Sony hopes for digital revolution

Nobuyuki Idei is the president of one of the world's most powerful corporations, but on this particular day he sounded more like a grandfather reminiscing about his youth at the family dinner table.

"In those good old days, Sony made electronics equipment, three national networks ruled the airwaves, computers referred to IBM mainframes, and phone companies minded their own business," Idei said in a speech seven months after taking the helm of the Japanese multinational. These days, he added, "it seems that everyone is jumping into everyone else's business, and the old rules are broken."

At the age of 50, Sony is having a midlife crisis. Once dominant in all things electronic, the conglomerate is now facing the "maturation" of the home entertainment industry, where widely available technology and low-cost labor have led to rising competition and smaller profits. As a result, Sony is staking much of its future on personal computing, a relatively unknown territory where companies that survive more than a year are often considered hardened veterans.

The consequences of Sony's course go far beyond the Spartan hallways of corporate Tokyo. As other Japanese companies follow the industry leader's path, its strategy could presage a new economic war between Japan and the United States, which has long considered the PC market its own. And the move will likely have a significant impact on the technology itself by hastening the anticipated merging of the television set and the personal computer--a convergence that digital soothsayers predict will be felt with Loma Prieta-like magnitude from Hollywood to Wall Street.

With stakes this high, Sony is wasting no time. Barely six months after announcing its plans to enter the PC market in a major partnership with Intel, Sony showed the world its first branded personal computer at the PC Expo this week in New York. [See CNET analysis of Sony PC]

A company official also disclosed to CNET that it is planning a notebook that would bear the Sony nameplate. Lastly--for now--it is considering the possibility of manufacturing a Network Computer, the Oracle-sponsored box designed primarily for affordable Internet usage at a target price of $500.

A critical mass
"The PC is approaching a major stage in its development," said Carl Yankowski, president and COO of Sony Electronics. "The consumerization of the PC in the United States is finally reaching critical mass."

If that's true, it could be a propitious moment in Sony's history. But success is by no means certain. "They're at a crossroads. The brand name of Sony doesn't mean anything in the PC market," said Kimball Brown, analyst with the Dataquest research group. "On one hand, they have to get in; on the other, I'm not convinced they can."

That seems to be the opinion of many analysts and executives, who say that Sony has an uphill task in trying to establish itself as a major player in computers. But few are willing to write off the company, which has led a mostly charmed life--and its timing may prove right again as recent projections of stagnant PC sales turn out to be exaggerated. Moreover, as the industry shifts its focus from the Internet to corporate intranets, the leading vendors could be leaving some room for others in the home consumer market.

"They have the brand name and distribution channels," said Linda Kazares, president of Ambit International, a San Francisco-based consulting firm. "The computer industry is too plugged in to thinking that it's selling to other manufacturers. It's a retail market."

And no one does retail like Sony.

Beyond its technological advances, the electronics giant has one weapon in the consumer battle that perhaps even Bill Gates envies: the Sony label. According to a recent Louis Harris poll, Sony is the most respected and recognizable brand name in the United States, surpassing General Motors, Coca-Cola, and AT&T.

For this reason, the technical features of Sony's first PC may in fact matter less than its brand name; as some would say, image is everything. "They're in a good position to go out and make a statement with their reputation and brand ID," said Tim Bajarin, president of Creative Strategies Research International in Santa Clara, California.

The first statement seemed somewhat muted at PC Expo this week. Sony's inaugural PC was respectable but not particularly remarkable, starting with its prosaic name: the VAIO PC, for Video Audio Integrated Operation. Analysts say the company may have made the name sound deliberately technical to establish credibility in a field for which Sony is not known.

This is not a toy
"PC-Man would have made it sound like a toy," said Jan Loomis, managing editor of industry newsletter Internet Marketing and Technology Report, speculating on what moniker Sony might have chosen in a different world. Still, she says, the VAIO's features seem aimed at the same home market that Sony has dominated with entertainment appliances for so long.

To prove its bona fides, the VAIO includes a number of competitive features: a 166-MHz Pentium, 16MB of RAM, a 2.1GB hard drive, 28.8-kbps modem, MPEG decoding capabilities, an 8X CD-ROM drive, and a software bundle that includes Internet access. And, of course, a Sony-signature design, in hues of gray or violet.

"This is more of a user computer. It seems to be configured not as a workhorse but for consumer uses--surfing the Net, doing research, games, word processing, email, things like that," Loomis said of the VAIO, estimated to retail for $2,000 to $3,000. "It's powerful enough, but not out of people's price range."

Sony also designed its computer with the idea of eventually capitalizing on its television technology. A primary obstacle to the convergence of PCs and TVs is the illegibility of computer text on a standard screen from sofa-viewing distances, something Sony might be able to fix.

Sony introduces the VAIO PC

"They have to leverage the television side of things. Who needs another standard 14- or 15-inch monitor?" Brown asked. "You have to contribute where you have the most advantage: 25- to 55-inch TVs, things you can actually see."

Sony expresses confidence that it can add the PC to its long string of consumer successes. This is, after all, the company that gave us the Walkman.

But it is also, others note, the company that gave us Betamax--and refused to abandon the hapless video recorder even as it was being ridiculed as the electronic equivalent of the Edsel.

Such stubbornness--to the point of arrogance, some would say--was also seen during the early years of Sony's foray into the movie business, a controversial attempt to lock up the home entertainment market from studio to store shelf that unwittingly helped U.S. companies regain the upper hand in technology.

The acquisition of CBS Records in 1988 and Columbia and TriStar studios the following year soon became an albatross for Sony, which spent much energy and capital trying to meld the volatile elements of entertainment with the traditional sensibilities of a Japanese corporation, a relationship that many characterized as a match made in hell.

Profits began to fall accordingly, dropping 70 percent in 1993 and another 60 percent in 1994. In a widely publicized report, Sony wrote off $3.2 billion in losses attributed to its movie operation.

Back in the black
Since then, however, Sony has started getting things under control, and its numbers were back in the black by the end of last year. The turnaround has been attributed in no small part to Idei himself, who has reorganized the company and taken back control over many of its U.S. ventures.

Now, Idei is turning his attention to the future. If he's decided what kinds of products that future will yield, the Sony president hasn't announced them; he has, though, come up with another one of those curiously awkward Japanese marketing phrases to convey his mission: the "Digital Dream Kids."

"It reflects the happy image of our future customers," he said. "I want Sony to be the kind of company which lets these future customers achieve their dreams through our products and services. I want Sony's engineers to become the Digital Dream Kids, and I myself want to be a Digital Dream Kid."

Yet if these digital kids dream of the TV and the PC becoming a single possession as ubiquitous as the Walkman, it may be some time before it's safe for them to wake up.

"TV takes the role of the fireplace in living rooms, and the PC takes the role of an appliance device," said Vic Wheatman, an analyst with the Gartner Group. "While it would be useful for the two to come together, it will be a while before it happens."

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