A Lesson On Apple’s Destruction of Sony’s Top Selling Music Player
In Walter Isaacson’s biography on Steve Jobs there is a chapter dedicated to Apple’s invention of the iPod and how it destroyed the incumbent music player, the Walkman, which was designed by Sony. In the late 1990’s and early 2000’s music was being pirated from applications like Napster, Limewire, and Kazaa and none of the record labels saw this coming, so of course they didn’t know what to do.
Sony had multiple divisions where some were in technology (TVs, music players, stereos), they had a movie studio, and also a music studio. Steve Jobs explained that the problem with Sony is the company was divided into multiple divisions where they each had separate profit and loss statements as opposed to Apple who had one profit and loss statement for the whole company. Due to this structure, Sony was afraid that if the technology division created a music player to deal with the collapsing music industry then their record studio would take a beating and lose lots of sales. This caused Sony to be hesitant to adapt their Walkman CD player to the rapidly changing music industry and they faltered hard for it.
Steve Jobs on the other hand took advantage of the rapidly changing music industry by developing the iTunes Store and the iPod. He convinced all artists and the record studios to sell songs for 99 cents on the iTunes store and they would receive a majority of the sale while Apple would receive a smaller portion. After the early success of iTunes and the iPod, Bill Gates said in an email to colleagues,
“Steve Jobs’s ability to focus in on a few things that count, get people who get user interface right, and market things as revolutionary are amazing things… This is very strange to me. The music companies’ own operations offer a service that is truly unfriendly to the user. Somehow they decide to give Apple the ability to do something pretty good.”
Bill Gates was shocked that Steve could convince the music companies to go along with the store. Walter Isaacson reflects that the reason Sony failed was because they couldn’t achieve synergy by having different divisions that work separately and are semi-autonomous. Due to this, Sony also worried about one department hurting another department. Here is a quote from Walter’s book Steve Jobs to sum this up:
“Sony worried about cannibalization. If it built a music player and service that made it easy for people to share digital songs, that might hurt sales of its record division. One of Jobs’s business rules was to never be afraid of cannibalizing yourself. ‘If you don’t cannibalize yourself, someone else will,’ [Steve Jobs] said. So even though an iPhone might cannibalize sales of an iPod, or an iPad might cannibalize sales of a laptop, that did not deter him.”
So the lesson is to not design a company where it would be difficult for one division to be innovative at the expense of another division. Also, another lesson is to not be afraid of developing a product in fear that it will take sales from another department.