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Letting Go Of Past Glory

closeup of a Sony logo on a TV
photo by Jamie McCall

Back when I was in high school, my grandmother bought my family a present: our first color TV.

She wanted it to be a really good one, so she picked a Sony Trinitron. It was marketed as having a sharper image due to its new aperture grille technology. Whether or not this was true, Sony TVs were well made, and at least as good, if not better, than competitors’ machines, allowing them to sell at a premium price.

Trinitrons were first released in 1968, and remained available in various forms for 40 years. In the late 1970s, Sony introduced the Walkman and, after CDs became mainstream, the Discman. Sony’s audio products, while perhaps not highly coveted by true audiophiles, were synonymous with high quality to the mass consumer audience. Sony products possessed an aura of superiority. In my view (though Toyota aficionados may disagree), Sony may have been the brand that did the most to change Japan’s postwar image from a manufacturer of cheap, low-quality goods to a manufacturer of technically sophisticated, high-quality goods.

Wednesday, as I drove to work, I heard the news that Sony would skip paying a dividend to its shareholders for the first time since 1958, an announcement the company made along with a revised earnings outlook in the wake of a major change to its struggling smartphone unit.

How did Sony go from a quality electronics juggernaut to a company that was not in a position to pay even a small dividend for the first time in almost 60 years?

To answer that question, it may be helpful to ask a different one first. What company has suffered the most from competition with Apple?

The name that comes to mind first might be Microsoft, whose Windows products have been relegated to the low end of the personal computing market and whose attempts to establish a real presence in the smartphone, tablet and entertainment sectors have been thus far largely unsuccessful. And since both companies started in personal computing more or less simultaneously, they share a Coke-Pepsi vibe that the companies themselves have long embraced.

Or you might be more inclined to think of Nokia and Motorola, which once dominated the mobile phone business. Or BlackBerry, which owned mobile messaging.

But apart from Microsoft, these brands competed across a fairly narrow product range. I think you could make a case that it is in fact Sony that has fallen the farthest, and across the most sectors, due to Apple’s rise.

Apple has displaced Sony as the premium consumer electronics brand. Sony’s retail stores in the U.S. are lonely ghost towns compared to thriving Apple stores. Sony announced in February that it would close 20 of its 31 remaining United States locations by the end of the year. As of June, Apple had more than 250 U.S. retail locations.

One of the main reasons Sony lost its crown is that electronics have fundamentally changed. Today, in a business in which hardware and software work so closely together, Sony has become the prisoner of other people’s software - namely Microsoft’s. Sony has not been able to successfully distinguish itself from other companies whose computers run Windows, or from other makers of non-Apple media players, tablets and phones.

Sony still has its strengths, notably Sony Pictures Entertainment and the PlayStation product line. (It is worth observing that, unlike Microsoft and its Xbox, Apple has so far made no competitive forays into console gaming.) Sony also retains a niche as a provider of imaging hardware to other electronics makers, including Apple.

Even as it has ceded its personal computing business and all but given up on TV, Sony is still trying to compete in mobile. But without any software to distinguish it from Samsung and other smartphone makers, it has no real way to challenge Apple’s software ecosystem.

Sony’s future almost certainly lies in producing content to appear on other people’s screens, not in making those screens itself. The company no longer demonstrates the ability to compete on technical innovation or a farsighted vision of what consumers want before they know they want it. That has become, for the moment, Apple’s domain.

If Sony has a future, it is going to be as a reinvented company. But the longer it tries to hold on to its consumer product heritage, the tougher it will be to complete the necessary metamorphosis.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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