This is the second in a series of blog posts assessing how industries respond to competing technologies and how their strategies, or lack thereof, are structured around dealing with these external threats. The series examines the impact of the free economy and considers the implications of Chris Anderson’s “Long Tail” of the demand curve on established industries and companies with “brick and mortar” business models. As this is a series, it’s worth reading this introductory blog post first.Few companies within the Optical Media industry occupy as unique a position as Sony does. Not only does the company own the licensing rights to Blu-ray, but they also manufacture the substrate. Sony charges other manufacturers a royalty, whilst avoiding paying one themselves.
On the face of it, this obvious competitive advantage leads one to argue that Sony’s strategy to dominate the market is a sound one. However, is this practice shrewd or are Sony’s actions speeding up Blu-ray’s demise and leading the Optical Media industry down an unsustainable path?
Unfortunately, there are a finite number of product advancements that can be made within Optical Media until the product itself is no longer viable. Companies like Sony must manage their product offering before its eventual end of life. This requires an in-depth knowledge of product life cycle management strategies where the impetus must be on managing the product’s price along its introduction, growth, peak and decline stages.
The Optical Media industry may be in a decline stage in some parts of the world, but it is still in its peak stage in others. This has led many to believe that Sony has only hastened Blu-ray’s demise by alienating manufacturers who would have helped lower production costs and drive content, which in turn would have gone a long way in lowering Blu-ray’s overall price tag. In essence, Sony has isolated those companies who could have provided a viable and sustainable product offering, a product offering to other parts of the world where CDs and DVDs are still being purchased in large volumes, and where Blu-ray would be the next in line.
Regardless of the aforementioned issues, Optical Media was supposed to be rejuvenated with the release of Blu-ray. However, despite its higher capacity and greater density in storing data, consumers haven’t gravitated to Blu-ray like the patent holders expected. So, why haven’t consumers adopted Blu-ray as much as most industry pundits believed they would? More importantly, what did Sony miss in its assessment of what consumers wanted and needed in a new data storage device?
In order to answer these two questions, I refer you to Chris Anderson;s concept of atoms vs. bits. Think of the convenience today’s consumers enjoy when it comes to how easily accessible and affordable content has become. Think of the impact of downloads, of streaming media, as well as the ease-of-use of delivery devices like MP3s. Think of the impact companies like Netflix, Dish Network and DirecTV have had on sales of DVDs and rental outlets like Blockbuster. It’s not that Blu-ray isn’t a viable product offering or that it doesn’t provide huge advancements over prior iterations of VHS and DVD. No, in this case, the gradual decline of the industry is due to a stronger, and less expensive, service offering that has all but spelled the end of Optical Media.
One only needs to look back on Sony’s failed attempt to get Betamax off the ground during the 70’s as examples of the company’s willingness to try and control content. Unfortunately with Blu-ray, Sony alienated manufacturers who may have helped drive down costs, and make the product offering more competitive, thereby allowing Sony to get Blu-ray adopted earlier in its introduction stage.
Summary and takeouts:In Sony’s case, it not only failed to factor the seismic shift in consumer behaviour (bits vs atoms) it also failed to adequately assess competing technologies and their disrupting effects on its industry. Most importantly, it disrupted its own product offering by making it too expensive to manufacture, and too costly to purchase.
Stay tuned for more…