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Sony Is Done Working For Peanuts in the Hardware Business, New CEO To Detail Shift Away From Gadgets (bloomberg.com)
Kenichiro Yoshida, who took over as chief executive officer in April, is set to unveil a three-year plan on Tuesday that embraces Sony's growing reliance on income from gaming subscriptions and entertainment. From a report: The transition is already happening: even though the company sold fewer hardware products such as televisions, digital cameras, smartphones and PlayStation consoles in the year through March, it was able to post record operating profit. It's a tectonic shift for a company built on manufacturing prowess. Sony popularized transistor radios, gave the world portable music with the Walkman and its TVs were considered top-of-the-line for decades. With the rise of Chinese manufacturing, making and selling gadgets has become a business with razor-thin profit margins. Investors have applauded the transformation that's been under way since Kazuo Hirai took over as CEO in 2012, with the shares climbing more than five-fold amid a turnaround.
...when your product has become a commodity, you have three choices:
1) try to buy your way to control of the market. If there are high capital barriers to entry in the field, and you already have a lot of the costs invested, you have a chance. As a 90% dominant player, you might be able to undercut/destroy any new entrants before they can get established (or better, make it clear that you COULD do this to intimidate any investors contemplating getting into your market enough to dissuade them from even trying).
2) upscale: use your ostensible experience and sunk investments with the product to deliver more product for the same price. If they can make a walkman that plays mp3's, you offer one that plays mp3 AND will pull content from the web/youtube. If they copy that, you offer one that's waterproof, etc.
3) sell your brand and GTFO. Parlay what is ostensibly a good reputation into short-term cash by licensing your brand to one of the better commodity producers for a fee. They get to make their shitty knock-offs but put your label on it so they can gain extra sales (and possibly a slight margin) trading on your name/history, while you just get $ for doing nothing. Then you can fire your workers, sell your factories, and make serious money with no capital employed at all as long your reputation is worth something for them to pay for it, which is probably a while.
The problem with choice 1 is that sometimes it's simply not possible, particularly when your competition is in China. ...which is why we see #3 as the very common option. For example, I've seen that result for a certain brand of food products - a company with a deep historical reputation as pretty much become little more than an office managing the licensing of their brands.
The problem with choice 2 is that with electronics the capital investment is rarely a big barrier to entry (unless you're talking like chip-fabs or something). A quick reverse-engineering (or even simply knowing something is conceptually possible) is enough to allow low-cost commodity competitors to quickly catch up to you without bearing much of your research/dev costs.
-Styopa