Why Sony Missed the iPod - The Curse of Silos

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."

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