What Happened To Sony? Rise and fall of Sony

STATE OF SONY

Once upon a time, Sony was one of the largest electronics companies in the world. They were synonymous with home entertainment, high-quality cameras, and hit movies. But, the past 20 years haven’t been so kind to Sony as it’s simply been loss after loss after loss. Take their TV business for example. Up until 2006, Sony was the world’s number 1 TV manufacturer, a title that they had held for decades. But, since then, it’s been the Samsung show.

In fact, Samsung has now held this title for 17 years themselves. Sony didn’t just lose their dominant position either, they straight up got sidelined. 

In fact, Sony currently stands in 5th place within the TV market beaten by Samsung, Vizio, LG, and TCL with only 6% market share. Things were going so bad that Sony actually decided to spin off their TV business after 10 years of losses. 

But, it’s not just legacy businesses in which Sony has been getting burned. They’ve had quite a bit of trouble entering new industries as well such as the computer industry. After failing to break into the PC industry for years, Sony would end up selling off their PC business. A similar story can be seen with their smartphone efforts as well.

They haven’t yet quit making smartphones but for several years now, they haven’t even been able to break 1% market share globally. To be honest, the only Sony segment that’s still super strong is selling PlayStations. Everything else is at best stagnating or slowly bleeding market share. 

Seeing all this, I don’t think you’d be surprised to hear that Sony was tens of billions of dollars during the worst of it. But, despite all this, Sony has somehow been turning this entire situation around.

After several years of losses, Sony has been posting consistent profits for 6 years now. Their stock graph tells the same story. After their peak in 2000, Sony would fall over 90% over the next 12 years. But, since then, they’ve recovered much of these losses. How could this be possible though? Sony has been losing ground in basically every segment that we know them for. Well, join me as we take a look back at Sony’s existential crisis and how they were able to come out the other side profitable. 

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STIFF COMPETITION

The story of Sony’s fall from grace can be attributed to a lot of factors but likely one of the most consistent factors is repeatedly missing the boat with new technology. For example, let’s take a look back to October 23, 2001, right after the dotcom bubble burst. Most tech companies were reeling from their dot-com losses and struggling to secure funding and improve employee morale. But, there was one notable exception: Apple. 

Apple had already gone through its own existential crisis in the mid-90s and they were just now starting to turn things around October 23, 2001, was the fateful day that they wouldannounce the iPod. In retrospect, this doesn't seem like a big deal especially in comparison to the iPhone, but this was actually a massive blow for Sony. 

You see, ever since the Walkman launched in 1979, Sony became synonymous with portable audio. Just to give you a sense of how successful the Walkman was, Sony would go on to sell over 400 million units. But, with a single presentation, Apple would throw two decades of precedent out the window and establish themselves as the modern music player. 

Fast forward 5 years to March 11, 2005, and Sony would find themselves in a very similar situation. Samsung would announce the world’s largest LCD TV coming in at 82 inches. This TV was completely out of reach for the average person but that didn’t matter. This TV wasn’t designed to sell a bunch of units or even push forward technology. It was designed to make people think that Samsung was pushing forward technology. It established an association between Samsung and innovation. And this was just the first of many Samsung theatrics. 

Then you would have 3D TVs, curved TVs, OLED, QLED, miniLED, nanoLED, and whatever else they decide to slap before LED. To be honest, most consumers have no clue what any of these terms actually mean. But, that doesn't matter. All that matters is that people associate all these new fancy terms with Samsung and LG, not Sony. And that’s not a coincidence, that’s by design. Basically, the same thing played out within the digital camera space as well. 

Up until the 2000s, Kodak was an untouchable behemoth. They controlled over 80% of the US market and about half of the global film market. Not to mention, they were the 5th most valuable brand in the world. But, they would eventually drop the ball with digital cameras making way for new competitors to rise up. This would’ve been the perfect time for Sony to brand themselves as the leader in digital cameras. 

Instead, Canon would take on this image and become the new dominant player. None of this is to say that Sony was truly behind in any of these markets whether it’s MP3 players, TVs, or cameras. In fact, they would usually launch similar products in parallel with the market leaders. And if you ask anyone who actually bought Sony products, they would have nothing but good things to say about Sony. 

In fact, many experts would say that Sony products are more reliable and of higher quality than these so-called market leaders to this day. But, none of this matters because the reality was that their competitors destroyed them when it came to brand and market positioning. And it wasn’t just one or two segments, it was across the board. But this only tells half the story as not all of Sony’s decline can just be explained away by just strong competition.

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SONY DROPS THE BALL

The reality is that much of Sony’s demiseSony Drops The Ballis actually their own fault. You see, Sony was very much bloated heading into the 2000s. They had just come off of an incredible run throughout the 80s and 90s which led to them expanding into every industry you can think of. Sony had a bank, an insurance division, they were making anime, they were pushing out James Bond movies, they were all over the place. 

The reason that Sony was so successful in the first place was because they were able to produce extremely reliable and affordable consumer electronics. But as they expanded into every sector under the sun, not only did they start to lose this identity but they were spending more and more time just managing all of these businesses as opposed to running and improving them. It was the classic pitfalls of a bloated company with nearly 200,000 employees. 

But, likely the best evidence that Sony had lost their way was their executive team. For some reason, whenever companies get really big, they decide to hire random outsiders as CEOs as opposed to someone who’s been there and knows the company in and out. Intel has done this, GE has done this, Nokia has done this, and Sony has done this as well. 

In the late 90s, Sony would hire a lifelong media executive named Howard Stringer to be the president of US operations. I’ve got nothing personal against Howard, but seriously, this guy didn’t have an engineering background, had no experience running an electronics company, and had little grasp of what made Sony successful in the first place. 

But for whatever reason, Sony decided to prompt Howard to CEO and Chairman of Sony in 2005. Also, let me note, he couldn’t even speak Japanese which you would think is quite important for a Japanese company with a majority of employees being Japanese. I mean, forget being able to talk with the average employee. How was Howard supposed to communicate with his executive team who were almost all Japanese. I’m sure they could communicate in English but I think you can see why this isn’t exactly an ideal setup. 

Yeah, I don’t think you’d be surprised to hear that Sony stock would fall 75% during his tenure. Likely the only notable thing that Howard accomplished during his tenure was investin Spotify which to his credit made Sony nearly a billion dollars. But aside from this, Howard was more or less just a dud. But while Howard definitely did make things any better at Sony, it wasn’t all his fault as Sony’s original secret sauce wouldn’t have played out all that well in the first place. 

As we mentioned, Sony had built their entire company and brand around the idea of making great reliable products which is exactly what people were looking for in the 80s and 90s. But, moving into the 2000s, consumer demand very much shifted from wanting great products to wanting great experiences. This seems like a novel difference but it’s not. 

People became less concerned about the spec sheet and the price. They were more concerned about how the product made them feel and how it fit into their lives. This is exactly what Apple capitalized on to great success. So, even if Sony did stick to their roots and didn’t get distracted by other businesses and an American CEO, it probably wouldn’t have played out all that well anyway. This is basically what they tried doing with the smartphone industry and it clearly didn’t work. But truth be told, it’s not all Sony’s fault.

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MARKET HEADWINDS

Sony was very much subject to the headwind of tech obsolescence. Much of what Sony was and is known for, people just don’t buy anymore. Take cameras for example. Back in the day, everyone used to have a home camera. But, with the rise of smartphones, there’s literally no reason for a dedicated camera unless you’re extremely passionate about photography and film or it’s your job. The same thing can be said about MP3 players. 

No one has a dedicated device to listen to music nowadays, they just use their phones. So, even if Sony stayed relevant after the iPod came out, they would’ve just gotten crushed by the iPhone anyway. It’s a similar story with home entertainment as well. People no longer use BluRay players or CDs at all. They just use a streaming service and TV and even that’s on the decline. And speaking of TVs, these are still extremely popular but they’re also extremely unviable as a business. 

The TV industry has very much become a race to the bottom. In fact, TVs have been regularly dropping 15 to 20% in price every year for the past 20 years. At this point, for Samsung and LG, TVs are just a way to maintain brand presence and dominance, not a way to make a profit. This strategy works because they have plenty of other industries to rely on. The same, however, cannot be said about Sony. 

The bottom line for them is that most of their key industries have either become completely obsolete or insanely commoditized both of which are terrible for business. This is why Sony was losing billions every year and heading towards an ugly end for much of the 2010s. But, things didn’t eventually turn around, so what happened?

Well, I wish I could say that Sony finally figured out a new winning strategy and that they're making the comeback of the century but that’s not really what happened. All that happened was that Sony basically got their act together. In 2012, they put a Sony veteran in charge, Kazuo Hirai, and he basically just salvaged the remaining parts of Sony. He shut down their unprofitable sectors, he reduced their workforce from 170,000 to just over 100,000 and spun off their key sectors into their own businesses. 

So, essentially, he separated out the businesses that were still salvageable, made them independent of the bloated giant, and cut everything else. This has allowed Sony to return to profitability and recover much of their stock losses but make no mistake, Sony is still just a shell of their former selves. In fact, their biggest revenue driver after the PS5 is not even an electronics division. It’s actually their background financial services division. 

So, the glory days of Sony are very much behind us which is quite a shame given how great their products really are. The silver lining, however, is that while Sony isn’t making a massive electronics comeback, they have figured out a way to achieve profitability with what they still have. And that’s a lot better than their Japanese peers.