On 27 October 2011, Sony finally bought out the 50% of its joint venture with Ericsson, giving it sole control over the phone business. This is a move that not only makes sense for Sony but one that could finally put some sparkle back into the company. For Ericsson, it was clearly an opportunity to get rid of a business venture that was not delivering serious profits and put some cash back into the company.
A company beset by changed fortunes
One of the world’s largest media conglomerates, Sony’s empire covers film, music, mobile phones, computers, semiconductors, electronic gaming and even finance. Once famed for its products, Sony’s star has long been dimmed as it lost technology format wars and failed to energise its customer base. Betamax, ATRAC, ATRAC3, MMCD are all examples of big bets that Sony made and lost.
Despite creating the portable music device market with the original Walkman, an aspirational device for many, Sony refused to accept MP3 as a valid format until 2004 by which time it was being overtaken by other competitors and the now ubiquitous iPod.
Sony was also the first manufacturer to break the portable computer into pieces when it removed the optical drive, used a high quality screen, shrunk the overall footprint and increased the battery life. The Sony Vaio unquestionably changed the laptop market but today it is just a mid-range brand, outshone by many others.
More recently, it has had high profile problems with its gaming division. Again it created and owned the portable gaming market with the PSP but has since lost that market to the Nintendo DS range. It has also given up its control of the home console market with the Microsoft Xbox and Nintendo Wii taking significant market share. To further compound its problems, the high profile hacking incidents that have resulted in millions of customer’s data being stolen has caused Sony serious embarrassment and the fallout from this has yet to be fully seen.
Interesting times ahead
The mobile device market is changing rapidly. SmartPhones are a requirement for many today while tablet computing has moved from chunky PCs to sleek devices such as the Samsung Galaxy Tab and the Apple iPad. Nokia is no longer the dominant mobile phone player it used to be and there are several competing operating systems vendors all vying for developer time.
All this means that Sony buying out Ericsson’s 50% share in their joint venture mobile phone business comes at an interesting time.
Apple has just lost out to Samsung in terms of quarterly shipments of SmartPhone sales while Nokia has bet everything on Windows Mobile saving it. At the same time, the industry is riven by patent wars that threaten to severely impact the next generation of devices, unless some sanity begins to prevail.
We should not ignore the possibility of Sony looking to recoup some lost business pride as part of this deal. When Sony looks at Apple it sees a vendor that has become what Sony used to be – a company whose products were aspirational, the portable audio market and the portable computing market. Apple has also proven that you can do all of this while making significant margin on your devices.
Sony, by comparison, has not only lost its sparkle and attractiveness to consumers but has seen other rivals, most notably Samsung, also overtake it. Samsung also wants to be a company whose products are aspirational and unlike recent Sony product, Samsung is taking the fight to Apple and, as a result, upstaging Sony in its core regional markets. Sony will want to reclaim that regional premium brand tag and again make its technology aspirational rather than average.
Why a completely owned phone play now?
Sony has been very cagey as to why it felt it needed to take sole control of the mobile phone business. While it needs to undertake a massive overhaul of its products division, acquiring mobile phones might not, at first, seem the solution.
As part of this deal, Sony has acquired a number of patents from Ericsson. These patents should enable Sony to protect itself in case of attacks by Apple, Microsoft or any other litigation driven entity in the mobile device field.
Those attacks will inevitably come as Android is one of the platforms delivered on those phones and Apple has made it clear it is seeking to litigate against all phone vendors shipping Android based devices. Unlike some of the vendors Apple is attacking, Sony is not patent poor. While it may not have some of the key phone patents, it does have a huge library around multimedia delivery and this may well prove to be a good defence against an overly aggressive Apple and even allow Sony to go on the offensive.
One reason we see for the acquisition might be to do with Sony’s famed inability to play nice with others. Take a close look at Sony and you will see very few joint partnerships. Those that are out there have Sony as the overly dominant player. In addition, like Apple, Sony is not a great licensor of its technology which, again, is not always a bad thing.
Bringing the technologies together
The last couple of years have seen Sony look to bring technology streams together. Several of the Sony Ericsson phones have been marketed with the established Walkman brand. This year we have seen the delivery of the Sony Ericsson Xperia Play which comes with a number of PlayStation games. However, the choice of PlayStation games is very limited with developers getting more games via the Android and PlayNow (Sony Ericsson) market places.
Developer rapport required
An important requirement for Sony going forward will be how to engage developers. There are the traditional Sony games developers, Microsoft Mobile developers, Android developers and those developers who were members of the Sony Ericsson Developer Network. They all need to be brought together, provided with common tools and APIs and persuaded that developing apps that will work best on Sony devices, irrespective of operating system is in their best interests.
We see two things being needed here. For developers, Sony needs to completely overhaul its tools and development environments. A single IDE allowing developers to choose the operating system and platform for their application before they start developing is an urgent requirement. Sony could learn from Microsoft and how Visual Studio has evolved here.
But Sony doesn’t have to own all the tools. It could, for example, look to create a series of Eclipse plug-ins that would allow developers to use a very well supported platform. Given its history, we don’t really see Sony being prepared to create plug-ins for Eclipse that would support its gaming platforms. So rather than confuse developers, a single platform is the best option.
Another key developer requirement will be a cross-compiler that allows applications and games to be compiled into native code for each of the platforms. This is not a difficult proposition and there are several highly successful cross-compiler vendors who Sony could acquire or whose products Sony could OEM if it is serious about making this work. Once again, we see acquisition being the more likely route for Sony.
The last part of the developer strategy is how they can get their apps into the app stores and be certified. Apple does this from its IDE as does Microsoft who is making it even easier with a one button approach in the next version of Visual Studio. Sony will need to do something that is just as simple.
Customer rapport just as important
For customers, Sony has to make it easy to purchase applications without having to go to multiple stores. Given Sony’s recent history of losing customer data, the latter will be a significant challenge as Sony looks to repair its heavily damaged reputation.
The company must also make some hard decisions as to how games will be delivered to customers. Some are delivered to the Android platform through the Android store, others through the Windows Mobile store or through the PlayNow application. Sony also has its own online store for PSP and PlayStation. Maintaining so many channels is expensive and hard work not just for Sony but also for developers.
We will have to wait some time to see exactly what Sony plans and if it intends to do any of the things we have identified here. What we can say is that this is a move that provides Sony with some significant business opportunities that could make the Sony star shine brightly once again. Bringing the app development community on board will be the nugget it must deliver