November 28, 2001

Sony: Microsoft's top target

Author: JT Smith

- by Jack Bryar -

Despite a commercial Linux landscape that is as devastated as any IT
market in recent memory, there's at least one Japanese electronics firm that
needs Linux to succeed -- badly. The trouble is, Sony's president may not be
aware just how badly he needs to hitch his company's fortune to an operating
system that has had such a rough ride in the commercial marketplace.

When Kunitake
, Sony's chief operating officer, spoke at Comdex, he may have looked around and concluded that Open Source was dead. While the trade show still featured close to 40 exhibitors with a Linux related product, it was a fraction of previous years. However, based on the feedback from the show, the most endangered company at Comdex wasn't any of the Linux developers -- it was Sony.

Microsoft is coming right at the company.

While Sony may believe
that its future depends on its success in broadband networking
its present is still tied to PlayStation. Sony is hugely
dependent on games for its profits
. Microsoft wants to take that
business away, and then take away the rest of the consumer electronics
marketplace. Microsoft's XBox is the beginning of a campaign to do just that.
According to everyone I spoke to, Comdex
was a coming out party for the XBox
. It was one of the few things
that excited anyone at a show generally conceded to be one of the most
boring in years. Microsoft's target market isn't the kiddies who dominate
Nintendo's marketplace. Instead, the first offerings for the XBox are
targeted right at Sony's older gamers. This is a market Sony can't afford to

As troubling as the Xbox may be to Sony, Redmond is about to
come at the rest of Sony's consumer electronics base during the next 18
months. This week, Microsoft unveiled its new eHome division. This
division has been incubating for better than a year, but many of the
prototypes were first tested in Bill Gates' home more than two years ago. The
division is targeting several core Sony markets: music players, electronic photography systems and enhanced television
services. eHome v.p. Mike Toutonghi has been recruiting senior execs from across
the company in a campaign reminiscent of early efforts to
build out Microsoft's Office suite. The management team is a who's who of
executives from the company's .NET and XP projects. eHome has located a needy
hardware developer to help fabricate and launch this new generation of products.
Cash-strapped Samsung has been selected to help the company
manufacture these products.

Not surprisingly, the company has already leaked that many of the
features of these new products will be hooked into future generations of
Windows. The first few steps in this direction are embedded in XP. As most
reviewers have noticed, those few features in XP of any value are focused
around supporting consumer applications such as audio and communications. This
is not an accident, rather, it is where the development efforts have been
concentrated. The prize is not the PC marketplace, but all the other consumer
electronics devices in the home. It could work.

So will Sony fight back? If it chooses to do so, one thing is
certain. The company will have to find a way to deny Microsoft its operating system monopoly . And that means partnering with Linux developers, and popularizing the
platform as an alternative.

The company has already made some steps in that direction. It will
need to take more. Here are a couple of suggestions.

Step one: Hit Microsoft where it lives.

Why leave Microsoft with a protected monopoly? Admittedly, today
Sony has
nothing to offer Linux enthusiasts
, but there's finally a market
here. Go after it. XP's Passport and product activation feature has alienated some of the
most ardent Windows enthusiasts. Small companies in pressured markets are ready to resist Microsoft's vision of forced upgrades and reduced consumer control of desktops. The biggest market for Linux systems may be outside of North America -- Linux desktops are becoming far more common in Asia and Third World countries. It's hardly
dominant, but in many countries Linux has a PC market share that's a
lot larger than Sony's.

Besides, what's the downside? For years PC makers have signed on
with Microsoft because Redmond virtually guaranteed them growth rates
exceeding 10% a year. Not anymore. XP's sales have stalled and it is taking the
broader PC market down with it.

Step two: Go after markets you should dominate.
Take the market for handheld devices, for example. This is the type
of business Sony used to own. Linux has already secured a small
but growing place in the handheld device market. Today, Sharp and
several other vendors are finding a welcome market for Linux PDAs. While
proportionately, the strongest Linux markets are outside the United States, even in the states machines like VTech's little Helio handheld
are selling out to the bare walls. There's a market here. Go after it.

Step three: Get some allies.

Sony can't fight back on its own, but there are plenty of potential
allies out there who need a little leadership. AOL would probably be
happy to help, but it has no hardware expertise. Sun and IBM would love to
help, but they have almost no consumer presence. NTT, Cisco, AT&T and a
host of Japanese and Korean product manufacturers have little love for
Redmond, and have little to lose by trying to give Microsoft a run for its

But the most important thing for Sony to do is to act ... soon.


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