floptech
Home  |  Poker Roll  |  Poker Tweeter  |  FlopZoom  |  FlopZoom Lite  |  News  |  Blog
Home  |  Poker Roll  |  Poker Tweeter  |  FlopZoom  |  FlopZoom Lite  |  News  |  Blog
Apple is the New Sony
25 May 2010


Remember the Walkman? We certainly do. And we also remember when Sony was the coolest company in consumer electronics. Sony is one of the world's largest conglomerates, and will remain strong in many markets. But Apple has crushed Sony in key product areas and completely erased Sony's formerly huge mindshare in many others.
 
The Walkman never actually went away, but its glory days are long gone. Sony sells X Series, S Series, E Series, and W Series digital Walkman Players at all different price points, with many optional accessories. And they still actually make cassette tape-based Walkmans. But how many Walkman Players do you see on the streets these days? Just about zero, we'd guess.

So how did this happen? How did Sony fumble its world-famous Walkman brand into obscurity? We think Sony's focus on great hardware caused them to make costly strategic mistakes. And not just with the Walkman. Sony is falling behind Apple in many areas, which could lead to further Apple consumer electronics dominance.

We'll mostly ignore the two companies' competition in desktop and laptop PCs (Vaio vs. iMac and MacBook), smartphones (Sony Ericcson vs. iPhone), e-readers (Reader vs. iPad), and retail stores (Sony Style vs. Apple Store). But we'll say right now that Apple is doing vastly better in market share and mindshare in all those areas. Let's just stick to the Walkman vs. iPod for a bit.

Proprietary Formats

Sony wasn't the only consumer electronics company selling small cassette tape players with headphones. By the mid-1980s, most consumer electronics concerns were selling their own Walkman clones. Sony saw this and top management decided that they needed to differentiate themselves in the next generation of devices. So, when MP3 started to change things in the music world, they saw it as a chance to launch their own proprietary technology.

Sony tried to swim against the MP3 flood with their own proprietary ATRAC audio encoding format. They released their MiniDisc Walkman line, some of which were actually capable of recording. Several other Japanese companies also released MiniDisc players, but none of them succeeded worldwide.

Sony hadn't learned from their Betamax experience. They had developed and promoted that format to become the standard format for the booming VCR market. And it failed. Why? Because Sony didn't license Betamax. They kept it to themselves, built every Betamax VCR, and couldn't keep up with the flood of VHS VCRs from many manufacturers who licensed the VHS technology.

Apple also lost a battle by refusing to license their technology. If Apple had licensed Mac OS, Microsoft Windows might never have been created. Apple could have become Microsoft plus Dell plus, well, Apple.

The difference, of course, being that Apple has learned from its past mistakes. When Steve Jobs returned to Apple, he reshaped the company into a lean and agile competitor. He killed off the Apple clones since he knew that it was too late to license Mac OS. He knew that Apple's business model had to to center on hardware sales driven by great software.

And he also became an astute student of other companies' businesses. He saw what Sony and the others were doing in the portable music player market and saw an opening.

Attack of iPod and iTunes

Apple released the iPod in late 2001 and initial market reaction was lukewarm at best. Apple came to the market so late that many dismissed the iPod as an also-ran. Analysts dredged up Apple's failed attempts at consumer electronics and dismissed the iPod as just another distraction from Apple's main Mac business. (The monstrous Macintosh TV and stillborn Apple Interactive Television Box were two glaring examples.)

Sure, the iPod was solid and shiny, with an innovative and intuitive click wheel interface. But Steve knew that slick hardware alone couldn't guarantee success. It was the combination of iPod and iTunes that proved unbeatable.

Over the next few years, iTunes' superior CD ripping and music syncing helped iPod sales steadily increase. Other hard drive-based MP3 players had already hit the market, but iPod quickly established itself and gained momentum. The same hardware + software synergy that made the iMac a hit, and in turn saved Apple from extinction, was propelling iPod sales.

In response, Sony released the Network Walkman series with flash storage, then the HDD Walkman series with an internal hard drive. Both still used ATRAC, which forced users with large MP3 libraries on their PCs to first convert the files from MP3 to ATRAC. Sony refused to get on the MP3 bandwagon, apparently still hoping that updating their hardware often would be enough to make ATRAC Walkmans sell.

Then in 2005 the iTunes Music Store opened. This was the final nail in the Walkman coffin. Suddenly Mac and PC users could purchase music online, then seamlessly download and install it on their Macs, PCs, and iPods. Sony had no response to the iTunes Music Store, or to the upgraded iTunes Store with movies and TV shows. And it has hurt them ever since. Cool hardware is just the tip of the iceberg, and that's all Sony had. Their belated and inferior Connect Music Store failed, again leaving Walkman users without a good software solution.

In hindsight, Sony's attempts to push ATRAC and MiniDisc while ignoring MP3 were the beginning of the end for Walkman. Apple's superior software just finished the job. Sony made critical mistakes that handed the market and mindshare to Apple. Ten years ago, when people thought of portable audio, they thought "Walkman." Now, when people think of portable audio and video, they think "iPod."

Battle for the Living Room

So Apple now dominates the portable music player market. And what does any company do after they've conquered a market? They look for another conquest. Apple has been gathering data and building up for an assault on the living room. It's inevitable. Because the living room, for a consumer electronics company, is the key to the rest of the house.

Apple could never completely replace Sony in all home audio/video equipment categories. Leave the receivers, speakers, remote controls, and especially the Blu-Ray players to Sony and all the others. But Apple's relentless quest to cover all screen sizes has so far resulted in everything from the 2.2 inch iPod nano to the 30 inch Apple Cinema HD Display. And now there's only one way to go: bigger. As in HD TV screens.

Apple's first attempt in the living room, Apple TV, has been a dud in comparison to iPod, iPhone, and iPad. But Apple TV, a so-called "hobby," could be just the first baby step into the living room. Several other Apple projects started very small before blooming into monster hits. For example, the first few iPod games, released months before iPhone was announced, seemed almost silly. Apple was selling these cheap, small games, to test software purchase, delivery, and updating on iPod. Almost two years before the App Store went online. They refined their technology and applied the knowledge and experience gained to the App Store.

Since then, Apple has been putting all the major pieces into place for a surge into home entertainment. The software infrastructure (there's that word again) is already there. The iTunes Store, the App Store, and if the rumors are true, "iTunes Live" are in place or are imminent.

On the hardware side, Apple has nearly completed a massive $1 billion data center in North Carolina. This is probably not just for storing peoples' iPod nano vacation videos in the cloud. And we certainly hope that Apple isn't going to try to beat Google's search engine head-on. We're guessing it will most likely be used to help improve Apple's cloud services. (And we're crossing our fingers in the hope that MobileMe will soon be free.)

But we wouldn't be surprised at all if that new data center became the hub of a cloud-based iTunes in the near future. With interactive video streaming of movies and TV shows. And it would easy to upgrade the Apple TV hardware to handle full 1080p HD.

Speaking of which, Apple TV hasn't been upgraded in quite a long time, is quietly lurking on a few pages of Apple.com. We suspect that Apple is using the current Apple TV as a testbed to accumulate data and experience for a far larger objective. Just like they used those first few iPod games to help develop the App Store. It's been more than three years since Apple TV was first released, so Apple has had plenty of time to analyze things and reformulate their strategy.

So nearly all the pieces of the puzzle are in place for Apple's big push into the living room. The content purchase and delivery infrastructure, the cloud servers, and the consumer-facing home electronics hardware are all there or are on the verge of being ready. Now Apple can just wait for the time to be right.

Disc vs. Download

Steve Jobs hates DVD and Blu-Ray. For years he did his iMovie demo at Macworld San Francisco, amazing the masses with its ease of use and user friendliness. Then he'd fire up iDVD and the demo suddenly ended. He never dropped in a DVD to start burning that demo mashup. Instead he'd say something like "So that's iLife. Here's another cool application..." and move on. You could almost see him thinking "There has to be a better way."

It's been years since Steve did any iLife demos, focusing on iPhone and now iPad. And although the Superdrives in Macs and MacBooks still allow you to burn DVDs, it's not as easy and automatic as it was before. There's no more "Create iDVD Project" button in iMovie. You first export your iMovie, then launch iDVD and navigate to the file and import it. That extra step makes it easier to export your iMovie to YouTube, MobileMe, or Apple TV. You need to launch the Help application to find out how to create a DVD.

More telling is the fact that no current Apple product has built-in Blu-Ray support of any kind. Apple and Steve prefer that you purchase and download your content from the iTunes store and just play it on your iDevice. The ultra-slim MacBook Air has no built-in optical drive at all. This is mostly to make it as thin and light as possible, but also indicates the future of the MacBook line. There are no plastic discs in Steve's vision of Apple's future, at least in the consumer space.

Unfortunately for Steve, the transition away from optical media will take years. Blu-Ray is gaining popularity. Everyone knows it will be the last mass-market optical media format, but with increasing sales of HDTVs, Blu-Ray is gaining traction. It's visibly better than DVD, and player and disc prices are dropping.

Another problem is that high speed internet isn't quite fast enough for streaming full HD content. It's nearly there, but still not quite as widespread or as cheap as will be necessary to reach critical mass. And there's nothing Apple can do about it. Communication infrastructure improvements occur in geologic time compared to consumer electronics.

Meanwhile, Sony is heavily invested in Blu-Ray, and who can blame them? They got spanked in the Betamax vs. VHS war, their ATRAC drove Walkman into the ground, MiniDisc was a flop, and Sony customers barely tolerated Memory Sticks. Sony has finally gotten behind a successful data format and they're going to stick with it.

Sony sells all manner of disc players, many with "BD-Live" internet connectivity and download features. And Sony is gathering usage data just like Apple. All the discs you watch and the time of day you use the player are all reported to Sony and other manufacturers. So Sony is milking the last wave of optical discs for all it's worth while Apple is looking to leapfrog the whole Blu-Ray generation.

Original Content

One thing Sony has that Apple doesn't is a movie studio. Sony bought Columbia Pictures Entertainment in 1989 and renamed it Sony Pictures Entertainment. This gave Sony big screen and small screen content with which to feed its home entertainment hardware empire. It makes perfect sense for Sony to own a movie and TV studio. (And it's a far better fit than Columbia's former owner Coca-Cola.)

But does it make sense for Apple to own a movie studio? Well, yes and no. It doesn't make sense right now because Apple TV hasn't sold well enough yet. And if Apple buys a studio and starts competing directly against the Universals and DreamWorks' of the world, it could hurt their ability to do iTunes distribution deals with them. Better to wait until after Apple has firmly established itself in the living room.

Or is it? Buying a movie studio sooner rather than later does make sense for Apple in many ways. Steve Jobs was formerly CEO of Pixar Animation Studios. And now he's the major Disney shareholder, thanks to Disney's acquisition of Pixar. He managed the production of many successful animated features while he was simultaneously CEO of Apple and Pixar, so he's had experience in producing content. Apple could profit from its movies alone, with or without an Apple TV connection.

Either way, it's going to be increasingly difficult for Apple to make money selling hardware. Consumer electronics, especially compute-intensive products like iPads and iPhones, will become faster and cheaper. And as always, there will be competition in the hardware space. In order to remain profitable, Apple will eventually need to branch out into ads and/or content. Consumers will always be willing to pay for entertainment, and advertisers will always be willing to pay for air time.

iAds will be a large part of Apple's future, and it has already triggered Google's wrath. Acquiring a content provider would be another major step for Apple to help secure its future. It's just a matter of who and when.

The Top Brass

Akio Morita, one of Sony's founders, was a brilliant engineer and a maverick of post-war Japanese industry. He tasked one of his engineers with creating an audio device for his personal use on long overseas flights. The resulting product was put into production as the Walkman a year later, in 1979.

Steve Jobs is, of course, the co-founder of Apple, and has led the development of all of of Apple's major current products, including the Macintosh, Mac OS X, iPod, iPhone, and iPad. In many ways he's just as much an iconoclast as Morita was.

Steve's return was essential to Apple's resurrection in the late 1990s. Apple lost its way in Steve's absence, unable to create a next-gen OS while wasting time, money, and energy on bizarre projects far outside its core competencies. There were too many internal battles between managers building their own mini-empires. Steve stepped in, re-established himself as the one Emperor, and imposed his vision of the future on Apple.

So in many ways, Apple really is the new Sony. Apple was born of early, rapid innovation, survived a suicidally unfocused adolescence, and has emerged stronger than ever. Sony has been around for thirty years longer, but is currently fighting through a hellish period of reorganization and cost-cutting.

Unfortunately for Sony, Akio Morita is long gone. It will take an equally charismatic and powerful leader to restore Sony to greatness. Maybe their current CEO, Howard Stringer, can do it. Maybe not.

Mindshare

Years ago, the Sony logo appeared everywhere. James Bond's monitors were all Sony Trinitrons, and all manner of Sony equipment showed up in various movies. Sony ads were funny and engaging, especially the "Sony. No baloney." TV ads. Even the recent "Casino Royale" (2006) had Bond use a garish white Sony Ericcson smartphone. But something just felt wrong about that. The phone was cutting edge but the effect was retro. As in "Look - Sony is trying to be cool again."

Now it's Apple's turn to shine in the consumer electronics world. Reviews of other companies' portable media players, smartphones, e-readers, and other products often refer to Apple's offerings. The Apple logo is prominently placed in popular entertainment, from "24" to "Sex and the City" to "It's Complicated" to "Late Night with Jimmy Fallon". Apple products are everywhere, and the "Get a Mac" TV ad series featuring Justin Long as Mac and John Hodgman as PC was a huge success.

You can't buy mindshare. You have to win it on the strength of your products. Apple has carefully developed their products and brand image since they rose from the ashes in the late 1990s. They have pop culture momentum and they're going to keep it rolling. Can you even remember who had this much consumer electronics mindshare before Apple?

We can't. Maybe it was Sony. Then again, maybe it wasn't.




Next: WSOP $50K Players Championship from Las Vegas...