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It will be fun to program for 16 APUs on Linux....At this year's World Economic Forum, held in Davos, Switzerland, Tony Perkins sat down with Mr. Idei—with Sir Howard Stringer, Chairman and Chief Executive Officer, Sony Corporation of America, at his side—to discuss their take on technology trends. In this first part, Mr. Idei explains why he would buy Palm if they would sell, how Nokia doesn't get it, and why his music and entertainment group needs to get their act together if they want to stay competitive. In Thursday's Part 2, Mr. Idei and Tony debate the virtues of Linux versus Windows, and in Part 3 Mr. Idei talks about the Future of the Digital Livingroom.
Perkins: Mr. Idei, are we ever going to have a converged phone and PDA device that people will really want?
Idei: Palm is strong where the mobile phone is weak. So Palm's big market is in America. We can't sell Palm in Japan, because cell phones there are much faster and more capable [than in America]. This is because behind the Japanese mobile phones there are monopoly companies like DoCoMo. DoCoMo has lots of money, even to subsidize the hardware companies. This is very scary because they want to control every layer of the business. So how can we compete with a DoCoMo? That's a whole other story. But there is only one DoCoMo in the world, so the market is fragmented, and it means Sony has a chance to do something here.
Perkins: What about your relationships with Palm and Symbian?
Idei: In terms of our OS strategy, it is not clear whether Symbian, which we share with the Nokia phones, is the right way to go for the mobile phone. And I can't tell you why Sony has a Symbian OS on its phones and Palm OS on its PDAs. [Laughs.] Even Bill Gates asked me if I was crazy. But this is our history. I really want to own either Symbian or Palm—I want to buy them. Three years ago the Palm was so simple, but it is getting better and better. My problem now is that as Palm licensee we have to pay them lots of money. Palm is like Apple—we don't know if they are a software company or a hardware company. But they have now split in two.
Perkins: You would buy Palm's software business?
Idei: Yes, if they want to sell.
Perkins: What about the rest of the mobile phone business, where is it going?
Idei: We have a joint venture with Ericsson, which for them is clearly kind of an exit strategy. They don't care about the mobile phone business, they care about the base-station business, which is 90 percent, now 100 percent of their business. Sony made the joint venture with Ericsson because we want to be covered by their IP patent umbrella, otherwise we have to pay nearly 15 percent to the GSM license holder. I wouldn't have been able to stand that.
Perkins: What about Nokia?
Idei: Nokia is focused on volume—selling as many cell phones as possible at a low price. But in my observation, I am not sure they know very clearly what the real opportunity is in the telephone business. We are talking about secure distribution of music on the phone.
Perkins: So, what about downloading music onto any device? Let's talk about Sir Howard's business here. These days, kids want to access all entertainment content from any place, at any time, on any device, but entertainment executives seem hesitant about allowing this.
Idei: My dream is to supply music to kids in a way where they don't have to feel guilty. Today, they know that to download music for free is a crime. We have to protect the rights of the artists.
Sir Howard: These artists originally thought the Internet was wonderful. Today, they are pleading with me to help protect them.
Perkins: I think that if you give these kids an easy way to download this content and pay for it, they will.
Sir Howard: We assume that, but we are not certain of it.
Idei: The music industry has been spoiled. They have controlled the distribution of music by producing CDs, and thereby have also protected their profits. So they have resisted Internet distribution. Six years ago I asked Sony Music to start working with IBM to figure out how to offer secured distribution of their content over the Net. But nobody in Sony Music would listen. Then about six months ago, they started to panic. They have to change their mindset away from selling albums, and think about selling singles over the Internet for as cheap as possible—even 20 cents or 10 cents—and encourage file-sharing so they can also get micro-payments for these files. The music industry has to re-invent itself, we can no longer control distribution they way we used to. Most entertainment executives understand this, but how to exactly execute on this model is more difficult.
Perkins: Because of Sony's size, and number of customers, you can obviously have a huge impact on which standards and platforms are adopted. Linux is a new platform that is becoming increasingly important strategically. These days, Linux has a significant share of the server market. There is a perception that Linux could also become an important desktop.
Idei: But so far this does not exist. The Linux OS has not been successful on the client yet. The power of the Microsoft model has been that one company is constantly working to improve it. Because Linux is based on the open source model, every time we develop on it, we have to open it. Ultimately, somebody needs to be responsible for the interoperability of the OS. So who will perform the function of Microsoft in the Linux world?
Perkins: I'm sure Microsoft would like to provide this solution for you….
Idei: Microsoft wants to use their code for everything, but that is impossible. In the past, every time that Microsoft developed a new OS, they wrote it using a different language. In the future, they want to simplify their code, and make it work with multiple [programming] languages and shorten the de-bugging time.
We are not sure yet how exactly we can successfully make all our devices talk together in an open environment, because Sony does not have this kind of experience. Our best strategy is to focus on selling entertainment content and hardware, and work with an experienced OS partner for the long term.
Perkins: If you look at what made Linux successful at the server-level, it was IBM saying, "We are going to make Linux enterprise safe."
Idei: That's right.
Perkins: IBM offered its customers Linux servers, services, security, and hosting, so the customers could have everything they needed to run their business with all the open source benefits. You are saying that you need to find the same kind of partner for the home. Why couldn't this partner be IBM, given that they know how to do this from an OS level?
Idei: Could be.
Perkins: After all, they don't have the desire to compete in the consumer business. Lou Gerstner and Sam Palmisano decided that a while ago.
Idei: IBM could be a good solution, but so could Sun. We are trying to develop the roadmap for this solution right now. We have already announced that we are working with IBM and Toshiba on the SOI [Silicon-on-Insulator] chip for the PlayStation. But how to design it so that this chip, the client, and the network all work together is a two-year project.
Perkins: Because you need a long-term OS expert, I guess that there are really four choices here: Microsoft, IBM, Sun, and Apple.
Idei: That's right. I think that IBM and Sun work. It's interesting that IBM has more Java software developers than Sun.
Perkins: But Sun has been kind of stumbling around lately, and they look at Linux as defense, where IBM uses Linux for offense.
Idei: Sun has problems with their management structure. We are supplying them SRAM chips so we know this.
Perkins: We recently talked to a number of Web companies in Silicon Valley that are currently upgrading their back-end server architectures. Their choice is to buy Sun 4500s for a $120,000 U.S. list price, or to buy the same refurbished system on the Internet for $65,000, or to go to Dell and buy twin Intel Pentium 4s for $10,000 running Linux. Some even say that the Dell systems run faster than the Sun 4500s. This is a 10X or more price-performance gap that Sun needs to overcome. Now Sun’s response is that Linux can't run Oracle, and can't run strategic apps. But Larry Ellison says that by the end of the year the complete Oracle database will be running on Linux, with the same enterprise quality that it does today on Sun Solaris. This is why Sun is in trouble.
We recently asked Microsoft's Steve Ballmer what he is strategically most worried about. His two major concerns are Oracle and Linux. Linux actually bothers him more because of its open source model.
Idei: Interesting. But whatever way Sony goes, we want to be in control of the roadmap
Perkins: The big question is: How are the home entertainment and communications platform going to get integrated? Apple's religion is that the home is going to be PC-centric. Sony appears to think that it is going to be television-centric. How is this going to shake out?
Idei: There is no one winner here. We emphasize TV in the home network because of the PlayStation. It is harder for us to compete with the PC, because Microsoft controls the PC platform.
Perkins: Do you worry about the Xbox?
Idei: No, not at all.
Perkins: Why not?
Idei: Because Microsoft is losing money producing the hardware, and their losses are getting bigger. We shipped 25 million on our first product and made money, they shipped 8 million and lost money. This is a huge difference. They also can't produce hardware and integrate graphics chips into their product—they have to buy it from someone else. They can't compete with Sony, because they can't match our margins.
Perkins: Back to the big question—right now, if you have a mobile phone, a Palm Pilot, an Apple iPod, and a TV set, it is not clear how these are going to all work together. So what is Sony's platform strategy?
Idei: Our platform strategy right now is twofold. Sony is a licensee of Microsoft for the PC, so we share their roadmap for the PC for the long-term. We have also been in joint development with them for the past two years, to bring higher quality audio and video onto the PC, and Microsoft has been integrating this new capability into Windows XP. This way the PC can become more of an entertainment device for Microsoft. But whether or not the user will welcome the PC to access entertainment content, we will just have to wait and see….
The second platform will tie together the PlayStation, the home server, and the TV. We have announced jointly with Panasonic and Philips that we have agreed on the basic Linux kernel for this platform. Based on this Linux kernel, we are developing the middleware and the application interfaces so that our PlayStation, future TVs, and future home video cameras will all work on a single platform.
For this to work, we need to accommodate an operating system on top of this middleware. In the consumer electronics industry, however, few people understand OS architecture, so it would be hard for any of us to compete in the operating software area. Even at Sony, where we have many smart software developers, we still can't compete with the IT industry in this area. But we still need to define this platform and what part of it we want to control, and we want this platform to be open so it gets widely adopted.
Perkins: What are Sony's plans for the TV set?
Idei: We sell about 12 million TV sets a year. Eventually, they may work on a wireless network with your PC and home server, but they are basically dumb terminals used for display. We will eventually integrate the Internet and communication into the TV, but this will not happen overnight. There isn't much market demand for this right now. And the TV will never be as flexible as a PC, because it needs to be easy to use. We need some genius idea on how to build some of the capability of the PC into the TV, but also keep it simple to operate. If we can find this idea in Silicon Valley, that would be great.
Perkins: The problem we are trying to solve here is about the consumer experience on top of any OS. The test model for this is what Steve Jobs just did with Jaguar. Personally, I got iTunes, iPhoto, iMovies all running on one server at home, and it's transparent. If I plug a DVD in or an iPod in, the icon automatically comes up on my screen. When I plug my Sony Cyber-shot camera into my Mac, I don’t have to do anything, because it assumes I want to see the pictures in the camera so it automatically brings up the iPhoto interface. I don't even have to touch my mouse! This is the model for Sony.
Idei: We actually met several times with Steve last year, in January, March, and June to try to work out a mutual strategy. But you know Steve, he has his own agenda. [Laughs.] Although he is a genius, he doesn't share everything with you. This is a difficult person to work with if you are a big company. We started working with them, but it is a nightmare. We have the exact type of guy like Steve within Sony. His name is Ken Kutaragi. They respect each other. So maybe if we can get them both together then they could figure out how the PlayStation and the Mac can work together.
Perkins: Well, in many ways Sony has always been Steve Jobs's model for Apple.
Sir Howard: So we are also rivals, and trying to get together would frankly be a waste of time!
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Interesting read, though.
