Commentary: Sony's golden opportunity

By Ted Schadler, vice president

To: Sir Howard Stringer
From: Forrester Research
Re: Realizing Sony's potential in the digital home

You have been handed a golden opportunity. Sony has flailed lately, missing earnings projections and losing out in markets like MP3 players and LCD televisions to Apple Computer and Samsung, while failing to generate profits through the combined ownership of electronics products and content. It's not too late, though. You can take Sony into the digital-home era by doing the following:

• Leading standards and alliances that grow digital-home markets. Because Sony owns content and electronics assets, you are supremely placed to take a leadership role in establishing and promoting copy protection and device interoperability standards that will create markets for digital music, television, movies and games.

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You should lend Sony's strength to real standards like universal plug-and-play for device interoperability and DTCP-IP to protect digital content against unauthorized copying, and de facto standards like Microsoft's Windows Media digital rights management. Why? Because these standards will convince all content owners to license needed premium content for new digital devices and channels, hence grow the markets.

Yes, you'll compete with Samsung, Dell, Hewlett-Packard and others for devices, but it's important in these early markets to grow the market first and compete for market share later.

• Building consumer experiences--not just hardware products. The iPod is a hit because it hands consumers a superior end-to-end music experience--not just a great product.

You can motivate Sony's design-driven culture to accomplish the same breakthroughs by rewarding all participating executives on the success of the entire offering--content, device and application. You won't succeed by limiting the content to Sony devices only, hence the importance of content and digital rights management standards.

Start by introducing wireless Internet access to more devices so that, for example, a clock radio can play streamed Internet radio content hosted by Sony Connect.

• Innovating for local, not global, markets. For two generations, Sony won by building high-quality products on a massive scale for a global audience. But success today comes from the successful combination of devices, content and applications tailored to a specific--usually local--consumer market.

You should use your Japan-based engineering and design skills and Asia-based manufacturing assets as the back-end job shop for front-end experience designers in each market--the United States, Europe, China, Japan. Start with some unique combinations: high-definition digital video recording and HDTV for U.S. television viewers, extensively annotated and Europeanized Blu-Ray Discs for European movie junkies or digicams with hard drives and photo-editing services for Japanese buyers.

Sony has the potential to be the most important content and electronics company of the next 10 years. But that potential rests on your ability to break from the bonds of a parochial, hardware-driven culture.

© 2005, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.