From Walkman to Ipod

The iPod is a textbook case for strategy. The strategic opportunity was presented by a flawed tactic of record companies and the failure of both record companies and the electronics industry to understand a new medium: the internet. Sony had the right foresight that both media and hardware will have to converge into one experience. It also acted on this foresight by acquiring media companies early on, but ultimately failed to pull its media and electronics assets together.  

The iPod took over the glory which until then Sony's Walkman held. It was Sony's engineering-driven culture under the visionary leadership of Akio Morita which made Sony the undisputed innovation leader in the seventies and eighties. He mobilized listening to music - the Walkman made it possible to get up from your chair and out of the room while listening to music. 

Apple added a crucial feature which would make the iPod the successor of the Walkman: It exploited the failure of the recording industry to provide a timely and consumer-friendly way of obtaining music. While the large recording studios, unable to come up with any new business idea, were wasting their time to track down and sue music downloaders, Apple offered both the hardware - iPod - and the software - iTunes - to make downloading and listening to music a hassle-free (and legal) experience. 

The strategic opportunity, exploited by Apple, was not only presented by the fixation of the recording industry on tangible recording media (first gramophone records, then tapes, then CDs), but also by the inability of the electronics industry to take on a problem the recording industry was unable to solve. 

The tactic of the gramophone industry, for most of the 20th century accustomed to to easy profit through tangible recording media, was to entrench and attack their own customers. After spectacular raids in the apartments of teenage music downloaders, the mere idea of Internet delivery as an alternative to tangible recording media was made a forbidden thought, effectively making it impossible for the recording industry to innovate and embrace the Internet as their next delivery channel. 

For electronics companies it looked too risky to take on the powerful recording industry. And for Sony electronics, the number one candidate to come up with a meaningful successor to its own Walkman, an iPod-like device would have felt like an attack on its own nest, because Sony had both: electronic devices to play music and content studios. Betting on convergence, Sony had acquired CBS records in 1987 (now Sony Music Entertainment), and Columbia Pictures in 1989 (now Sony Pictures Entertainment).

That sounded like a good idea in the late eighties: when you can offer both the content and the device, you couldn't go wrong, so the idea went. If there just wouldn't have been the Internet. That meant no walk to the record store, no shelves for records, no scratches in gramophone disks. (The Internet was around in the late eighties, but took off only after 1995.)

Apple was not an electronics company, it was not a recording company, but it was good in designing and matching hardware and software. After all, it was exactly this insistence on doing both the hardware and the matching software which made them the victims of Microsoft (which got big by taking a Graphical User Interface, earlier developed by Apple, and licensing it to Asian manufacturers). But that was during the last century.

The vision of Sony's previous CEO, Noboyuki Idei, was Sony as a convergence company. He rightly foresaw the importance of uniting content and delivery, hardware and software into one experience. During his reign, Idei fought against a company culture which was in the meanwhile petrified in the engineering mindset which had served the company well in its earlier years. Idei perhaps wanted Sony to become something around the lines what Apple is today. To that end, he even broke with an iron law of Japanese corporate culture and chose a Westerner as his successor.

Idei might have thought that choosing a new chief executive from a gramophone company would advance his idea of convergence. But this was the very same industry which, through its refusal to innovate, opened the strategic horizon for Apple. Howard Stringer, previously having worked 30 years at CBS, took over in 2005. Since then, Sony cut visionary developments. Sony cut jobs. Today, Sony is losing money. And while Sony was acquiring Ericsson in a bet for the mobile phone market - without much success - Apple worked on the iPhone, the product which was to redefine the mobile communications industry. 

Since 2005, Sony is worth a quarter less (-24%); Apple, on the other hand, is worth over five times more (+560%).