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29 Dec 2004 by Jason Fried

Sony is establishing a new division called Connect Company to try to take on Apple’s iPod. Admitting serious steps need to be taken to soften Apple’s MP3 player dominance is a cogent move, but here’s how they’re doing it:

Connect Company was established on Nov. 1 and brings together Sony experts from Japan and the United States. The division will enter into operations early next year and will eventually employ 300 to 400 workers. Engineers will work on new portable audio players equipped with hard disk drives like the iPod or with computer memory chips. The first product is expected to hit shelves by the end of next year. Connect Company will also operate music download services similar to iTunes that will be personal computer- and cellphone-compatible. In the future, the division is expected to offer video and game distribution services.

Staffing up to 300 or 400 won’t beat Apple. In fact, it will only lead to a bloated mess that can’t move quickly enough to beat the lean and mean digital music leaders at Apple. The original iPod team was probably a dozen or so people. And I think I read that they produced the first iPod in 8 months. Their small size was the main reason they were able to pull it off.

By the time Sony gets their first product to market, Apple will have 20+ million more iPods in people’s hands.

Further, Sony’s plan to have this division offer video and game distribution services is putting the cart way before the horse. This lack of focus (thinking way far out before their first music product is even on the market) only serves to weaken their immediate efforts to slow Apple’s dominance today. Don’t think about tomorrow when you have a massive challenge today.

I bet on Apple here.

18 comments so far (Post a Comment)

29 Dec 2004 | Dan H said...

There's an interesting distinction here regarding whether iPod is a music accessory or a computer accessory. Sure, Sony makes computers too, but itís been seen as mostly a audio/visual toy store. Their latest iPod-wannabe of which Iím familiar looks like crap in my opinion, and even though Sony makes good stuff, I doubt theyíll overcome iPodís elegance and cool-factor. Getting back to what I was mainly gonna mention: iPod is a computer gadget, but people will see the Sony as more disconnected from their computer than a soley-computer-manufacturing-company. Really, none of this matters to me, Iíll keep my iPod.

29 Dec 2004 | Darrel said...

What? Sony admits its proprietary inventions AREN'T always the best? *gasp!*

I dunno, Dan, Sony is seen as a pretty valid PC player too these days. The newer Sony Vaios ARE quite impressive (at first glance, at least). The stuff they did with the Palm OS was quite impressive as well (though they just killed of that division).

29 Dec 2004 | A. Casalena said...

I'll be interested in what evolves from this. By spinning off this organization, they're able to compete more effectively perhaps without the previously crippling effects of their tie to ARTAC3(sp?) and the music industry.

For example, Sony can make some seriously elite products -- just take a look at their Qualia line that competes with B&o. These, in my mind, are far cooler than Apple's products. Of course, we're talking about the difference between a 9.5 and a 9.7 out of 10 on the coolness chart, but still :) If they apply a dash of their Qualia design expertise to a consumer line a la a bit of a Target model--Apple really may have a problem on its hands.

After all -- they've done it before. Nobody saw Playstation's dominance over (or at least, equality with) Nintendo coming.

29 Dec 2004 | Jamie said...

I don't see them beating Apple unless they get their prices down. I'm sure their design will be top notch. However, running a division with that much overhead won't create products that are of good value (price and feature-wise). The product will be great (if not great looking). However, the price is bound to be restrictive. Just take a look at their gorgeous but super expensive plasmas.

29 Dec 2004 | Richard Wanderman said...

I bet on Apple too but they too can lose their way; they have before and they might again.

That said, in order to figure out why Sony probably won't catch the iPod one has to figure out why the iPod got popular and tipped. There are many theoretical and actual reasons: cool design, intuitive and clean OS, good integration with iTunes and store, enough storage to be meaningful (although why is the mini so popular?), etc.

As a consumer (I've owned many iPods), Apple fan (I've used Macs since 1984 when Jobs gave me my first one), and stockholder (Yeah!) I'm delighted with the affect of iPod on Apple and I'm pretty sure we've not seen the end of this Apple surge (hopefully computers will now surge too) but I've also been tracking all of this long enough to know that what goes up, comes down. Sony may have been running around like a chicken without a head in recent years in this product category but I don't think any of us should ever sell them short. They are a huge mega-corporation who does not like Apple retail stores nor iPods and they're gonna try to do something about it. I hope/pray that Jobs has a load of insanely great stuff up his black turtleneck sleeve, and not just new models of iPod.

29 Dec 2004 | said...

Part of me wants to yawn and mutter "Another Ipod killer, huh?"... but, then again, this is Sony we're talking about.

A. Casalenan makes an excellent point. Nobody ever predicted that Sony would pretty much take over the console gaming industry in the 90s like they did. (Admittingly it wasn't all Sony's doings. Nintendo and Sega sort-of screwed themselves.) Much less, I would've never thought they'd have the largest selling online gaming products either (the Everquest series).

If anyone has a chance at contending with Apple, it's Sony. In addition, it doesn't hurt that they have their own music label AND it's one of the largest labels.

We'll just have to wait n' see. But, for now, I'll stick with my trusty iPod and iTunes.

29 Dec 2004 | R. Marie Cox said...

Sony is already poised to get their first multimedia product to market early '05 in the form of the PSP (PlayStation Portable). Beyond game playing the PSP will have: built in WiFi, USB connectivity, video playback, a memory stick slot, mp3 playback, wma playback and it's wrapped up in a very attractive package. Supposedly the 16:9 color wide screen has graphics that rival the PS2.

Also, I've read that the price point might start as low as $200. If that's true, and if the cost of memory sticks goes down to where 1G sticks are below $100, then the PSP could become more than just a GameBoy wanna be.

So, if Sony is already packing that much crap into a portable video game system, makes one wonder what else the future holds...

29 Dec 2004 | Robert Castelo said...

The reason Sony will keep loosing is that of those 400 workers at "Connect Company", 390 of them will be lawyers from Sony's content divisions assigned to tongue lash the 10 technicians working on this project - and stop them from building any products that would give consumers anything but minimal usage rights over content they've paid for.

30 Dec 2004 | Solomon said...

Jaime, I think that you are on to something. Bottom line is that Apple is an idea company (intellectual property, patents, designs, etc). Yes Sony has these things too, but it also owns factories spitting those low margin high quality 61 inch t.v., a hugh fixed head count(cultural...silly but true), and a money eating supply chain to get products here to the U.S. So not only have they created a better mp3 player, computer, and OS, but they used resources from the same reigon to actually build it for them....hell most of Apple's first rev's of a product are actually drop shipped from China! Apple --> Created in China...Designed in California = Big Margins. Good luck to Sony though...I bet some of their employees own ipods.

30 Dec 2004 | Arne Gleason said...

Weíre in the Cambrian explosion of mp3 player. Weíve got massive variety; so expect the big predators to appear now (expect lots of unpleasant deaths).

Iíd guess there is a 1% chance of Connect Company having the biggest slice of the market 5 years from now, 10% of iPod descendants having it, and think itís most likely some beast we havenít seen yet will take over sooner than later -- something that replaces all manner of mobile and stationed audio and no teenager or senior executive could live without (singing robotic butlers).

30 Dec 2004 | Rimantas said...

To perform well product has to be good at it's main purpose.
To perform extremely well it has to be desirable.
Apple's attention for design, usability and details makes its products desirable, and that makes loyal customers.
And those will not exchange their lovely gadget for just anything with
somehow better specs - specs are not everything what matters.
It will be extremely difficult for anyone to create something more desirable (wasn't iPod on the top of Christmas wish list?).
Sony needs a miracle, and I am not sure they are capable of creating one.

30 Dec 2004 | Don Schenck said...

Apple's not selling the Sock. You're missing the Big Picture.

Apple is selling (quite successfully) the idea of a great aftermarket for the iPod.

It's a great marketing ploy. It drives both consumers and manufacturers to your product. And the folks at Cupertino are pulling it off with a flair and savvy that's not soon matched. Kudos to them.

30 Dec 2004 | Don Schenck said...

P.S. Right now ... RIGHT NOW! ... go to Microsoft.com, IBM.com, HP.com ...

... and then surf over to Apple.com.

See anything different? Tells you a lot.

30 Dec 2004 | Don Schenck said...

I'm an idiot; my posts were supposed to be under the Apple iPod Sock thread.

That's it ... No more posts for the rest of the year for me! :-)

30 Dec 2004 | Arne Gleason said...

ďApple is selling (quite successfully) the idea of a great aftermarket for the iPod.Ē

Or is it the aftermarket less of an idea and more the unavoidable result of great initial success (that is, being followed by bandwagoners -- even within Apple)? The feedback loop of idea-to-effect-effect-to-idea is often so dizzying that itís impossible to say (though claiming the genius of intention after the fact is natural - "I meant to do that").

"surf over to Apple.com"

Another example of selling the idea? Hopefully a genuine expression of corporate conscience (though any real corporal attributes projected on a corporation strike me as necessarily artificial).

01 Jan 2005 | Justin Bell said...

I've heard that with Sony's player, whatever it's called (why can't they choose decent names, BTW?), that if you back-out into the main menu, it won't remember where you last were. Forcing you to scroll down and find your place again. What a pain in the ass.

Not sure if this is true, or has already been fixed, or will be soon. But it does show why the iPod is such a success over many others. It get's the little things right. The things that your average manager or marketing division will see as a low priority.

I'm sure the software developers were aware of this problem. But they were probably forced to place it at the bottom of the list, to make way for more important stuff like being able to view the album cover! I doubt most people even have the album cover for most of their MP3 collection.

02 Jan 2005 | Keith Donaldson said...

What's wrong with the Mini Disc? Why didn't ever catch on ... in the States at least?

03 Jan 2005 | Xero said...

There are so many good points made already ... I'd like to just expand on a few.

* Sony's current iPod-killer, the NW-HD1, is actually smaller than the iPod and fits better in one's hand. But without great difficulty you can't operate it with one hand like you can an iPod. So they got the form factor right, but failed to understand why it mattered.

* Sony doesn't simply have a tie to the ATRAC format, they ARE the ATRAC (and ATRAC3 and ATRAC+) format. Because Tokyo believed in the superiority of the format to MP3, Sony refused to give up on it, which isn't anything new for Sony. Look for Sony to market on MP3 compatibility in 2005, not ATRAC.

* "400 workers = 390 lawyers + 10 technicians" is hilarious, and just about right, unfortunately. Sony BMG Music along with Sony Pictures means tremendous fear of pirated content within Sony, and it has hamstrung them for far too long with draconian DRM.

* And yes, Sony employees -- at least some of them -- definitely own iPods. ;-)

Further reading: The Civil War Inside Sony.

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