Me on CNBC: Getting Down and Dirty on Sony (and Apple)

Last Thursday I had the honor and thrill of being on CNBC's "On The Money" segment (thanks, PK), talking about one of my favorite companies to talk about - Sony. Coincidentally, as I sit down to write this post, it is actually Sony's 61st Birthday. Happy B-day, Big S! Unfortunately, you are getting a little long in the tooth, pal. Starting to fill out around the middle. Getting kind of slow. Akio Morita is nowhere to be found. Showing some signs of wear and tear. Time for a protein jolt.

I was posed three questions going into this debate:

1. Does Howard Stringer need to leave Sony?
2. Can a big hit with Spiderman turn thigs around for Sony?
3. Should Sony be broken up?

Stringer: stay or go? Loyal IA readers know my position on Sir Stringer: he is pretty much a disaster at this point and yes, I think he should go. I raised three specific issues as to why I feel this way, though the list could go on and on. Remember how Howard totally fumbled the battery recall situation? It was a picture in how not to engage in proactive crisis management. This was not good, not good at all. Then there is his clear ambivalence about ensconcing himself as CEO of a Japanese company, with a demonstrated unwillingness to take an apartment in Tokyo, preferring to stay in a hotel room. This is a symbolic and metaphoric faux pas of the highest order, leading to his being referred to as the "Accidental Occidental." Funny, yes. Just not if you are a Sony shareholder. Then remember the recent hubbub around the next generation launch of the super-successful God of War game, which entailed (or entrailed) the slaughter of a goat? Sony was completely vilified in both online and offline media outlets. What kind of a culture lets this happen? One that is unsure of itself and its position in the world, where the standard becomes "What seems cool and edgy?" as opposed to "What is the image we want to portray to our customers?" In sum, my statement was that Sony is not a company under the control of a strong, decisive manager, and that this needs to change.

Is the success of Spiderman important, and what about the 44% run in Sony's stock price? My comment was that its success is a necessary but insufficient criterion for Stringer to stay. Concerning the run in the stock, I said "Yes, that is a big run, but it doesn't begin to reflect the value of the assets in light of the power of its value stack." I discussed Sony's inherent power due to its formidable hardware operation, successful software development platform and portfolio of high-value content, but that the company has had a hard time unlocking the value of these assets due to its leadership. I suggested that Sony shareholders should offer Steve Jobs the role of CEO, give him a 5% stake and tell him to build a customer-centric organization that leverages the full power of its robust value stack.

Should Sony be broken up? My answer was yes, unless Mr. Stringer can crack the hardware and engineering-dominated culture and facilitate a flipping of the value stack, where the user experience drives the hardware and software design and integration of the pieces. This is similar to the point I made about Apple's successful vertically-integrated business model a few days back. We have entered the Consumer Era of Computing, while Sony is building and delivering products in the same siloed manner as a conglomerate would have delivered a cross-divisional product in the 1960s. With poor coordination. With destructive, short-sighted competition for resources. Without a vision for delivering an end product that provides the customer with the desired experience. There are just too many great companies with great products out there to win with all the infighting and wasted energy (see Kutaragi, Ken), which is just what Sony has been experiencing for quite some time. So can Mr. Stringer turn things around? It is possible. I just don't think he has the stomach for it.

There is so much more I wanted to say but didn't have the time to do so. But I had the good fortune of grabbing coffee with my friend Howard Lindzon, who was cool about my chewing his ear off about my CNBC experience and my other views on Sony. Turns out, he and I are kind of in the same camp. At the time of my interview, I noted that Apple's market cap was around $86 billion while Sony's was around $54 billion. Huh? Can these numbers be right? Indeed they are. Apple could conceivably buy Sony, Apple-fy the stores, and sell off either portions of Electonics or Entertainment to slim down the operation. Truly mind boggling. And think how, not that long ago, Sony could probably have scooped up Apple for $15-$20 billion, gotten access to its software, hardware, business methods and processes and run a much more successful, much more rapidly growing and customer-centric Sony than what you see today. Sony must be feeling pretty crappy about itself right now. Lost opportunities, still making the same old mistakes. Either they will figure it out for themselves or the market will figure it out for them. IMHO, it won't take long.

Comments

[Roger]

Jonathan,I don't think I portrayed a Sony acquisition of Apple as easy or represented it as a quick fix. I raised the areas where I thought they could have brought substantial value to Sony, including Steve Jobs. So the timing would have been post-Jobs return, not pre-return. So your characterization of my position and the timing is not correct. I do agree that Apple's turn-around should be largely attributed to Jobs, without a doubt.

Sony itself certainly doesn't need to acquire - and I certainly didn't suggest that. If anything, it should divest. Without the right leadership and change in culture it is an unwiedly behemoth that will continue to fail and operate in an uncoordinated manner. Or someone could get their house in order and divest for them - like Apple.

[Jonathan Davis]

I must disagree with your thoughts that Sony could have purchased Apple and that all of the sudden it's products, culture, and innovation would have changed to reflect what Apple is now. I think there is far too much shareholder "quick-fix" theories when the real problems are much more imbedded. You must keep in mind how rotten to core Apple had been before Jobs returned to return the company back to profitability. I remember these times very vividly, the company was in shambles, its products stunk, and there was much speculation of a buyout. But what Apple had at that time was in no way attractive to many companies at all. Sony's aquisition of Apple's assets would have done nothing. The return to profitability should be completely credited to Job's leadership. This was done with radical innovation and a complete reevaluation of what the company's business model was at the time, which did not appeal in any way to the broad market it does today.

What Sony needs is not an aquisition. Sony is large enough and The company must stay competitive with companies like Apple that focus on a much smaller collection of products and do a better job of creating and marketing them, (even if they now have a greater market cap). Aquisitions cannot change a company's leadership or culture, and the thought that Steve Jobs would want to carry the helm of a gargantuan infastructure like Sony is not only assuming, but unrealistic.