Kara Swisher

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Sony’s Reticence in Boom Times Puts It in Position to Step Ahead

This BoomTown column was first published in The Wall Street Journal on November 19, 2001. All rights reserved.

At the World Economic Forum in Davos, Switzerland, last year, Sony Chairman and Chief Executive Officer Nobuyuki Idei pondered the future of the world’s largest consumer-electronics company caught in the maelstrom of the heady Internet age.

What technology or online company, he wondered, would be the ideal partner that would allow Sony to take full advantage of its many assets in the digital arena? And how should Sony use its famed brand name, rich content, high-quality hardware and strong consumer relationships to become a key Internet player?

He tossed out some partner possibilities: Yahoo, AOL Time Warner and Microsoft. He didn’t let on what he considered best for Sony.

Last week, at the giant Comdex show in Las Vegas, Sony’s thinking became clearer. Sony announced a series of deals, including an ambitious, if vague, plan to work with AOL on developing easy-to-use high-speed home networks, innovative online content and devices, and even a new Internet browser. It also announced new initiatives related to cellphones and unveiled several new Net-enabled electronic products.

More important, in his keynote speech at the show, Sony’s president and chief operating officer Kunitake Ando made the company’s firmest declaration yet that it intends to become a “ubiquitous value network,” providing a range of consumer-friendly interactive services to any device anywhere.

It’s about time.

Despite its enviable digital assets, Sony has been the Hamlet of the interactive stage — unable to decide “to be” — largely due to an internal culture that kept its many independent fiefdoms from working together as a powerful whole.

The company has promised to fix the problem before. Last year, after the merger of AOL and Time Warner was announced, Sony said it was reorganizing management to better take advantage of the rapid convergence that was going on. “If they ever accomplish this, Sony could really make a big difference in the power dynamics of the industry,” said one Silicon Valley player last week. “The problem is, we have all gotten tired of waiting for it to happen.”

Sony execs claim things are different now that Internet mania has calmed and the world is on the cusp of a broadband future perfectly suited for their company. “We have taken a lot of heat…but we seem to be getting beyond the issues of how to cooperate among ourselves,” said Howard Stringer, chairman and CEO of Sony’s U.S. holding company, in an interview last week. “There is no one at the company–in Toyko or here–who does not understand now how this all has to be interrelated.”

It certainly is a tough time for Sony to step up its profile. The weak economy world-wide is limiting. Sony itself has felt the impact, especially in its flagship consumer-electronics area, reporting a $107 million loss for its recent quarter and forecasting that profits for the full year will be cut in half from the year before.

Still, it may not be such a bad time to begin striking out. Since the Internet bust leaves huge opportunities for stable players, companies like Sony may be in the best position to benefit when the next chapter of the interactive revolution begins.

To its credit, the company never jumped heedlessly into the frothy period, as other large media conglomerates, like Walt Disney Co., did. Now Sony’s conservatism has turned out to look pretty smart.

“While we are not entirely blameless, we definitely didn’t go charging in,” said Mr. Stringer, who credits managers in Japan for Sony’s restraint. “They were rightly suspicious of the business plans and found the bubble to be a bubble.”

While it considered a range of moves, such as investing heavily in both the Excite and Yahoo portals in their heyday, it didn’t do most of them in the end. “I definitely was nervous since everyone was getting rich but us,” recalled Mr. Stringer. “But we held back and as a result did not get as burned.”

Now that the interactive space has been “whittled down to make sense,” Mr. Stringer thinks Sony has the right stuff to prevail. He may be right, given that Sony holds many impressive and wide-ranging interactive assets.

In hardware, it offers well-made digital cameras, music players, hand-helds, computers and the leading game-player unit, the PlayStation 2, that has many other interactive possibilities. It is developing potentially promising interactive subscription services in music, games and movies, and holds licenses for interactive television applications. And its media unit holds important parcels of entertainment content.

What it doesn’t have is distribution, an impetus behind its push into broadband with AOL, and the reason for an earlier marketing deal with Yahoo to hawk its products, content and services online.

Indeed, the AOL broadband alliance, if done correctly, holds a lot of potential, especially since it will help ward off challenges from Microsoft, which is battling both companies in a number of consumer and home entertainment markets. The software company is spending prodigiously to launch a game-player competitor to PS2, called Xbox. Both products have aspirations well beyond games, hoping to use such devices to deliver a range of online offerings over high-speed lines in the future.

That’s why Sony is developing technologies such as Feel, which aims to join all kinds of devices in a high-speed wireless home network. With open standards and the link with the popular AOL, Mr. Stringer thinks Sony is “traveling at the right pace with the right partners.” He doesn’t believe the company needs to make many major acquisitions to realize its goals.

Of course, Sony’s success here depends on the rapid roll-out of broadband and getting consumers to pay for more interactive subscription services — a dream still not realized. It would also help if the economy turned around, too.

When it does, Mr. Stringer thinks Sony will be ready. “After all this talk about the promises of synergy,” he said, “we hope to begin to see the advantages.”

Or, in more literary terms: To be or not to be, that is the question.

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