One night about eight years ago, I went around the house counting the number of Sony-branded products I owned. Among them was my first TV--a 17-inch Trinitron. It still worked after 17 years. I also found that slim metallic cassette Walkman that fit in my pocket while powder skiing back in the late '80s. In my office was a new, superslim Vaio 505 notebook with a magnesium alloy chassis. It never crashed.
My brand preference for Sony had nothing to do with loyalty. I chose each of those products, and many more like them, because they had key attributes that competitive products lacked. For two decades, Sony was the most innovative consumer electronics company on the planet. Around the turn of the millennium, all that changed.
Now, my PCs are all Dells, my cell phones are by Motorola and my flat-panel TVs and displays are made by Matsushita, Sharp and Samsung. And, of course, Apple's iPod dominates the handheld audio market. While Sony remains a key player in most consumer electronics categories, its products have lost their luster of uniqueness.
What happened? Nobuyuki Idei, the company's top executive until recently, bit off too much. In his zeal to turn Sony into a global entertainment company, he expanded aggressively into media content, network services and financial services. This was not all bad, by any means. Sony Computer Entertainment's Playstation franchise, Sony Pictures Entertainment and Sony's financial-services companies are its most profitable businesses.
Nevertheless, the company's once single-minded focus has fragmented. Sony's competitive battles are now fought on multiple, diverse fronts, while factions war internally. The fact that Sony is both a media and an electronics company pits two key divisions against each other over piracy issues. Concerns over illicit file sharing and copying of media from one hard disk to another have hamstrung many of Sony's once-innovative products.
Diversification has also added management structure and bureaucracy, bogging down decision making and innovation. The commoditization of Sony's product lines has caused an inevitable slide in operating margins that already were razor thin. While accounting for two-thirds of the company's revenue, the consumer electronics division has now been a money loser for two years.
In June, Idei passed the baton to Howard Stringer, Sony's top U.S. executive and a 30-year veteran of CBS. By choosing an entertainment executive for the top spot, the board of directors sent a clear message of support for the company's current direction. Recognizing the need for operational restructuring, Stringer has dutifully promised to revitalize electronics, consolidate operations, divest nonstrategic businesses and return Sony to healthy operating margins.
Investors remain justifiably skeptical. These days, competition is too brutal for any company to get a second chance once it screws up, even if that company is Sony. It would take a Herculean effort to reverse the electronics division's downward spiral, and there is no evidence that Stringer has the background or the capability to engineer such a turnaround.
On the other hand, Sony's entertainment divisions have a thing for producing sequels that are better than their originals--witness the Playstation 2 and Spider-Man 2. Maybe the consumer electronics business is good for a sequel ... or at least a happy ending.