Sony’s Structure and Competitive Disadvantage
APPLE’S MARKET CAPITALIZATION in 2001 was $7 billion, while Sony’s was $55 billion. Apple introduced the iPod, a portable digital music player, in October 2001 and the iTunes music store 18 months later. Through these two strategic moves Apple redefined the music industry, reinventing itself as not only a mobile-device but also a content-delivery company. Signaling its renaissance, Apple changed its name from Apple Computer, Inc., to simply Apple, Inc. But what happened to Sony—the company that created the portable-music industry by introducing the Walkman in 1979?
Sony’s strategy was to differentiate itself through the vertical integration of content and hardware, driven by its 1988 acquisition of CBS Records (later part of Sony Entertainment). This vertical integration strategy contrasted with Sony Music division’s desire to protect its lucrative revenue-generating, copyrighted compact discs (CDs). Sony Music’s engineers were aggressively combating rampant music piracy by inhibiting the Microsoft Windows Media Player’s ability to rip CDs and by serializing discs (assigning unique ID numbers to discs). Meanwhile, Apple’s engineers were developing a Digital Rights Management (DRM) system to control and restrict the
transfer of copyrighted digital music. Apple’s DRM succeeded, protecting the music studio’s interests while creating value that enabled consumers to enjoy portable digital music.
DISCUSSION QUESTIONS
- Why had Sony been successful in the past (e.g. with the introduction of the Walkman, PlayStation, the CD, and the VAIO computer line)?
- What was Mr. Idei’s assessment of strategic alliances versus M&As? Do you agree or disagree with his conclusion? Support your assessment.
- Explain how Sony’s organizational design (structure, culture, and control) inhibited Sony’s ability to respond to the competitive challenge of Apple in the digital portable music industry.
- What could Sony have done differently to avoid failure? What lessons could be learned?
- Explain how restructuring (as activist investors are recommending) would produce benefits for Sony. What would be the benefits of splitting up Sony as proposed? What would be its drawbacks?
