Friday, June 27, 2003

Marketing Myopia

Apple has sold over a million iPods in 2 years and still Sony doesn't even make a decent MP3 player. Sony practically owned the portable music category, inventing and selling 186 million walkmans in 20 years ( 1979 - 1999). That is 9 million per year. Apple has a long way to go, but the start is impressive.

Sony has a lot of catching up to do and missing out on digital music will haunt them for ever, especially now that Apple has started selling iPods in Japan with a cheeky commercial taking a dig at Sony's Mini CD player.

That Apple has come seemingly from nowhere to launch the Walkman of the early 21st century has shaken many Sony executives. As one critic puts it, people walking around with an iPod and an Apple PowerBook look much cooler than those equipped with a Clie and a Vaio notebook. For Sony, that should spell trouble.

Ries argues companies like Apple can build the best gadgets without having to worry about whether or not MP3 players depress CD sales. The lesson here might be to not to try to do more than one thing well. Or Stick to your Knitting.

It's an open secret that except for the PlayStation 2, Sony isn't really making any money. PlayStation was built from scratch by people working outside the company's mainstream. Ken Kutaragi, the driving force behind it, succeeded largely because he teamed up with Sony's entertainment people in southern California. He ignored the electronics team back home in Japan, forged an alliance between hardware designers and creative game-software developers, and created a profitable division that still wants little to do with the rest of the company. The power of skunkworks demonstrated yet again.

Al Ries argues the reason why Sony fails to make money is that with all their different lines of electronics, computers, and entertainment, they're trying to do too much under one brand name, and that companies with more tightly focused brands are the ones that are actually making money

In the last 10 years, Sony Corp. had revenues of $519.2 billion. But net profits after taxes were only $4.0 billion, just 0.1% of sales.

In the last 10 years, Dell had sales of $140.3 billion and net profits after taxes of $8.5 billion, or a net profit margin after taxes of 6.1%.

Net profit margins of the average Fortune 500 company were 4.7% of sales during the last 10 years.

Compare this with the Jap biggies...
In the last 10 years, Hitachi had revenues of $708 billion and lost $722 million. NEC had revenues of $397 billion and lost $1.3 billion. Fujitsu had revenues of $382 billion and lost $1.6 billion. Toshiba had revenues of $463 billion and a net profit margin of just 0.15%.

Large unfocused companies make very little after-tax profits. Al Ries argues "line extension inhibits the branding process. When a company makes and markets a broad range of products under one name, it is extremely difficult to build that name into a powerful brand "

Companies whose brands are relatively focused do much better. Sharp (Net profit margin 1.8%), Toyota (3.1%), Honda (3.3%) and Canon (3.8%).

The average large Japanese company has a net profit margin after taxes of about 1% compared with the average large American company at 5%.

Companies whose brands are highly focused make money. The more focused the brand, the higher the profit margin. Ex.. Nokia (10.6%), Intel (21.6%) and Microsoft (31.8%).

Why does Sony diversify into movies, music etc? Well.. the desire to push their platform by being vertically integrated.

When Sony's Betamax video recorders lost out to Matsushita's rival VHS player, Sony executives were convinced that a film library could have made a difference—a conclusion that helped to drive the company's purchase of Columbia Pictures in 1989. This mentality may now be strangling sony.


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