in the coffin for Sony was they did not control any major user-interface platform outside of the Playstation operating system. Even if we believe they could have made a run competing with Apple on iPod’s, it would have made no difference in the long run if Sony did not control a large scale consumer platform. Sony did, and still does, create software UI experiences on their TVs, DVD players, and more, but none of them are true platforms that third parties develop exclusive experiences on like iOS and Android. PlayStation is the closest platform Sony has, but it reaches less 100m consumers worldwide.

In personal computers, Sony shipped someone else’s platform with Windows. We can’t fault them for this they had no choice, but their focus on the high-end could only last so long without control of an exclusive platform.

There were a couple of factors that led to Sony’s disruption. The first was the smartphone. The most important device in the world is the smartphone, and the smartphone continues to disrupt hardware categories. It is disrupting PCs, it is disrupting TVs, it is disrupting tablets, and who knows what else it pressures. The smartphone has caused almost every other category to become a commodity, while it remains the single product able to command premium prices at scale.

The second factor was Apple and iOS. It was both Apple becoming a consumer electronics brand and Apple’s control of a consumer platform that hurt Sony the most and forced Sony to have to deal with dynamics of commoditization they never had to deal with before.

Sony’s Pivot and Foreshadowing Other Hardware Companies
From a disruption theory standpoint, something I think is very interesting is how Sony tried to battle disruption using tactics right out of the playbook, and it didn’t work. When commoditization or low-end disruption takes place (which is the dynamic that hit Sony’s hardware business), the counter strategy is to double down on premium and focus on the smaller more profitable niche within a segment. Sony tried this by doubling down on the high-end with their TV business. This worked for a few quarters, but ultimately lower-priced good enough TVs even ate into the high-end the same premium features Sony tried to focus on made their way into lower-priced TVs. In short, traditional disruption theory avoidance tactics did not work in the TV category. I think this is an important and interesting observation.

I have a theory to propose as to why I’ll share briefly. The strategy of entrenching in the high-end when low-end disruption takes place ONLY works with products that have a high emotional attachment. Meaning things that are very personal to consumers. This can be things like food, clothing, automobiles, and personal technology. Things like TVs, which is an appliance, and other electronic appliances are subject to less emotional/personal attachment and therefore subject to good enough dynamics.

Sony had no sustaining innovations. They had nothing that could not be copied and offered at lower prices by their competition, and in the end, that is what killed their reign as a consumer electronics leader.

Foreshadowing For Other CE Brands
This leads us to implications for other consumer electronics brands who may have to follow Sony in a pivot away from hardware. Companies like Samsung, and to a degree LG, who have big consumer hardware brands but continually find themselves running short of sustaining innovations that can keep competitors at bay and allow them to live entrenched in the high-end.

Samsung’s hardware business may be the most vulnerable, but may also be insulated against these dynamics because of the many other businesses Samsung is in and the strength they have in the semiconductor side of the house. But many of the dynamics that hit Sony are likely to hit Samsung’s consumer electronics brands like TVs, and even smartphones. Samsung will most likely continue to use the tactics to fight disruption in smartphones and move away from the low-end to focus on the high-end. But I think the same dynamics that hit Sony in their tactics will hit Samsung but for a different reason. Smartphones are more personal than TVs, so Samsung has that going for them, but Samsung ships someone else’s platform. The implication of this is all of Samsung’s sustaining innovations will have to be in hardware features which is the easiest area for low-end competitors to keep pace or fast follow with.

When I take a step back and look at the whole picture of what we have seen happen the past 20 plus years in consumer electronics is the steep price brands pay when they do not own or control a platform. I do not see this dynamic changing, which is why companies like Amazon, Google, Apple, and Microsoft are going to viciously fight over who can gain control of the platform that comes after smartphones. Maybe it is AI, maybe it is AR, maybe it is something with wearables, or maybe it is all of the above. Losing the platform battle in the next computing cycle has grave consequences. This is the one constant observation we can rely on and why the next few years are critical for those platform winners of today.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

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