How much vertical integration does it take in consumer products to make them into a great consumer product. Like the Palm Pilot before it, the iPod is the quintessential 21st century consumer hit, yet characterized by a highly integrated experience from design to in-store to brand experience. Corporations in general have been notoriously bad at creating experiences when they have been successful at the corporate level.
Compare and contrast products like Burberry, Hermes, BMW, Apple, Ikea, Sony and others. Although they are great consumer products, they are not corporate products and are not intended to create a corporate experience. For example, BMW has successfully built a brand around success and driveability. (This doesn’t translate to the Ford Mondeo or Chevy Impala, both fleet vehicles.) The brand experience extends from advertising to the shopping experience. Those who have been lucky enough to buy through a BMW dealer will understand that it is very different than buying from a Chevy dealer. Both BMW and Lexus understand this and make it a requirement to sell a BMW vehicle. And yes, they offer free lattes and muffins and some of them look like Starbucks stores. (BMW dealers prefer the white and stainless steel look like Shelley BMW in Wellington and BMW Sydney in Potts Points, as well as BMW Toronto, while LandRover/Jaguar like wood paneling.)
Going back to the Sony Walkman, as I said earlier, the Walkman needs to have the music packaged and available. Due to the Phillips compact cassette, this was possible at the time in large numbers. In fact, it would be reasonable to say that without Sony and the music industry benefited greatly from the Walkman and created a new level of economics with the music industry. It is now a fact that this level of integration, the cassette and the portable player was a necessary precondition for the market to exist. This is because while it was possible to copy music to the desktop from tape and many of us did, we also bought pre-recorded music in bulk quickly and easily.
By June 1989, 10 years after the first model was launched, the total number of Walkman units manufactured had exceeded 50 million, and in 1992 it reached 100 million. In 1995, the total production of Walkman units reached 150 million. Including a special 15th anniversary model, more than 300 different Walkman models have been produced to date and Sony has remained the market leader. [Source Sony Corporation.]On the contrary, Apple’s iPOD has sold 67.9 million iPods in its various flavors in its first 4.25 years and expects to reach 100 million iPods in about 6 years, surpassing Sony by about 7 years.
Sony also spent a lot of time on the brand experience. The Walkman name was clever and multilingual. They were able to clearly create the brand around the Walkman that expressed youth and freedom. The ability to listen to your music when and where you need it has become the rig of the day and is a fact we take for granted today.
Walkman as a generic verb or noun
As much as Google doesn’t like the term “Google” as a “search” verb, it’s not up to them but the consumer to decide which brands are verbs. They should be flattered because it’s an esteemed position in the market which means a market position that has no equal. Walkman along with iPod, Hoover and Xerox are brands that achieved this position. The Walkman became the de facto name for a portable music player until Apple replaced it with the iPod. Although it is still difficult for older people to replace the Walkman, for younger people the Walkman is just another music player.
However, Sony was able to create the “Walkman” brand as a class of device that made it nearly impossible for anyone else to compete for the minds of consumers. I challenge anyone to come up with an alternative portable CD or cassette player. I’d say Apple has accomplished this so far and we’re looking to see if the term “Zune” makes any headway or is it just another wanabee brand.
Vertical integration must include the brand experience
So the second element is that the brand experience is a vital part of the Vertical Integration strategy, which brings us closer to the argument that a platform will not work in the consumer space and that is because they value the experience beyond the device and perhaps buy the device to subscribe to all the values that the brand provides.
What if Microsoft called it MSN Player instead of Zune?
Our natural reaction is that this would not work, why? I’d venture to guess that it’s because there’s already a preconceived brand experience that consumers would apply to the music player, and you don’t want to carry over those brand values because they’re not the experience you want to convey. The MSN network is what we refer to as the ghetto portal. Unlike Google and Yahoo, which have great search and media partners, MSN is a hodgepodge of content with a few apps around it. If it disappeared tomorrow no one would care too much because it’s a duplicate of Yahoo that does 10 times better. That’s not to say that Windows Live won’t improve that experience (the fact that they have to make Windows Live shows that MSN will be taken out and beaten to death), but Windows Live is trying to extend the brand to Portal. space.
Does the OS vertical integration argument extend to music players?
Once again, the ability to experience digital music consistently from purchase to listening was an important part of the success of iTunes/iPod. The key flaw with the Sony Digital Walkman is that it didn’t integrate cleanly with music downloads. Sonic Stage software is heavy and difficult to use. It requires a level of skill to move music to the player that was beyond most consumers and its restrictions on playback were downright counterproductive. This is due to the limitations that Sony placed on itself when launching the digital product; in fact, it was his own worst enemy.
Since Microsoft has removed Playsforsure’s partners, they too have admitted that the iTunes/iPod combination is a necessary condition to compete. They didn’t say that a few years ago when they were looking for partners for this system, they thought a platform approach where they would license the software and DRM to manufacturers would work.
So, to paraphrase, what was the strength of the Sony Walkman, pre-recorded and pre-packaged music and a strong brand experience was indeed its downfall. Because Sony didn’t make using their product as simple and convenient as possible, they couldn’t go back the way of the iPod and gave the market to Apple and the iTunes/iPod combination. Due to its success in the CD/cassette player market, Sony believed that it could control the consumer experience and how they could use their music. They were also limited by owning a large record company (Sony Columbia) which lobbied hard at the corporate level to stall the Digital Walkman and ultimately left the way open for Apple to take the lead.
Before we get to the question of whether Windows will make a difference to the Zune ecosystem, we need to understand why the Playsforsure ecosystem failed, and whether Microsoft learned any lessons from this.