Sony's Problems Can't Be Solved Without New Blood

If I was the CEO of Sony (SNE), I'd do things very differently. That said, what would I do, and how and why would I do it?

How would I deal with the pummeling my premier gaming product, the PS3, is taking from the low-cost yet commercially successful likes of the Nintendo (NTDOY.PK) Wii? In less than a year the gaming industry has been turned upside down, leaving Sony with a big bump on its head.

One of the great thinkers around issues of innovation, Clay Christensen, took a crack at answering this question in a recent story carried on Forbes.com. He took a clinical look at Sony's plight, the impact of massive and rapid disruption of the gaming industry on its prospects and evaluated different ways the company could respond to the competitive onslaught:

So, assuming Sony is able to fully internalize the importance of Nintendo’s disruption, what should the company do now? One option would be to not respond at all. One pundit noted that any response by Sony would only validate Nintendo’s approach, which could end up helping Nintendo. While the risk of validation is real, our belief is that ignoring Nintendo’s approach would be a mistake.

********************

Assuming Sony chooses to respond, it has three options. The seemingly simplest option is to just come up with a copy-cat version of Nintendo’s controller that works with one of Sony’s existing consoles.

********************

The second option is to repurpose Sony’s “legacy” product (PlayStation 2) into a me-too version of the Wii. To do this, Sony would develop a new controller, lower the price of the PlayStation 2, and try to get game developers to create motion-based games for the platform.

********************

The final option is for Sony to try to “disrupt the disruptor.” Instead of following a me-too strategy, Sony could seek to truly develop a category-changing project. While this approach would take more time and require greater investment, it has the most long-term potential—if Sony can figure out a different measure of performance on which to compete in the video game market. For example, perhaps the company could take another run at the handheld market, where there still seems to be substantial room for growth.

So what will Sony do? Rumors indicate that it is planning on following the first approach, sticking a new, motion-sensitive controller onto an existing console. Our perspective is that this is the worst of the three options. Instead, we’d recommend that Sony follow the second option to buy time while simultaneously undertaking efforts to develop an entirely new way to play in the video-game market. The key to success is realizing that the market is still replete with nonconsumption. Nintendo has shown one way to appeal to the non-gamers, but Sony could find others.

It isn’t easy for a company that has been thumped by a disruptor to respond. Trying to force-fit the disruptor’s new approach onto an existing business runs the risk of creating a disappointing product that further illustrates the novelty of the disruptor’s solution. Companies in the middle of a disruptive wave need to think about how they can disrupt the disruptor and find a new way to redefine the space. While this approach seems to carry the most risk, if done correctly, it actually has the greatest chance of real success.

Taken in a vacuum, I tend to agree with Mr. Christensen's recommendations. The problem I have with them, however, is that they require a healthy and functional corporate culture and a modicum of strategic vision, neither of which Sony had demonstrated in recent years. I don't see how you can answer the question Mr. Christensen so deftly answered without asking the following question: If my prescription is correct strategically, can they really execute upon it organizationally? Because for all the common sense inherent in Mr. Christensen's story, I think it is pretty much a red herring since I can't see a way current Sony management and the existing Sony organization can pull it off.

Let's say for the moment that Sony decides to take Mr. Christensen's advice (despite indications to the contrary). In order to execute it will need to have hardware and software working closely together, and doing so in a way it has never done before. In fact, I'd posit that software development and usability should drive hardware design, not the other way around, which is traditionally the way it is done at Sony.

Given that there are really no new players (meaning fresh blood from the outside, bringing new ideas, new energy and new ways of getting stuff done) in key roles since the debacle called PS3 occurred, why should anyone have confidence that Sony can magically transform itself into a flexible, customer-focused, software-driven organization? Answer: They shouldn't.

So before I would begin even thinking about answering the question "What should Sony do next with respect to its gaming strategy?", I'd want to answer the question "How can Sony re-shape its organization, culture and product development approach in order to be more flexible, customer-centric and innovative in a rapidly-shifting market?"

Because without a good answer to the latter, you might as well take the former, write it on a piece of paper, crumple it into a ball and toss it in the garbage can. Because that is all the value good strategy is worth in the absence of good culture.

Comments

[Mike Rosa:]

As Manager of the Australian Microelectronics Centre and an avid Playstation fan, I have had many a torrid discussion over this very point with a number of resident technologists within the centre. In all the months that this debate has been raging, while I have seen many offer suggestions to SONY that might help the embattled PS3 gain market share, I have not seen anyone discuss options that take into consideration the PS3 being anything more than a gaming console. Sorry to disappoint, but in fact the PS3 is so much much more than simply gaming console.

If one is to offer strategic direction then one must take into account that while the PS3 is marketed as per the PS1 and PS2, it is also a powerful media centre capable of Blu-ray playback, handling photo archives, etc, etc, etc. So, in this light are we comparing apples to apples when it comes to the PS3 and Nintendo Wii debate? I think the media and SONY have to realise this before they can truely capitalize on the powerful piece of hardware at their disposal. It would be a shame for SONY to forget this and focus merely on beating a game console at being, well, a game console.

While I agree that in the short term, SONY might do well in developing game titles that allow motion input, the long term strategy must be about more than utilising the PS3 for games. It must deliver a well rounded disruptive experience that draws upon SONY's pictures (blu-ray title access - and generation), SONY entertainment's gaming expertise (MMG's etc) tied together with a disruptive application based on PS3 capability that sets the PS3 in a league of its own. All this based on the capabilities and resources of SONY Corp. an advantage that few (if any) rivals can match. Perhaps if SONY was to dig deep it might find the disruption it is looking for by letting go (just for a moment).... Not being swept up in a race to win a near term battle, it must trust in its financial and technological investments and long term strategy to ensure it wins the war!

That's my two cents! Carry on... :-)

2007 Aug 05 05:27 AM

[carleast:]

You took the words right out of my mouth Mike. The whole reason Sony lost ground was because they delayed the release of the PS3 in order to get the blu-ray player in it. Now they've done that they're not exactly going out of their way to market it's media capabilities. In fact, I've not actually seen one advert for the PS3 in the UK despite constantly seeing Wii adverts in magazines, on tv and on bill boards. This is very poor. The PS2 marketed itself. It was a no nonsense gaming machine that was better than the rest. But the PS3 has so much more. Sony needs to tell people about this. Sony only have themselves to blame on this. As soon as they get people realising that this machine can replace your computer then people may sit up and take notice.

I still think long term that sony will win this battle. But short term they're just not thinking right. Why not market it along side the Bravia tv range. Bring the strategies in line and see people buy them in droves.

2007 Aug 06 07:24 AM

[Tom B:]

Fascinating Forbes article and great comments. I have long contended that the whole game console business was by its nature, temporary. Consoles are going up in cost; full-function computers, down. At some point, the lines will cross. Yes, I know sub $1000 computers have cheap graphics cards. I also know about Moore's Law.

The Three may find themselves competing for a diminishing market, with the obvious loser being MSFT.

2007 Aug 06 12:32 PM

[carleast:]

The other thing is that there's all kind of strategic partnerships that Sony could utilise to draw the focus of the PS3 away from games and towards entertainment. In the UK, British Telecom (BT) have recently released a box that allows users watch tv on demand through it. Now this is BT's first foray in to the tv market and they are taking on industry giants BSKYB and the second biggest Telecoms and also TV company in the UK in Virgin Media. BT's product is a good one but it lacks a lot of features like HD and internet surfing capabilities. SKY has the disadvatage of still needing to broadcast via satellite dishes and Virgin lack the actual content. So there is potential to exploit there. If Sony and BT tied up a strategic alliance in the UK it could offer us a glimpse of the future. BT would be able to market increased capabilities to it's customers with the potential to watch HD shows on demand by buying a PS3. And Sony would benefit by being marketed by the UKs biggest Telecoms company.

Another partnership could be with Blockbuster. I understand Blockbuster announced a few months ago that they will only be stocking blu-ray discs and not HD DVD discs. Blockbuster were late in to the dvd online rental market and as a result they are only no. 2 in the UK market to Lovefilm. Blockbuster could agree to supply blu-ray disc subscriptions cheaper if Sony gave Blockbuster small discounts on the PS3 units.

I see loads of these opportunities that could be vital in jump starting the great PS3 obsession.

2007 Aug 07 11:03 AM