SPECIAL REPORT REUTERS/TOSHIYUKI AIZAWA SONY STUMBLES: DID STRINGER'S MAKEOVER FAIL? Slow response to a huge hacking attack exposed frailties and raise questions about whether its culture remains too bureaucratic and complacent BY TIM KELLY AND KENNETH LI and dumplings at a Chinese restaurant in politics and a series of disruptive divisional TOKYO/NEW YORK, MAY 23 downtown Tokyo. reorganizations ensured the product never He was referring to a flat panel device that got the management focus it needed to AD SONY stUCK WITH the Airboard predated the iPad by a decade yet boasted succeed, Maeda says. portable computer it launched in video, touch screen typing and Internet Morphing it into Location Free TV -- a 2000,H Satoru Maeda rather than Apple's access. device through which you can watch local Steve Jobs might have been feted as the A hefty price tag and patchy picture TV channels anywhere -- wasn't enough creator of tablet PCs. quality were among the reasons the product, to convince Sony or the marketplace that "I was the inventor of the Airboard," says which in hindsight looks like it was ahead it was going to work. The project that was Maeda between mouthfuls of fried prawn of its time, didn't initially take off. Internal once touted as being as revolutionary as the MAY 2011 SONY MAY 2011 Sony's Walkman audio player is seen at its showroom in Tokyo May 4, 2011. REUTERS/KIM KYUNG-HOON Walkman was dropped entirely in 2008. Maeda said he knew a year earlier that Diverging fortunes: Sony vs Apple Sony under Howard Stringer, who became CEO in 2005, was going to kill his invention. Share price performance - $ Sony Apple His boss sent him an e-mail saying he was 400 taking it over. MARKET CAP Soon after, he quit the company he Sony: $27 bln / Apple: $310 bln 300 had joined in 1979 when Sony launched the Walkman and was one of the coolest companies around. It was a heyday Stringer 200 pledged to restore, but Maeda, who is now at audio visual equipment maker JVC Kenwood, no longer sees returning. 100 "Sony old boys liked Airboard and Location Free TV because it was doing something new, which is what they did at Sony," said Maeda. 0 "The current Sony people have no experience 1995 1997 1999 2001 2003 2005 2007 2009 2011 with such things because they haven't 1994: Sony launches the PlayStation 1997: Jobs returns afrer being ousted in 1985. He became 1995: Sony debuts its first consumer-use digital Apple's permanent CEO in 2000. introduced any new products for about 10 video camcorder. 2001: Apple opens its first retail store and debuts the iPod years." 1997: Sony unveils the home-use PC "VAIO" digital music player. 2003: Apple launches the iTunes music store. Still beset by turf wars, secrecy, 1999: Nobuyuki ldei succeeds Norio Ohga as CEO 2000: Sony launches PlayStation 2. 2007: Apple debuts the iPhone and opens the App store in complacency and a bloated innovation- the following year. 2003: Sony introduces the Blu-ray disc. killing corporate bureaucracy, Maeda and 2009: Jobs takes a six-month leave of absence and 2005: Howard Stringer replaced ldei as CEO undergoes a liver transplant. He was diagnosed with other Sony refugees insist their former 2006: Sony releases PlayStation 3. pancreeatic cancer in 2004. employer is in dire straits and Stringer, who 2011: Sony unveils the Android tablet PC; the PlayStation 2010: Apple unveils the iPad, its touch-screen tablet. Network was compromised in April - 77 mln user accounts 2011: Jobs takes second leave of absence but appeared at is 69, is running out of time to deliver on his the March launch of the iPad 2. were hacked. promise of reinventing the company. Certainly Stringer can boast of his role in Sources: Companies, Thomson Reuters. Reuters graphic/Christine Chan 05/20/11 developing 3-D film-making and the victory of the Sony-backed Blu-ray technology in problem and Sony's subsequent inability to magnitude of the problems. the next generation format wars. But Sony, quickly close other weak spots vulnerable to A procession of top executives at U.S. despite its iconic brand, remains out of step hackers that has left a stain. technology companies who spoke at Reuters with the rest of the global technology world "Too big to succeed comes to mind," a Global Technology Summit last week didn't and its talent for crowd-pleasing innovation former senior manager involved until recently mince their words when asked about Sony. has largely evaporated. with Sony's PlayStation game console told Robert Glaser, chairman of Internet media A hacking scandal that in April exposed Reuters, declining to be identified because software company RealNetworks Inc, likened more than 100 million accounts of users of of the sensitivity of the comments. "I was at Stringer's task of rehabilitating Sony to its online gaming network to possible data PlayStation, considered the most flexible "introducing capitalism to a Soviet-bloc theft not only hurt its image but threatens of the Sony units, but ironically that was country after 50 years of communism." an online strategy meant to unite a disparate crippled by over-secretive IT security, a lack corporation and could upset a carefully of a coherent management structure and CAUTIONARY TALE crafted succession plan for when Stringer a lot of dead wood at the top. It was harder THE erosION OF SONY'S standing is steps down. to work across Sony units than to work with a cautionary tale of what can happen to It wasn't so much the security breach itself outside partners," he said. technology companies when innovators move but the delays in informing customers of the It isn't only former insiders who see the on. Back when Sony, led by co-founder Akio 2 SONY MAY 2011 Morita, launched the Walkman, it proved an inspiration to the founders of the then little- known startup company: Apple Computers. "Sony had the most incredibly well-thought out products in the world. We wanted to be like that from day one," Steve Wozniak, Apple co-founder, told Reuters recently. At the time, "no other company in the world was the model for consumer electronics." As Japan's seemingly unstoppable economy expanded through the 1980s, Sony remained the consumer electronics benchmark as Morita handed over the creative mantle to maverick Norio Ohga, a trained opera singer who caught the founder's attention by writing to complain about the quality of Sony's audio tapes. Ohga, who died in April aged 81, is best remembered for convincing the world to give up vinyl in favor of CDs and for green-lighting one young executive's ploy to beat Nintendo at its own game with the PlayStation. The serial successes, though, bred complacency. "If you had the Sony name on the back of your shirt you were fine, so they Sony shows off the new CD Walkman at the 20th anniversary celebration marking the first Walkman headphone stereo in Tokyo on July 1, 1999. REUTERS/TOSHIYUKI AIZAWA stopped thinking," Maeda says. In 1989, the Japanese economic juggernaut stalled and the benchmark Nikkei index "IF YOU HAD THE SONY NAME ON topped out just shy of 39,000, marking the THE BACK OF YOUR SHIRT YOU WERE FINE, start of an asset value slump that continues to sap Japan's economic vitality 22 years later. SO THEY STOPPED THINKING." That same year, amid a frenetic Japanese TOO ORDINARY saying, 'We're so screwed.' No one in that pursuit of landmark overseas assets, Sony WHEN STRINGER WAS appointed Sony's group was going to say 'Why the fuck do we made its first big mistake. Chairman and CEO in 2005 he was keen to need a (computer) mouse.'" The company bought Hollywood studio show that he could revitalize the company's Sony's problem, offers Hironobu Yokota, a Columbia Pictures for $3.9 billion from the reputation for creativity. As a Welshman procurement manager who left Sony in 1995 Coca Cola Company. It was a business and running a Japanese company, but who because "all the misfits had left" is that it culture that Sony didn't fully understand and understood its corporate culture, he was has become ordinary, a condition he says is became a big distraction for management. seen as having a better chance of shaking it worsening. Five years later as Ohga handed Sony over up than most. "I have consulted for Sony several times to Nobuyuki Idei it was forced to write off $2.7 After a bruising first year of heavy losses, since I left. Looking at it from the outside, it is billion from the purchase after a string of he was anxious to kick off the annual basically getting worse and worse," explains costly box-office flops. management meeting at Tokyo's Grand Yokota. Seven years later, Apple's Steve Jobs, Prince Hotel New Takanawa on an optimistic Even the engineer Sony eventually picked inspired by Sony's Walkman, launched the note. Stringer trotted out a group of what he to do battle with Apple is now among the iPod digital player. It was a seminal event for claimed were the 50 brightest engineers that Sony refugees, and has become one of its Apple and a huge warning for Sony. Sony had to show the 1,200-strong crowd of fiercest critics to boot. In one move, Apple ended Sony's managers gathered in the ballroom. Koichiro Tsujino, who spearheaded the dominance of the music player market and "These are our future," Stringer boasted development of Sony's Vaio laptop, left left little doubt that Sony was heading for a of the group of the cleanest, most well- the company in 2006 and later headed full-blown crisis.