Sony's Digital Strategy
Back into the PC market with gusto to prepare for other digital consumer products
By Carolyn Whelan
New York--Entering, withdrawing, mistargeting, refocusing, exiting, reentering... it's been hard to keep up with Sony's stance in the PC market. Last week, they were in, and, finally, with sub-$1,000 models.
Despite its fledgling PC status, Sony intends to use its household name as a stepping stone to the converged worlds of digital imaging, DVDs and digital TV. The company is targeting the multimedia PC as the cornerstone of the living room it wants to dominate. And this time, it understands that price is paramount. In addition, it is applying digital TV to inspection processes for semiconductor manufacture.
Last week, in an unconventional display of informality and humor, the traditionally stuffy entertainment company gave industry watchers an overview of its strategy and priorities--including desktops--looking towards PC Expo, and opened up its lab doors to future endeavors. And though many new products are innovative and forward-looking, the emergence of the sub-$1,000 PC was unexpected.
"The race to the digital age is a marathon, not a sprint," said Dr. Teruaki Aoki, president and chief operating officer (COO) of Sony's Computer Peripherals and Component Company. "And Sony is in the computer business for the long term," he said, noting that notebooks, in the future, could become the network interface for controlling audio and video, and integrating the home and office.
Last month Mr. Aoki replaced Carl Yankowski as COO due to the former COO's faulty PC strategy, many thought. That strategy was based on targeting the home with a pricey, full-featured machine for games and information. (EN, Jan. 19 1998).
When Sony first tackled PCs in 1996, the company clearly misjudged the market. Sony banked on its strong consumer brand to sway consumer electronics buyers towards redesigned high-end, premium-priced PCs, many of which were priced around $2,000. At the time, like other newcomers, it didn't bank on lower-priced components, web-front shops and the build-to-order model, along with the by-product of all of the above: the sub-$1,000 PC. That mixture proved lethal for Sony's PC business, where they had serious problems in desktops, but moderate success in notebooks.
Mr. Aoki was formerly head of Sony's Computer Peripherals and Components company in Tokyo, and as such, one of the company's chief architects of its DVD strategy.
Sony said that its overall digital imaging strategy, today, encompasses the convergence of digital still and video cameras, digital photo printers, personal computers, add-on peripherals, and the Internet.
"The processor inside is becoming peripheral, with storage and display becoming more important," added Wataru Ogawa, president of Sony Information Technologies, America. "We've raised the bar in sound and images, to get audio and visual on par with what users have come to expect from home entertainment. We plan on a greater consumerization of the PC experience, to cross-fertilize across the entire spectrum." To be more competitive, Mr. Ogawa said, Sony plans on speeding time to market, shorter lead times and less inventory.
Though he was vague on measures Sony will implement to keep products fresh, Mr. Ogawa did mention a grocery store model. "Sony's goal is to develop products that provide consumers with creativity and connectivity to communications in a new way: integrating audio/visual with IT to make entertainment simpler, more practical and more enjoyable," he added.
Many PC makers have backed out of the desktop business, at least the smaller ones. Bloated inventories from severe competition and shrinking profit margins associated with the sub-$1000 PC are making it very difficult for all but the top five to stay afloat in the increasingly competitive industry. Among recent casualties are Toshiba, Siemens and AST Research, all of whom bailed out of desktops in the past three months. Olivetti, Canon and Digital are experiencing rough seas.
That has made it surprising that non-traditional PC player Sony is now more vociferous than ever about its involvement in the cut-throat industry, an area it entered two years ago, only to be hammered within 18 months with widespread rumors about a planned exit (EN, Jan. 19, 1998).
"Is Sony still selling notebooks? It doesn't quite square. If they left, what are they doing coming back?" asked Roger Kay, a senior research analyst at the International Data Corp. (IDC), referring to problems Sony has had with PCs, among them high price points and slow technology refreshes. "They were left high and dry in terms of prices."
Only last month IDC wrote, "Published reports indicate that Sony is shifting its PC focus towards portables, potentially exiting the desktop market," also the first time--until last week--that Sony had offered an under-$2,000 model. At the time, Sony failed to comment. Hence the rumors--unverified--but probably rooted in truth. Many analysts had written them off entirely, pushed out by non-competitive prices. A few among them also speculated that Sony would use the set-top box to establish a branded centerpiece in the living room of the future.
It's The PC For Sony
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But today it's the PC, and, in correspondence with what consumers are buying, Sony is positioning a lower-end, lower-priced multimedia offering as that stepping stone. The PCV-E201 is a celeron-based unit for $999, while the PCV-E205 is a high-end offering, priced at $1,699, for price-performance.
"With advanced audio, video, graphics and communications, our new PCs offer an enriched, entertaining and easy-to-use computing experience that is uniquely Sony," said Ken Omae, vice president of PC marketing, Information Technologies of America at Sony Electronics.
Skeptics aside, some welcome its arrival. "That looks like a pretty good package for $999: it's price competitive." said IDC's Roger Kay. "By using the 300 and 333 on the high-end they're price shopping their processors: not taking the two highest-end processors that Intel offers, the 350 and 400. They're getting less expensive processors but beefing up the memory with a 4864 memory configuration."
Given the company's constant waffling and even fiercer competition than before, how much success will Sony have? If achieving the branding space, it will be much. Making money? Probably not much, but Sony knows it.
"They did squander some of the stellar Sony brand equity on the PC effort because it has been less than successful," said IDC's Mr. Kay. "But they can tarnish it and still have a lot of shine to go," particularly if they use it as a launch pad for networked consumer products. Mr. Kay thinks Sony has a good chance of establishing itself among high-end consumer-oriented applications.
"They view the PC as central control unit for digital living room which they use to control higher-end peripherals, like video and audio," he added. "But they only want the PCs to pay for themselves: They need to be profitable enough not to create a drain, but they don't need to generate growth rates and profit margins."
More Than PCs Ahead
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In Sony's crystal ball are Digital media software, digital video editing, digital video cameras and DVD Diskmans.
Last week's announcements go well beyond PCs, into notebooks, storage and imaging products. The company announced an online imaging service and 5X DVD ROMs, along with new super slim notebooks that have done well in Japan. Weighing in at 3lbs and only 1-inch thick, they are impressive. But consumer success in Japan doesn't always translate into strong U.S. sales. |
