Sony's Decline: Lessons from Competition with Samsung and Apple

Sony's decline began as it failed to adapt to digital advancements, allowing Samsung and Apple to surpass it.

### The Rise and Fall of Sony: Lessons from the Tech Giants
* 📉 Sony's decline began in the late 1990s, with profitability **dropping significantly** from 1997 onwards, marking a stark contrast to its **previous dominance** in the electronics market.
* 📺 During this period, Samsung was aggressively developing memory semiconductors and catching up in TV and audio markets, while Apple struggled until **Steve Jobs' return revitalized the company**.
* 💰 In 2000, Sony's market capitalization was **four times that of Samsung**, and even in 2002, it was noted that Samsung was **learning design by benchmarking Sony's products**.
* 🎵 Despite its stronghold on audio devices, Sony dismissed Apple's overtures for collaboration during the iPod's launch, believing it **still dominated the market**.
* 📺 As digital technology emerged, Sony's focus on **analog products** like CRT TVs left it vulnerable to competitors like Samsung and LG, who were investing heavily in **LCD technology**.
* 📉 By 2002, Samsung surpassed Sony in market capitalization, leading to the "**Sony Shock**" in 2003, which marked a **significant downturn** for the company.
* 🎮 Ironically, Sony's gaming division, once viewed as **secondary**, became a **major revenue source**, highlighting a shift in strategy that began to **revive the company**.
* 🌟 Despite past failures, Sony has recently seen growth, **surpassing 1 trillion yen in operating profit** for the first time in history, but it remains to be seen how it will **adapt to future changes in the tech landscape**.

Japan's representative and the world's leading electronics company, Sony, began to wobble around the late 1990s. From 1997 onwards, its profitability started to decline. After being at the top of the world for decades, its downfall happened in an instant. What was happening with Sony at that time? And what were Samsung and Apple, who would eventually surpass Sony, doing then? 

Around 1997, Samsung was diligently continuing its development of memory semiconductors and was catching up with Sony's products in areas like TVs and audio. Meanwhile, Apple was at a point where the company was struggling significantly, and Steve Jobs, who had been ousted from the company he founded, returned as a savior. In terms of sales scale and corporate value, Samsung and Apple were not at a level that could compete with Sony.

In 2000, Sony's market capitalization was four times that of Samsung. Even in 2002, Sony's second chairman stated in an interview that Samsung learned design and product planning by benchmarking Sony. The goal of Samsung Electronics was Sony. We believe that Samsung Electronics is fundamentally a component manufacturer. We, Sony, are the best company that has succeeded in exporting under our brand from the very beginning, while you barely made it this far as an OEM—there's a bit of that feeling. At the same time, when Apple, which was smaller than Sony, launched the iPod and tried to create the iTunes Store by reaching out to Sony, Sony did not take that hand. They believed they still had a strong hold on audio devices and owned a lot of music content. However, what shook Sony after such a long time was precisely the television, which they were most confident about.

It started with the audio section. Sony was known for creating products that were smaller and lighter than competitors in the analog world, while also enhancing features like picture and sound quality and putting effort into design, selling them at relatively high prices. However, as time went on, Samsung, which Sony had subtly dismissed, began releasing products like the My My, which were roughly similar in size and function to Sony's Walkman. Additionally, whether it was TVs or audio devices, as they became more mainstream, more people started looking for affordable options. Not everyone can always go for the most expensive products, right? Universal products become everyday items, but Sony, which had prioritized the craftsmanship of its engineers, struggled to respond to this shift. How could we always offer such prices?

It's a bit like saying, Why should I do that? There were also issues from a sales and marketing perspective. Nowadays, unlike in the past, employees of Korean companies are reluctant to go abroad as expatriates. In the past, when they were told to go to foreign branches, everyone would go, but these days, not many are willing to. This is partly because many people are dual-income earners, and one person has to give up their job. Additionally, there are many manufacturing companies, so there are a lot of factories located away from the city. While it is possible to live in the city in Korea, they wonder why they should go to a less developed country and live in a rural area. This can also pose issues for children's education, so overall, they are reluctant to go abroad because there is less personal benefit. However, around the 1990s, Japanese employees had a similar mindset. They thought living in Japan was better, so why go abroad and suffer? Therefore, Japanese companies primarily focused on emerging markets.

As Japanese employees left, Korean companies seized the opportunity, particularly in regions like South Asia and Latin America, where Korean staff are currently dispatched as expatriates. They focused on aggressive strategies, effectively taking over Japanese corporate accounts. While Japanese individuals exited, Koreans entered, capturing market share by building relationships, treating clients to meals, and establishing sales networks. This approach has led to a gradual decline in Sony's overwhelming presence. In terms of production volume, Samsung and LG have been closely catching up to Sony. The most decisive blow to Sony came with the advent of digital technology, which transformed the gaming landscape. In the book Samsung vs. Sony, it is stated that the gap in technological prowess and new product development capabilities between the once incomparable Sony and Samsung Electronics has shifted from analog technology to digital technology.

As the previous situation changed, the decline began. Digital technology means that all technologies are based on a single chipset, so there can't be a quality difference in finished products as long as they use the same components. Additionally, digital devices have less performance variation than before. Therefore, brand reputation is crucial. Companies like Samsung are especially pouring marketing funds into emerging markets, while Sony still appears confident, seemingly refusing to change. For example, let's look at the audio sector. The MP3 player was first commercialized in 1998, but Apple launched the iPod in 2001. After releasing the iPod, the company successfully convinced record labels, and then launched iTunes, making a fortune. It's hard to believe, but when the iPod first came out, Apple was significantly smaller than Sony in terms of company size and revenue.

It was a company, but at that time, when the MP3 player was first commercialized and Apple was working hard on it, Sony was focused on improving the functionality of the MiniDisc (MD) products they had created. While they were making MP3 players, they were also refining the MD format. However, this seems a bit strange, right? Because as I mentioned in the first part, Sony had already expressed their ambition to connect the worlds of hardware and software since the 1990s. So, if Sony was releasing digital devices and had a lot of music content, shouldn't they have been the first to create something like iTunes? They already had a stronghold on audio devices and owned record labels, and as MP3 file music began to spread widely, discussions were arising within Sony about their ownership of record labels.

If the phenomenon of listening to music via files keeps spreading, isn't it going to lead to a lot of illegal copying, resulting in reduced profits for us? Isn't that a loss for us? If we are going to create a device for listening to music through files, should it be developed in the audio department or the computer division? There are internal walls, so there is some conflict among the departments. Ultimately, it’s not a traditional device; why should we create a fundamentally flawed music machine that relies on files? Reflecting on Sony, what would Steve Jobs have thought while leading the launch? In Steve Jobs' biography, one of his business principles was that if we don’t eat ourselves, someone else will eat us. What does this mean? A new product from Apple can cannibalize the sales of older products. For example, there was the iPod, and then came the iPhone.

When it comes out, it might overlap a bit and we could lose market share. But even if there seems to be a problem right now, if it’s something we must do, we have to push forward. Before Steve Jobs launched the iPod, the manufacturing manager was supposed to give a presentation. The manager said, Here are our products, and our potential competitors include Sony. When he pointed that out, Steve Jobs responded, Don't worry about Sony; unlike us, they don't even know what they're doing. Essentially, he meant that they were just sitting there making MDs. Given this background, the advertising slogan when the iPod entered Japan was impressive: Goodbye MD. In the case of MP3 players, Sony was significantly behind even with Korean brands like iRiver and Cowon. Audio aside, then...

What about the case of TVs? From the mid-1990s, competitors like Samsung and LG, of course, at that time, Sony didn't even consider Samsung or LG as competitors. Anyway, these Korean companies significantly expanded their investments in LCD and PDP technologies, while Sony continued to focus on CRT TVs, obsessively investing in improving CRT technology. They thought that by investing more, they could make CRTs completely flat and enhance picture quality even at the edges. So, it was like a sword fight, but suddenly a gun appeared. They didn't think about the gunshot; they just kept making better swords. After going through this fierce TV war in the early 2000s, by 2005, Sony lost its leading position in the TV market to the Korean companies, especially in the CRT TV segment, which had been their main stage.

As the market shrank, Sony lost out. When the LCD and PDP markets grew, they were overtaken by competitors they hadn't even considered before. When Sony transitioned from vacuum tubes to transistors, they seized the opportunity to defeat and outpace their rivals by making products smaller and lighter. However, unlike that time, when the shift to digital occurred, Sony failed to ride that wave of change. They remained stuck in the analog world, focusing on creating unique products like the Walkman, but they couldn't produce another hit product. Furthermore, as they concentrated on making their own distinctive products in the analog realm, they found themselves needing to produce their own components, as there were no other manufacturers for those parts. Consequently, their price competitiveness diminished even further.

Sony seemed to think that this was just a passing phase, that instead of focusing on LCD or PDP, they would immediately transition to the next technology, OLED. However, as you know, the world where OLED production became economically viable and the world where software and hardware are quickly connected through networks—linking electronic devices with content like music, movies, and games—did not arrive as quickly as Sony had hoped. Then, in 2002, Samsung's market capitalization surpassed that of Sony. In 2003, Sony's stock price fell to its lowest point for consecutive trading days, causing what became known as the Sony Shock, which hit the Japanese market hard. After that, Sony allowed Samsung to overtake it in terms of sales and brand value. Moreover, the goal of integrating hardware and software through networks was not achieved by Sony.

It was Apple. Both co-founders had stepped away from the company for less than ten years, and Sony allowed a reversal, facing a rapid decline. The electronics division, which accounted for 60% of sales during its heyday, stagnated. The mobile phone business also struggled, and in 2011, after four consecutive years of losses, Sony recorded its largest loss ever at 455 billion yen. It was not a matter of won, but rather yen. Fortunately, Sony's financial and gaming divisions managed to hold on, but the company had to sell its U.S. headquarters building, divest from Fiji, sell land, downsize, and spin off its TV business. There were ongoing discussions that Sony could really go bankrupt if things continued like this. Ironically, however, the division that had exerted less effort in the past began to show strength, and Sony started to pull itself out of the mire. Why? Because of the VCR's Betamax.

Incompatible memory sticks were not supported in the past. Unlike the closed world of Sony, like with MD, money is now being made in an open arena. For instance, during the era of the analog kingdom, digital technology personnel were at the center, and the gaming business was somewhat looked down upon internally at Sony, treated like a second-class citizen. However, now, with the PlayStation and gaming subscription services, these are generating the largest revenue for Sony. In the past, the gaming division would create games exclusively for Sony, but now Sony is refraining from exclusive contracts that favored them in other areas. Sony has changed, allowing more developers to collaborate with them and diversifying Sony's content, which attracts more people. Additionally, components that were primarily made for their own products are now being utilized differently.

Sony is now leading the world by selling more products like image sensors to other companies. In the past, when it came to digital cameras, Sony might have competed with Canon and Nikon, showcasing a spirit of craftsmanship. However, they have completely shifted the stage and are doing well. There was a time when they dreamed of being the first to create a world connected by hardware and software, investing heavily in that vision, but they did not achieve significant results in content businesses like movies and music. Nevertheless, these areas are growing, and Sony is evaluated as having revived in 2021 by surpassing 1 trillion yen in operating profit for the first time in history. At the last CES, they boldly unveiled a prototype of an electric vehicle. Despite this, Sony has allowed Samsung and Apple to overtake them and has fallen behind in the past 20 years.

It is true that there is a significant gap in size. In the field of image sensors, where Sony is currently ranked first, Korean companies are aggressively pursuing. Ironically, the electronic devices sector, which claimed to be number one in the world and operated with its own closed standards, is withering and being treated somewhat as a secondary option. Meanwhile, in areas that may have been unintentionally neglected and operated more openly, Sony has been able to flourish. What choices will Sony make in the upcoming waves of change? And what can Korean companies learn from Sony's example? What do you think?

10년만에 몰락한 일본 대표기업.. 어떻게 재기했을까? 설마 한국도..? 소니② / 소비더머니

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하지만 소비더머니를 통해 전하고 싶은 것은,
'이야기' 그 자체입니다.


* 문의  
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소비더머니

Sony's Decline and the Rise of Samsung and Apple

Sony's profitability began to decline around 1997, after decades of being a global leader in electronics.

During this time, Samsung was steadily catching up with Sony in key product areas, while Apple was struggling until Steve Jobs' return.

Despite Sony's initial dominance, both Samsung and Apple's efforts to offer affordable and competitive products eventually contributed to Sony's downfall.

The Impact of Korean Companies on Sony's Decline

Korean companies seized the opportunity as Japanese employees left, aggressively taking over corporate accounts and capturing market share.

The shift from analog to digital technology transformed the gaming landscape and narrowed the gap in production volume between Sony, Samsung, and LG.

Apple's launch of the iPod and iTunes further disrupted Sony's dominance in the audio sector, raising questions about Sony's delayed response to the digital revolution.

The Impact of Digital Music and Competition

The rise of file-based music listening is causing concern over illegal copying and reduced profits.

Internal conflict between departments at Sony is hindering the development of a music device.

Steve Jobs' approach to product launches emphasized the importance of cannibalizing sales and pushing forward despite competition, ultimately leading to Apple's dominance in the market.

Sony struggled to adapt to market changes, losing ground to unexpected competitors as the LCD and PDP markets grew.

The company's failure to transition from analog to digital and its focus on unique products led to diminished price competitiveness.

Despite a rapid decline and significant losses, Sony's less prioritized division, influenced by the VCR's Betamax, eventually began to show strength and helped the company recover.

Sony's past approach involved incompatible memory sticks and a closed business model, but now they are thriving in an open arena, with gaming and subscription services generating the largest revenue.

The company has shifted from exclusive contracts to collaboration with developers, diversifying content and attracting more customers.

Despite falling behind tech giants like Samsung and Apple, Sony has found success in image sensors and is now leading the market, while also experiencing growth in its content businesses and making a bold move into the electric vehicle sector.