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Sony's software future

Consumer electronics is increasingly a software business. That's where Sony's playing catch-up.

Sony chief Howard Stringer had almost everything in place going into this year's Consumer Electronics Show in January: big new televisions to show off, high-definition DVDs and the PlayStation 3 on the way, and even a scheduled appearance by Tom Hanks.

The only thing he was missing was good news on Sony's Walkman, which has been eclipsed in popularity by Apple Computer's iPod. A promising new version of the Walkman had just been released in Europe and Asia, but it was being torn apart on Web message boards--largely because critics said the software it came with was slow and crash-prone.

The result? At the year's biggest gadget show, Stringer said little about portable audio, once the company's sweet spot. Sony showed off the shiny new Walkman in its booth but gave no date for when the new device might reach U.S. shores.

"We're between launches in Europe and America, and that just didn't fit the cycle," Stringer told reporters in a press conference before launching quickly into a description of how Sony was changing the way it oversees software development.

He had good reason to change the subject to software, because fixing software development could be every bit as important to Sony's future as perfecting an iPod rival.

Yet Sony's software problem stretches beyond the Walkman. Apple is stepping further into Sony's turf, the living room. Earlier this week, Apple re-released the Mac Mini as a TV-connected audio and video player. Other high-tech rivals from Microsoft down have their own home entertainment ambitions. Apple even has its own iPod stereo system now.

Indeed, consumer electronics devices increasingly depend on software for their core features. Some argue that Sony's ability to fend off Apple and other digital-age rivals depends on its ability to get software for its Walkman and other new products right.

By many accounts, that remains an uphill struggle. Interviews with past and present executives paint a picture of a company that remains split between business divisions and continents. Perhaps even more divisive is a philosophical question regarding how Sony should be run: Should it continue to rely on Sony-produced ideas and features, or adopt ideas from rivals such as Apple that are molding the buying habits of a new generation of consumers?

Politburo problems
Stringer has publicly acknowledged the difficulty of coordinating software development between different divisions (often referred to as "silos"), and hired Apple QuickTime chief Tim Schaaff in December as a new companywide "software czar."

"Software has been designed inside those independent silos, with a tendency for repetition," Stringer told reporters in January, touting Schaaff's role. "Now we have the ability to coordinate software development...We have time with the PSP (PlayStation Portable), and the video revolution, so that nobody else will slip by us."

Encouraging words from the chief exec aside, some inside the company remain pessimistic about Schaaff's ability to change a deeply ingrained culture.

"We need coordination, we need the best and brightest people involved and empowered," said one high-ranking Sony executive, who asked not to be named. "But the old guard in Tokyo is refusing to give up any central control. It's like a Politburo with a five-year plan."

Sony declined requests for interviews with Schaaff or other top executives on the topic of software development.

Exactly what Schaaff can or will do to change existing practices remains unclear. Skeptics note that he still reports to the Tokyo-based Keiji Kimura, Sony's executive vice president in charge of technology strategy, who has presided over the portable device business that's been wounded by the explosive popularity of the iPod.

Top executives' rhetoric also may take time to filter down to the project level, other sources say.

"There is a lot of intellectual understanding of the issue," said one consumer electronics executive familiar with Sony's business practices. "But it's a question of whether on a project by project basis, whether the person in charge understands."

Current and former Sony employees say the company has long pursued a pendulumlike strategy with software, alternately pushing responsibility to individual product groups, and then attempting to centralize control. Schaaff's appointment is in part a move back toward centralization.

In some cases the approach has worked well. Software shipped with Sony Vaio computers, such as DVD viewing and creation tools, has generally been regarded as successful. The core PlayStation and PSP software, developed by the PlayStation group, has been well-received by gamers.

But Sony's near-three-year efforts to create an iTunes rival called Connect highlight the company's weaknesses, and provide a case study in what it must overcome to succeed.

That product's repeated failings have contributed to the Walkman brand's tumble to sixth place in the U.S. portable digital audio market, with just 2 percent market share over the full year 2005, according to NPD Group. Even in Japan, Sony's digital audio products hold just 16 percent of the market, compared with the iPod's 51 percent, according to a recent BusinessWeek report.

Connect was conceived in mid-2003 as a competitor to iTunes; it would help digital devices manage music, and be a gateway to a service selling music--and ultimately games, movies and more--online.

By that time, Apple had clearly jumped ahead of Sony, setting consumer expectations for devices and software features. This left Sony in an unfamiliar position, with engineers and executives on both sides of the Pacific arguing about how much to rely on Sony's own innovations, and how much to adopt the feature sets of Apple and other digital music leaders.

For the most part, the Sony way won out. The software was built on the company's old MiniDisc management software, called SonicStage. Music would be sold in Sony's proprietary audio format, with its own copy-protection tools.

One former insider recalled that Sony executives in Japan even resisted using playlists--one of the most common ways of organizing listening--because that was "an iTunes paradigm," not something developed by Sony.

The resulting product, released in mid-2004, was a flop. A year later, in early 2005, Sony Corporation of America Chief Technology Officer Phil Wiser conceded that the software had been a problem but said the company had learned from both its own mistakes and iTunes' gains.

"The software has gotten killed," Wiser told CNET News.com in a February 2005 interview. "We were well aware of the changes in the market, and clear on how we could address these things, but we didn't move fast enough."

Fast enough may still be a problem.

Two years later, the Connect software has yet to get a significant upgrade in the United States. The European release of the new Connect Player software package, bundled with the promising new Walkman, was so flawed that Sony Europe recommended some customers use the older software instead.

Window for change is closing
Sony isn't alone in these issues. Consumer electronics companies have risen and fallen in the past because their products have or haven't been simple and easy to use. In today's software-driven world, that means the tightest possible integration between software and hardware is necessary.

Apple has shown how that model can work market wonders. Most others, on both the hardware and software side of the spectrum, have struggled.

Microsoft, with a software background, is having trouble with its consumer electronics ambitions. Its successful Xbox division was a first step toward the integrated Apple model, and the company has several new hardware products such as the Origami planned or .

In theory, Sony should also be able to pursue similarly tight integration between its own hardware and software. But analysts say it will require a concerted, companywide effort, which could be difficult to maintain.

"It's not like they don't have decent software coders," said GartnerG2 analyst Mike McGuire. "They've got good ones. It's about getting them in line, and getting them to focus."

That focus is essential. Analysts predict that even mainstream devices such as DVD players and home entertainment centers will soon tap into home networks, allowing music and video to be streamed around a house, for example.

Sony has the resources to respond to these challenges, analysts say. It retains a vast pool of talent, and valuable technologies such as the PlayStation 3 and the Blu-ray disc patents.

It's also shown a new openness in recent years to outside ideas, insiders say. Most notably, former QuickTime engineer Peter Hoddie, now head of media player company Kinoma, has spent weeks shuttling back and forth between Japan working with Sony on issues such as interface design.

Hoddie did not return calls for comment on his role at Sony.

"It's not too late for any consumer electronics company to get its software house in order," said IDC analyst Susan Kevorkian. "But it will require investments and a change of focus that can be challenging for a large company in a relatively short time frame."

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