Sony is bleeding money - business strategy discussion

[Shifty Geezer]

Market share or profits

Mindshare. Sony get coverage with tech sites telling people how awesome their new phone is. Being able to make an awesome mobile has to be fairly important for a wannabe top-tier CE company. If it loses them money, don't bother, but if they can serve a high-end niche and maintain a relevant name, I think that'd be a good thing.

You're really living up to the "uber troll" title today You'd have to go back to before 1998

If you look at Apple's revenue in 2006

I'm talking longer history. In the 80s and 90s, Apple was a niche maker of (one-button!) computers. Sony was a major household name with a reach everywhere and cutting-edge innovation in many technological sectors, and a deserved reputation for quality. Apple's rise is astounding and unprecedented, and also likely unsustainable (from hardware).

But the Electronic Stores are very small segment of Apple's profits. Around 6% of profits, and of the money taken from the two stores (iTMS/App) it's around a 50/50 split. Their real profits come from hardware where hardware sales have > 30% margins. Apple make more from iPhone than the entirely of Microsoft and Google combined. It's insane when you think about it but it's hardware and desirable, profitable hardware is where Sony need to be.

When people stop upgrading phones as rapidly as they have (which is starting to happen), the hardware revenues will drop but the software will keep paying, keep growing. And the only reason Apple has such large margins is because they have an ecosystem that's exclusive. Without that ecosystem, if iPhone ran Android, they wouldn't have the premium hardware profits. The ecosystem is everything.

TVs, I think, are are good market. I remember when Sony TVs - Trinitron - were premiere. Sony didn't make cheap/affordable devices. They could go back to the premium sets where you have better margins and where people who care about a decent picture will pay for it.

They still produce professional monitors that are highly valued in the industry, but that's a niche market. The major problem now is everyone and their dog is inventing new tech. Sony can't differentiate as they did before by doing something better no-one else can do. Where they have, like their imaging tech, they've had success.

 

[specwarGP2]

Unfortunately there were two events that marked the deterioration of Sony's name. If they didnt make the mistakes they made they would have had their own ecosystem.

One was their slow entry into the HD panels. Their Trinitron line was simply amazing. But then everyone else jumped to flat HD panels and Sony came late. The once big name in the TV space became a secondary player. Other companies took over some of its goodwill. Samsung is now what Sony used to be.

Sony was actually very competitive in its early years in the LCDTV market. It was actually the leader in terms of market share in 2006 or 2007. Samsung was first to market with LED in 2009(?) which I think really changed people's perception of the company as a follower and now instead a technology leader.

 

[Deleted member 11852]

Mindshare. Sony get coverage with tech sites telling people how awesome their new phone is. Being able to make an awesome mobile has to be fairly important for a wannabe top-tier CE company. If it loses them money, don't bother, but if they can serve a high-end niche and maintain a relevant name, I think that'd be a good thing.

Mindshare doesn't pay the bills. I don't think Sony are in imminent danger of losing mindshare. Despite IBM selling nothing the average consumer would want, I'd wager most people know who they are, if not exactly what they do. Sony have been massive for so long and even if they exit markets you'll find people with Sony equipment. I have a 15-20 year old Sony Dream Machine alarm clock, people will have Sony TVs, sound systems, radios, cameras, and camcorders for years to come.

I'm talking longer history. In the 80s and 90s, Apple was a niche maker of (one-button!) computers. Sony was a major household name with a reach everywhere and cutting-edge innovation in many technological sectors, and a deserved reputation for quality. Apple's rise is astounding and unprecedented, and also likely unsustainable (from hardware).

Apple's rise isn't unprecedented, Microsoft rose from humble origins to being the largest technology company in the world - and without nearly going into bankruptcy as Apple did.

Sony haven't been "the cool" for about 20 years. This isn't a sudden or recent thing.

When people stop upgrading phones as rapidly as they have (which is starting to happen), the hardware revenues will drop but the software will keep paying, keep growing. And the only reason Apple has such large margins is because they have an ecosystem that's exclusive. Without that ecosystem, if iPhone ran Android, they wouldn't have the premium hardware profits. The ecosystem is everything.

Apple's sales numbers do not support your statement. iPhone sales are increasing year-on-year. But you know even if you take iPhone out of the equatation and just look at Mac and iPad sales (both are which Apple class as computers in financial returns) Apple are still the biggest personal computer company in the world by sales and profit. Again, it's those > 30% margins. Apple only sell high-margin equipment to people with ample disposable income. That used to be Sony's thing.

They still produce professional monitors that are highly valued in the industry, but that's a niche market. The major problem now is everyone and their dog is inventing new tech. Sony can't differentiate as they did before by doing something better no-one else can do. Where they have, like their imaging tech, they've had success.

And Sony really should be working on better flatscreen tech, the modern say equivalent to Trinitron. Thin-film transistor technology for example but Samsung and LG are leading here. Sony need to be doing more R&D and less production of low-margin items in insanely competitive markets where their name now longer sways buyer decision. Core tech like this would give them a massive edge in anything with a flat screen display, which is lots of things.

 

[London Geezer]

The good news is that Sony should return to profit next year, for the first time since the birth of Jesus, more or less. Profit means more freedom to think laterally and perhaps more cash going to R&D to try and create something new.

I had to get some 3D glasses for my TV yesterday and I went to Selfridges (big department store in central London, everything grossly overpriced but was my only option yesterday), whose lower ground floor is pretty much dedicated to audio and video so I had the chance to see all these new 4K and OLED TVs and Sony still has a huge presence in this part of geek heaven - on top of having some seriously huge and absolutely beautiful 4K TVs. They have as much space as the other big players, or more.

Anecdotal (it's only one albeit very important store in London) but the most interesting part of this is that I'M SO POOR.

The Samsung rise - at the expense of Sony - was quite unusual to see. In the early days of HD LCDs they were selling well as they offered generally lower prices - and abysmal quality. Look at them now! They produce some of the best high end TVs, have their hands on new technologies which should keep them at the top for years to come, while Sony (and Panasonic!) got out of OLED completely. And of course, Samsung's mobile division went from 0 to hero. They effectively transformed their brand from a sucky cheap consumer brand not many people would think about, to today's Samsung. Their trajectory has been pretty much the complete opposite to Sony, and that's a big shame.

That shows a lot about how different companies are run. I still wouldn't touch a lot of their stuff with rubber gloves but that's just me.

 

[Shifty Geezer]

I've ended up with quite a lot of Samsung gear going by research (I read a LOT before making purchasing decisions, except for my current LG monitor I very recently bought that somewhat disappoints. Probably too much research. When you learn a TV you buy has an inferior panel to other of the same model sold to other customers, it's disappointing ). Sony has never really been an option because of a price premium and a fact they rarely warrant it. But no-one produces perfect electronics. Samsung's latest Note Pro line was a frickin' travesty with its screens incapable of rendering part of the yellow spectrum.

The moral of this story being, there's no such thing as a truly dependable brand. Whatever a company's reputation may be, check each product individually. And don't rely on consumer reviews because consumers don't know squat and give 5* for pretty much anything.

There's certainly lots of opportunity for Sony to compete on experience (something they've been bad at, unfortunately). If the tech between devices is all pretty uniform, providing a better, smoother experience could be a differentiator.

 

[Deleted member 11852]

I remember when Samsung was a shit brand - as bad as store-branded products before store-branded products weren't terrible! Mind you they didn't get where they are entirely fairly; Samsung have a long history of conspiring in price fixing, from CRTs to DRAM to LCDs and for which they have been found guilty on multiple continents.

My first 40" LCD was a Samsung but unfortunately it was a model prone to cap busting and I replaced it with a Sony (only because it was the first England game in the 2010 World Cup the next day and the Sony was the only TV Amazon could deliver the next morning!). I'd have not hesitation buying another Samsung TV or Samsung product.

It's interesting tha Samsung has succeeded in transforming itself from a company just selling shit CE products (and arguably they still do at the extreme low-end) through the mid-end and into the high end, whereas Sony who were in the high-end have failed in diversifying from high-end into all market segments. Samsung's invasion of the mobile market (much to the detriment of Nokia) was brilliant - the Galaxy S is now basically the default Android mobile phone these days. If you don't have a preference for a particular brand, and aren't on a restrictive budget, the latest Galaxy S is basically the phone you get.

 

[London Geezer]

It is borderline bizarre.

Sony was the premium brand that went cheap, got a bit lost and is kinda broke.

Samsung was the cheap brand that went premium and they're laughing all the way to the bank.

Genius.

 

[Shifty Geezer]

I wonder what the turning point for Sammy really was? Sony's trajectory is well documented, but Samsung just kinda happened as far as I'm concerned. Toshiba and Panasonic et al sort of fizzled out and the Koreans took over somehow. Seems to just be dogged perseverance and investment by Samsung.

 

[Scott_Arm]

I wonder what the turning point for Sammy really was? Sony's trajectory is well documented, but Samsung just kinda happened as far as I'm concerned. Toshiba and Panasonic et al sort of fizzled out and the Koreans took over somehow. Seems to just be dogged perseverance and investment by Samsung.

Same as the auto companies, Korean companies are coming into their own on the world market. Just a commitment to quality over time that they eventually started to make price-competitive quality products.

 

[Deleted member 11852]

I wonder what the turning point for Sammy really was? Sony's trajectory is well documented, but Samsung just kinda happened as far as I'm concerned. Toshiba and Panasonic et al sort of fizzled out and the Koreans took over somehow. Seems to just be dogged perseverance and investment by Samsung.

In terms of CE Samsung transformed themselves when they were primarily component suppliers to other manufacturers and they're still huge in this business, still being a significant component supplier to Apple. Samsung have been huge for decades though, they have heavy industry, maritime, mining, nuclear and weapons divisions. CE sticks out on their balance sheets because much of the finance related to their other industries are not fully disclosed.

 

[JPT]

I wonder what the turning point for Sammy really was? Sony's trajectory is well documented, but Samsung just kinda happened as far as I'm concerned. Toshiba and Panasonic et al sort of fizzled out and the Koreans took over somehow. Seems to just be dogged perseverance and investment by Samsung.

I doubt that there was a single thing, but one thing I have been told from koreans (Samsung and others) people directly, is that about 10-15 years ago a lot of bright korean kids went abroad for education. Then on to work and learn how the other famous brands at that time did things. And many of these are now back in Samsung, up and down the corporation.

Its just hearsay, but I've had my share of soju and other hard spirits with koreans and this is the answer they offer up when I have asked.

Ohh and do not forget Koreans worked saturdays for a long time,maybe they still do for all I know and they work seriously hard. Much harder than any Chinese and Taiwanese companies I know of. Not sure about Japanese, I've never worked directly with Japanese companies, but what I have been told that are nuts about quality. Former employer had some bugs in some devices they sold to NEC. NEC sent an engineer to sit to the right of one of our developer, watching him fixing all the bugs on the list, 12 hours a day until it was done. Did a quick verification that things worked as expected and then brought the software back to Japan for final confirmation.

 

[dobwal]

Japan manufacturers are simply stuck in yesteryear. China and Korea manufacture quality products more cheaply. And Japan is continuously encouraging its deflation woes by trying to cut wages and employees because it can't deal with that fact.

Either Japan needs to move to a more service oriented economy or manufacturers need to move beyond trying to manufacture commodity like products that can be churn out more cheaply in other asian countries.

TVs are less about qualitative differentiation and more about price. Its why Vizio became the largest LCD TV seller in the US.

Sony should drop all the commoditized consumer electronics and explore new hardware markets that can't easily exploited using cheap labor and easy assembly. Sony has already taken steps towards that transition with its spinning off its PC and TV business. Dropping the med range portion of its mobile business and focusing on its high end phones is another step in that direction.

 

[Silent_Buddha]

I wonder what the turning point for Sammy really was? Sony's trajectory is well documented, but Samsung just kinda happened as far as I'm concerned. Toshiba and Panasonic et al sort of fizzled out and the Koreans took over somehow. Seems to just be dogged perseverance and investment by Samsung.

Easy. Flat panel TVs. As analog CRT TV sets started to disappear, the old guard premium TV makers could no longer justify the price premium on their televisions. A midrange LCD TV offers 90-95% of a premium branded TV's picture quality at half the cost. A well made budget TV gets you 80+% of the PQ of a premium TV for 10-25% of the price.

Mass producing a really really good CRT TV with excellent PQ is hard. Doing the same with an LCD is easy in comparison.

LCD TV's basically allowed everyone to instantly catch up to Sony. And when (to non-videophiles) a 500 USD LCD TV looks just as good as a 2000 USD LCD TV. They go with the cheaper one. Hence, the meteoric rise of Samsung, LG, and Vizio. While Sony, Sharp, Toshiba, Pioneer, etc. all started to drop.

Money from the sales of budget and mid-range sets then allowed those other players (if they invested wisely) to venture into the Premium TV territory. Their advantage, however, was they weren't reliant on the premium market for profits. They had a well established profit base to draw from in the midrange and lower. Not something that the Japanese TV makers could fall back on to keep their TV divisions profitable.

As well, that whole budget price range = 80+% of premium PQ is also why the Chinese players are starting to gain some significant ground in the TV market. They can make TV's even cheaper than Samsung, LG, and Vizio. Although quality on the Chinese branded TV's can be hugely variable.

Hence, why LG is so invested in OLED. If they can manufacture them economically enough they'll not only be selling their own sets, but providing the panels for most of the world's premium TV makers. They are almost there, but not quite yet. They've built another manufacturing plant for producing OLED panels, but have run into some problems that are causing delays.

Regards,
SB

 

[liolio]

There is nothing Sony can do, if they are losing that much money on their phones business they have to cut it. Within a couple of year (if there are no major global crash) the Chinese manufacturers are to bring the pain on all the phone manufacturers.
The camera market is another one that will suffer sooner than later.
Tv... well 4K imo won't accelerate the refresh rate... 8K either, I also expect Chinese brands to bring some pain to nowadays big actors.

That does not let much for Sony. No matter the PS4 big start I'm still wary about the playstation business overall.

The PS Vita is struggling (if not dying), Sony can't get the price down low enough. Ino it is a failed product as the business model for handheld needed to be changed, they should have transition to a software platform. The Vita is both expensive and its specification sucks now (imo), tough sale .

The PS4 is doing awesome but I see a big concern: profitability is low.
They need volume, pretty much they are MSFT hands. MSFT does not have "to win" to drag them down, stealing money and volume away from them through their deep pocket could be enough.
It could get worse, as MSF is also struggling against others actors in the consumer space, they may decide to lose more at some point than what they would deem necessary if it were only about fighting Sony.
I still think Sony should have gone with a lesser system than MSFT, sell it at a lower price and try to blitzkrieg the market as they knew really well that they could not sustain a price war with MSFT. They are lucky that MSFT made lot of mistakes.

 

[Nesh]

The PS4 is doing awesome but I see a big concern: profitability is low.
They need volume, pretty much they are MSFT hands. MSFT does not have "to win" to drag them down, stealing money and volume away from them through their deep pocket. It could get worse, as MSF is also struggling against others actors in the consumer space, they may decide to lose more at some point than what they would deem necessary if it were only about fighting Sony.
I still think Sony should have gone with a lesser system than MSFT, sell it at a lower price and try to blitzkrieg the market as they knew really well that they could not sustain a price war with MSFT. They are lucky that MSFT made lot of mistakes.

Sony got the right price and the right performance under the PS4's hood.
A lesser machine would have backfired even if it was sold cheaper.

From the consumer's perspective the Playstation brand is associated with a significant technological jump. Going for a lesser cheaper machine would have been the equal to what Sony did with its other product lines and diminished their image. As a result they lost their brand awareness and gave their top image to its competitors. Consumers have certain expectations for each Playstation.
The PS1 was one of the most impressive consoles if not the most impressive when it was released. The PS2 was a technological godsend in the eyes of consumers before Nintendo and MS released their own. Sony tried to market the PS3 as a technological beast. We are talking about 20 years of building a brand image on technological jumps and certain expectations. The market is still ready for and expecting such a product from Sony that carries the name Playstation. There is a reason why various manufacturers when they want to expand to other markets they often create a different brand for their new product line.

Sony's weaker machine's price would have been associated with a lesser experience/product not with better value. Going directly for profit for each unit sold is a myopic and short term thinking that does not account the overall sales performance. Not to mention that Sony might have still gone with a minimum profit margin for the console to balance out the retail price and performance in order to get the value closer to what the consumer is willing to accept

The PS4 did everything the PS1 did right and better. It got the right price and right performance. It screams "better value than competition" in almost every way you see it. And this is why it competes with Wii and Playstation in hardware sales and is expected to bring a lot of profit from software in the long run. This is a good proof that Sony did things right with PS4. Anything different had more potential to do worse, not better than this.

Its not just the customer perspective that we have to see but also the developer's. Sony was indeed going for a lesser machine originally (in terms of memory at least), but developer feedback formed the hardware that we have today. Developer's are the content providers. Thus the hardware that we have now is the best Sony could achieve to meet the requirements of these content providers in order to bring the consumer, the desired quality without going crazy with the manufacturing costs

 

[Shifty Geezer]

The PS Vita is struggling (if not dying), Sony can't get the price down low enough. Ino it is a failed product as the business model for handheld needed to be changed, they should have transition to a software platform. The Vita is both expensive and its specification sucks now (imo)

Actually because it can clock high, it's not bad. Plus it can be used 100% whereas more powerful mobiles have software typically targeting a far lower common denominator. The major issue with Vita is it's a second handheld when people already own a mobile, so as a me-too device, it's already redundant for most potential consumers. PSP was a very different proposition with media and gaming functionality phones at the time couldn't compete with. So Vita isn't really bad - just the market isn't really there. Even a vastly more powerful gaming handheld wouldn't fair much better IMO.

Now a good range of PlayStation powered phones would be a different proposition, but no-one has yet got the controls+phone combo to work well. You're likely adding a lot of bulk to a phone to include decent buttons and thumb-pads/sticks. If Sony had managed a decent ecosystem (PSM) and could offer a library of content shared across PS4, Vita, and PSPhone (or just Xperia with PS support), they'd actually have a differentiating product to Samsung and Apple - a phone for the core gamer. That bonus will almost certainly go to MS first now, although there may be more room for a gamer's phone with Android.

 

[chris1515]

In mobile business the chinese manufacturers (Lenovo, ZTE, Xiaomi, Huawei...) give pain to everyone now and not only in the future. The profit and revenue of Samsung are down since a few quarter and the galaxy S5 sold 40% less than the galaxy S4.

The smartphone is a commodity now. The last middle range model pack enough power and they all have the same Android OS. The smartphone market is like the PC and Mac market. Apple with a fraction of the market but the most profitable one and soon some manufacturers will give up and other be acquired by concurrent... And the biggest winner of Android smartphone is and will be Google...

 

[liolio]

Sony got the right price and the right performance under the PS4's hood.
A lesser machine would have backfired even if it was sold cheaper.

Well I do not try to pass my opinion on the matter as a fact, you should refrain from it too
Nobody can't tell how things could have gone had Sony made different choices or if MSFT made different choices too.

From the consumer's perspective the Playstation brand is associated with a significant technological jump. Going for a lesser cheaper machine would have been the equal to what Sony did with its other product lines and diminished their image. As a result they lost their brand awareness and gave their top image to its competitors. Consumers have certain expectations for each Playstation.
The PS1 was one of the most impressive consoles if not the most impressive when it was released. The PS2 was a technological godsend in the eyes of consumers before Nintendo and MS released their own. Sony tried to market the PS3 as a technological beast. We are talking about 20 years of building a brand image on technological jumps and certain expectations. The market is still ready for and expecting such a product from Sony that carries the name Playstation. There is a reason why various manufacturers when they want to expand to other markets they often create a different brand for their new product line.

Sony's weaker machine's price would have been associated with a lesser experience/product not with better value. Going directly for profit for each unit sold is a myopic and short term thinking that does not account the overall sales performance. Not to mention that Sony might have still gone with a minimum profit margin for the console to balance out the retail price and performance in order to get the value closer to what the consumer is willing to accept

The PS4 did everything the PS1 did right and better. It got the right price and right performance. It screams "better value than competition" in almost every way you see it. And this is why it competes with Wii and Playstation in hardware sales and is expected to bring a lot of profit from software in the long run. This is a good proof that Sony did things right with PS4. Anything different had more potential to do worse, not better than this.

Its not just the customer perspective that we have to see but also the developer's. Sony was indeed going for a lesser machine originally (in terms of memory at least), but developer feedback formed the hardware that we have today. Developer's are the content providers. Thus the hardware that we have now is the best Sony could achieve to meet the requirements of these content providers in order to bring the consumer, the desired quality without going crazy with the manufacturing costs

Well that is just an opinion too, rationalizing your liking for the PS4 hardware.
The race for market shares is not over yet and there is the matter of how money Sony will extract out of its marketshare. Imo capability to react to aggressive moves are too low.

 

[Deleted member 11852]

The race for market shares is not over yet and there is the matter of how money Sony will extract out of its marketshare.

Right. Last gen Sony launched a year later then Microsoft and yet still managed to sell as many consoles. However market share isn't everything. Last gen Wii comfortably outsold the 360 and PS3 yet didn't take the most software sales and there's persuasive figures for PS3 having now outsold 360 but again, PS3 didn't take the most in software sales.

The profit is in games; those licensing fees paid on hundreds of millions, if not billions, of games sold over a generation. Accepting the approximate 3:2 (15 million : 10 million) worldwide current gen console sales, games sales are generally showing a disproportionate sales skewing toward sales on PlayStation - at least on the figures published. We saw the same phenomenon last gen and the reason was widely attributed to multi-platforms generally being technically less compromised on Xbox.

Thus far PlayStation has arguably had the edge in multi-platform games from a technical standpoint. Regardless of actual market shares, it's not enough just to buy a console, consumers also need to be buying games for their console.

I think the rapid drop-off in old gen games sales compared to current gen is a compelling evidence that most games are likely bought by a small core demographic. Likely the same people who own more than one console because they enjoy the games, not arguing about which platform is better on forums. In that core, if people are choosing to buy on a particular platform based on technical considerations then Microsoft may have the same rough ride Sony had last gen.

 

[Nesh]

Well that is just an opinion too, rationalizing your liking for the PS4 hardware.
The race for market shares is not over yet and there is the matter of how money Sony will extract out of its marketshare. Imo capability to react to aggressive moves are too low.

How Sony could have been in a better position to make aggressive moves with a cheaper but weaker hardware?