Why Sony Missed The IPod - The Curse Of Silos

A vivid example of the silo problem -- the failure of autonomous product and functional silos to cooperate -- comes from Sony's incredible miss of the iPod market, as recounted in the new Wiley book Sony vs. Samsung by Sea-Jin Chang.

The iPod was a natural for Sony; it was theirs to lose. Sony had long been the leader in portable music, from the Walkman to portable CD players to the mini-disc. And Sony, unlike Apple, had a big presence in music. More generally, Sony has been the miniaturization company ever since the "transistor radios" of the '50s, and no firm has been better at creating new categories than Sony.

There actually are several reasons why Sony missed the iPod opening. One was its hope that the analog world, where Sony had a significant investment and competitive edge, would hang on, which inhibited its commitment to digital. Another was its long-term tendency to avoid industry standards in favor of creating products it could own. The main reason, however, was the fact that silos paralyzed Sony at exactly the wrong time. It was not from lack of innovation.



At the huge Las Vegas Comdex trade show in the fall of 1999, Sony introduced two digital music players, two years before Apple brought the iPod to the market. One, developed by the Sony Personal Audio Company, was the Memory Stick Walkman, which enabled users to store music files in Sony's memory stick, a device that resembled a large pack of gum. The other, developed by the Vaio Company, was the Vaio Music Clip, which also stored music in memory and resembled a stubby fountain pen.

Both were flawed but provided the basis for a new product category. Each had 64 megabytes of memory, which stored only 20 or so songs and were priced too high for the general market. Both also featured a Sony proprietary compression scheme called ATRAC3. Software to convert MP3 files to the Sony standard was not convenient and, worse, resulted in slow transfers. The fact that Sony promoted two different devices created by two fiercely independent silos confused the market as well as the Sony organization.

There was another silo involved, Sony Music. A handicap instead of an advantage, Sony Music was concerned more with its ability to avoid piracy and freeloading than with the success of the new digital product. As a result, it inhibited the products' ability to provide access to a broad array of music and led to the use of the cumbersome uploading process, which turned out to be a burden.

Sony's three silos thwarted the efforts by Sony to create a new category and preempt Apple's iPod, which is soon to sell its 200 millionth unit. It is likely that a product that combined the energies, resources, and customer insights of the three silos and was improved over time would have been successful and that the iPod opening would not have materialized.

Sony has begun the process of changing the silo culture so that cooperation and communication replace competition and isolation, so that it can return to its innovation heritage, avoid other iPod-like misses, and liberate synergy potential.

The task is difficult, however, because silo issues are embedded in entrenched organizational structures and cultures, difficult but not impossible. Some firms have had success in taming silos as is reported in my most recent book, Spanning Silos."

5 comments about "Why Sony Missed The IPod - The Curse Of Silos ".
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  1. Rajat Kapur from General Electric, February 6, 2009 at 8:48 a.m.

    They say that more millionaires are made during recessions than during good economic times. Could it be because large companies are so focused internally on making it through those tough times that they fall asleep at the industry leadership wheel and allow unexpected competitors into their space? Good article.

  2. Graeme Thickins from GT&A Strategic Marketing inc, February 6, 2009 at 9:25 a.m.

    @Rajat great comment! And, David, interesting insights into history, which a lot people may have forgotten, or never knew the details about. Definitely helps to bring this up again in these economic times. And it sure does make one wonder what the big boys are doing about silos. Because the strategy of cutting, hunkering down in the bunker, and waiting it out ... is definitely not an innovation strategy.

  3. Mark allen Roberts from Out of the Box Solutions, LLC, February 6, 2009 at 6:27 p.m.

    Did they miss the iPod because of silos, or because they lost touch with the market? We see this often, a market leader sees an unresolved market problem (like Sony did) and they solve it brilliantly…then the trouble starts. Was their solution due to their internal brilliance or how they were perfectly connected to their market and an unresolved problem?

    Look at some of the market leading companies that were launched during the great depression; Revlon, lazy boy, Miracle Whip, Fortune Magazine…and the list goes on. How are some of these companies continuing their position as market leaders? They continue to command leadership positions by being tuned in to the needs and unresolved problems of their market.

    Unfortunately less than 10% of companies command market leadership for long. If you look at the "magical 10 year mark", market leadership changes about every 10 years. Ten years ago we used Yahoo, and now most of us use Google.

    I agree silos are an issue, particularly if they do not share cross functional goals, however the big issue is staying close to your market on a continuous basis.

  4. Scott Cone from 247 Ventures, Inc, February 6, 2009 at 6:45 p.m.

    I think it's also a matter of failing to understand what industry you really are in. Take the railroads for example...they always viewed themselves as being in the railroad industry. They were limited by their own frame of reference and expectations. Had they viewed themselves as being in the transportation business, the air freight business might never have caught on. Sony, like many large companies, became mired in bureaucracy and silos but it viewed itself as a primarily hardware company. The consumer was not at the center of the experience. The consumer bought what they built. Apple has always put the consumer at the center of the product experience. Sony is changing, starting to understand that they are really an entertainment company and that all of their operating units provide an ecosystem of entertainment. This is encouraging for them but it will take time. Big ships turn slowly.

  5. Jeffery Foster from Fostermedia, September 7, 2009 at 8:12 a.m.

    Well stated. Apple is to smart to buy pieces of Sony's clutter, but I suspect they'll be using Sony ideas and learning from Sony mistakes.

    Adding FM, recording, and a wee bit of internal sound would enhance the ipod. They may need to hybrid a smaller touch/ipod device instead of the unpopular shuffle.

    Sony may exploit

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