At the intersection of technology, finance and the Pacific Rim.

Friday, November 20, 2009

Sony vs. iTunes---Me Too!

There is in the high tech world something called a "Me Too" strategy. This means a mimicking of other companies' thinking--and there is little to no differentiation or cost advantage. Imitation is the best form of flattery--and Me Too companies are often followed by Me Three and Me Four and Me Five companies as well. Look at the App Store of Apple and all of its imitators--and yet very few people end up changing their preference--because the river current is set and there is no reason for the river to change its direction. This is often called the "First Mover" advantage and it is why I have spent some time talking about innovation.

So Business Week wrote about Sony's new i-Tunes like store. Some highlights (with questions by me):

How is Sony doing?

The global recession has pummeled Sony's businesses and left its earnings in a shambles. With consumers cutting back on electronics, Sony says it's heading for its second straight loss. This fiscal year through March 2010, Sony predicts an operating loss of $674 million, from last year's $2.6 billion loss. Sales are expected to slide 6%.

Sony's core electronics business has been its biggest problem. The two worst-performing products: TVs and video games. Reversing the losses of those divisions is crucial because they account for more than a quarter of Sony's $82 billion in annual revenues. The games division is expected to post its fourth straight operating loss. On Nov. 19, Sony said both the gaming and TV businesses aren't likely to see profits until next fiscal year. Stringer also pushed back the company's overall goal for a 5% profit margin until the fiscal year ending March 2013.

To help its chance of a comeback, Sony is trying to cut $3.4 billion in costs in the year through March 2010 by centralizing parts procurement, reducing inventory, and closing factories. By May 2010, it expects to have 47 plants globally, from 57 last February. "We know we have to restore profit in our game and TV business," Stringer told a news conference at Sony's headquarters. "We must deliver sustainable financial results."

How are they Trying to Turn the ship in terms of product strategy?

Four years ago, Stringer hired Tim Schaaff, a top lieutenant of Apple CEO Steve Jobs, to lead Sony's software development efforts. After encountering strong resistance from hardware engineers, Stringer announced a management shakeup last February, appointing a younger generation of managers who share his belief in the power of software. The move has paid off. "I couldn't be happier with the pace of change," Stringer said.

Lesson: Adjust to the Industry or Go Home

How will they differentiate?

Sony will try to differentiate its service from iTunes. One example: Users will be able to upload videos shot on camcorders, save photos taken with digital cameras, and post other digital content to their personal online accounts. That's how Google's suite of Net-based services (such as YouTube video-sharing and Picasso photo site) works. At some point down the road, Sony would consider letting independent software developers create applications for the service, much the way Apple does for its iPhone. "The new online service will be one key factor as we introduce new types of mobile products," Hirai said.

NOT ENOUGH--could be lights out at Sony as we know it in 5 years. Light are definitely dimming.


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