Analyst Opinion - If you were watching these two companies over the last decade, you might wonder whether one of them was constantly giving the other either a cure or a disease. I can’t remember a time when both were at the top of their game – which is the case right now as well: In the portable music player market, Apple is weakening and Sony is suddenly looking like they are getting their game on.
In thinking back to the late 90s, when Sony was flying high, had I, or anyone, suggested that the Walkman market would belong to Apple which, at the time, was having trouble staying alive in the PC market, they would have probably been committed. Even after the iPod launched, anyone suggesting Apple would reach the dominance they now have would have been branded an Apple Zealot and discredited. Yet, they would have been right.
Let’s take a look this week at both companies and ponder what may be a changing of the guard.
Before anyone gets too excited I’m looking at a set of trends which may or may not pan out. I am not saying Apple is going under. But, think of the news surrounding them. There are articles on why you shouldn’t take the latest iPhone patch, on how to recover a “bricked” iPhone (bricked is not a good thing), on how Apple’s PR department was under siege, how the iPhone battle was unwinnable and would destroy Apple’s reputation and most recently a $1 billion lawsuit against the iPhone.
In the previous months, I’ve been aware that HP has acquired a broad cross section of Apple’s marketing talent (they recently hired their new CMO from Disney), and that another OEM l has quietly acquired the team that created and managed the iPod as it was successfully brought to market. (kind of makes you wonder who that OEM is and has up its sleeve, doesn’t it?).
If you look at the recent marketing campaigns surrounding the iPod, they either are duplicates of what Apple has done in the past, or what HP has been doing since they got the influx of ex-Apple folks. I don’t recall a time in my life when I’ve been able to argue HP is out marketing Apple. But, in this instance (and you certainly are free to disagree), HP appears to be out marketing apple with their Personal PC campaign. And HP is doing better and it is somewhat apparent that the two companies are closer to each other in execution than they ever have been.
Apple has also made what appear to be major mistakes with a number of key products. The AppleTV didn’t go anyplace, the iPhone’s price was initially outside of the market and AT&T as a launch partner was a really bad choice, and they’ve created some nasty product conflicts and made one ugly design choice in the latest iPod line.
The iPod Nano was the best looking product in the line prior to the refresh and now it looks chubby (even the Apple folks use that term to describe it) and competitively unattractive (though, in use it really is rather nice). They’ve created a bad choice between their flagship iPod Touch and Classic products in that if you want capacity you can’t have the cool new interface and if you want the cool new interface you can’t get capacity and battery life (even according to Walt Mossberg) isn’t very good (which means the Touch’s battery is also likely to fail relatively quickly).
In their flagship all-in-one product the iMac, Gateway just brought out (you should see it in person) what appears to be a better designed and more advanced offering. This is because it appears that Apple either has lost too many resources or has shifted too many from PCs to CE devices allowing their PC hardware design leadership to fall off sharply (the new iMac is just a re-skin of the old with newer Intel bits inside).
Finally, there was an interesting move by Apple’s top attorney who ran for Qualcomm after only a few months and was replaced by Oracle’s top attorney who is likely the leading expert on getting CEOs out of really bad difficulties. This last suggests Apple is girding for war on the stock option scandal and that, at the very least, will be a rather substantial distraction.
Apple appears to be a company in growing trouble and we won’t know how bad that trouble is until the end of the 4th quarter, however, Sony which has been in deep trouble, suddenly is looking like they have a CEO who may be as big a help to that company as Steve Jobs has been to Apple.
Sony becoming a power again
Coming into this year I really thought Sony had a death wish. Rootkits showing up on music disks, their MP3 players were so horrid I could imagine people running from them, in an effort to force a win with Blu-Ray they had effectively given the gaming market to Nintendo and Microsoft, and their PSP hand held gaming system was getting trounced by the Nintendo DS.
Sony got a new CEO for their entertainment division and appears to be rethinking its strategy. Suddenly I can use the word brilliant in a sentence with Sony in it and not sound like I’ve lost my mind.
Sony’s Consumer Entertainment division had two major problems and a lot of minor ones. The biggest was that the Playstation 3 was priced out range for the traditional target market for game systems and bleeding developers who increasingly were realizing that the competing systems were going to be more lucrative. However, the PS2 remained a strong seller, arguably represented the strongest value in the segment, and had the largest library of existing games. And then Sony bought Evolution Studios to ensure that good games would continue to be written for the platform (the PS3 isn’t going away, it’s just taking a little break so it can get down to fighting weight).
So, until the PS3 can be made more price competitive, they are doubling down on the PS2 (kind of bringing the old champ out of retirement) and while that is a difficult decision to make (as some may wonder what Sony will do to the PS3 to get the cost in-line quickly) it buys the company time which it desperately needs.
Were it me, I’d pull Blu-ray out of the box and make it an accessory, most of the games will fit on dual layer DVD media (particularly any game that was built for all three platforms), and that would drop the cost of the device by around $300 which would allow me to price the result on top of the Wii and more effectively argue I have a better value.
The other major problem was its horrid MP3 player line. They had wrapped the line with proprietary Sony technology at all levels and tied it to a Music service that was so bad it likely is now legendary. With their new line they have opened the products up to more standards (including the iPod’s AAC) then almost any other player, improved usability so that it is in line with Apple products, and priced the result below Apple’s offerings. The top of the Sony line even has noise cancelling headphones.
While Apple is entrenched now and will be difficult to displace, or would if it wasn’t that there are an increasing number of iPhone customers who appear to be really pissed off at the company, this is like jumping from dead last (and sound asleep at the starting gate) to contending for second place. I didn’t even think it was possible to do that in one step, but when you consider Sony should have owned the MP3 market, it’s probably vastly easier for them than anyone else.
The minor problem is that the PSP just hasn’t been as competitive as it should have been. The games have been good and sales have been good but it hasn’t really reached its potential. Sony dropped the price well under $200, came out with colors, and made the result into a better value (if you like games) then the vastly more expensive iPod Touch.
The fourth quarter is a king maker and it has been known to dethrone kings in the past. Next month we enter that magic window where companies go in on top and may exit out of the market, or are on the bottom and exit crowned as the new king. With the iPhone Apple really woke up a lot of markets and then appeared to trip, while their competitors (including folks we haven’t spoken of like Nokia, Motorola, and Palm) have stepped up their game dramatically.
It’s good to have Sony back. It truly bothered me to watch that company slowly kill itself as, at one time; almost every consumer product I owned was a Sony as were most of the PCs I used or lusted after. Sony is one of the few companies that are capable of doing amazing things, of redefining markets, and building products that can catch your breath. Apple is another.
The rest of the decade will clearly be interesting for both companies, and that word will clearly have a vastly different meaning depending on which one you are rooting for.
Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently he provides his services to most of the major technology and media companies.