SONY

Highlights

• 2024-11-13 10:46 I’m Ben Gilbert, and I am the co founder and managing director of Seattle based Pioneer Square Labs and our venture fund, PSL Ventures.

• 2024-11-13 10:46 And I’m David Rosenthal, and I’m an angel investor based in San Francisco

• 2024-11-12 12:13 Today we are telling the story of the company that Steve Jobs idolized and modeled, Apple computer after the Sony Corporation. Literally modeled himself after, you know, the story. Right.

• 2024-11-09 19:15 David, did you know that they own a division that exclusively makes a tiny dog robot? I did know that. Do they still make that thing?

• 2024-11-13 10:38 They are the second largest japanese company by market cap, behind only Toyota. They’re the largest video game console company and the largest video game publisher in the world. They’re the largest music publisher and the second largest record label, which, for those of you who listen to the T. Swift episode, you now know the difference. And they have the third largest Hollywood film studio on top of all of that. So we have a wild story going all the way from World War Two to Spider man to tell you here today

• 2024-11-13 10:39 Listeners David and I both read a couple books to prep for this, but one of them is the excellent made in Japan, co written by Akio Morita himself, who we were about to introduce here. And he talks about this a lot, where he’s really idolizing the technology and the innovation coming out of the US and sort of knows from reading everything that he possibly can get his hands on.

• 2024-11-13 10:39 Yeah, I went and I looked up population statistics from the world War two era, and Japan had about 70 million citizens. Before World War two, the US only had about 130 million. So, like, yes, America was bigger, but not, like, way bigger.

• 2024-11-13 10:40 Masaru Ibuka, and he is a prototypical engineer’s engineer. This guy loves technology. I can’t remember if it was Morita or somebody else in one of the books I was reading, lovingly referred to him as a dreamer.

• 2024-11-13 10:40 Yeah, it’s so right that Morita, while he does have a physics background and he’s definitely a engineer, it is right to say that Ibuka is the engineer’s engineer

• 2024-11-13 10:40 Akio has much more of a sort of marketing sensibility. And while he invents a lot of these technologies and sort of understands it, he’s the business side. You might say that Ibuka is like the Woz and Accio and Morita is like the jobs. That’s a great comparison.

• 2024-11-09 19:23 This was like one of, if not the major technological paradigm of the twenties, thirties, forties, and due to his proficiency in radio, when the war started, the military and the japanese government made shortwave radios illegal in Japan. Now this is also paradoxical.

• 2024-11-09 19:24 If youre going to listen to propaganda, it has to be our propaganda. So they literally made it illegal to sell by any shortwave capable radios that consumers had.

• 2024-11-09 19:25 And literally, for 400 years, his family has been running this business and is one of the most prominent families in Japan in the province of Nagoya.

• 2024-11-13 10:41 Yes. I don’t think there is a family business in the US that is as old as this company, either in terms of generation or years. The US isn’t 400 years old. Yes, exactly. And, I mean, part of it is like, there are umbrella shops in London older than our country.

• 2024-11-13 10:41 And, of course, it’s always a little bit of a point of tension with the family where Akio is taking apart radios and building stuff, and everyone’s sort of looking at him like, boy, you sure are interested in physics for someone who is 100% going to take over our sake and soy paste business at some point.

• 2024-11-13 10:53 August 15, 1945. The US in the week prior has just dropped two atomic bombs on Hiroshima and Nagasaki.

• 2024-11-13 10:53 The reaction that Morita has, he writes this. This is literally the opening paragraph to the book to made in Japan. I was having lunch with my navy colleagues when the incredible news of the atomic bombing of Hiroshima arrived. The information was sketchy. We were not even told what kind of bomb had been dropped. But as a technical officer just out of college with a degree in physics, I understood what the bomb was and what it meant to Japan. And to me, the future had never been more uncertain. Japan had never lost a war, and only a young man could be optimistic. Yet I had confidence in myself and my future even then.

• 2024-11-09 19:32 What happens on August 15? That is when the emperor goes on the radio in Japan and announces that Japan is surrendering and asks everybody to surrender.

• 2024-11-13 10:42 There are two and a half to 3 million people dead in the war, both soldiers and civilians. By contrast, less than 500,000 Americans died in the war. So it’s pretty bad. And outside of just Hiroshima and Nagasaki, which is just so awful. I mean, the darkest moment in human history.

• 2024-11-13 10:42 What happened there or among the darkest. Anyways, even in Tokyo and all these other cities their I destroyed, I mean, they got firebombed over and over and over again. I think it’s something like half of all japanese urban citizens, even in Tokyo, are homeless. Yes, 47% of Tokyo citizens are homeless at this point. The per capita income in the country the next year, in 1946, the first year after the war, is $17.

• 2024-11-13 10:43 Japan doesn’t have a military anymore. Like, you can’t focus technology development on the military. The only thing you can do with technology, the only market you can serve, is the consumer market. This is the moment where we realize that Ebuka is truly an irrational optimist. The national tenor couldn’t be more bleak.

• 2024-11-09 19:40 I think eventually they do come out with products, too, that people can sort of modify their radios by attaching this product, and it turns into a shortwave antenna or something like that.

• 2024-11-13 10:44 Does Ibuko want me? Like, you assembled a team of 20. And you didn’t reach out to me. Bond that we had. Yeah. It sort of never comes up again. They’re thick as thieves forever after this. But it is sort of interesting to me that Akio Morita was not one of the first 1520 people at the company.

• 2024-11-13 10:44 This idea where if you’re the occupation government, that’s sort of like helping the country heal. You’re there to make sure that it doesn’t break into war again. And that after you drop atomic bombs on this country, that you’re sort of like, helping them rebuild. You sort of make this decision, which is fascinating, that, hey, we don’t want soldiers educating the next generation. We want the next generation to grow up in a completely detached way from the mindset of those who waged war.

• 2024-11-09 19:45 I dont have the exact dates here, but even by the early two thousands, the Morita family still, I believe, owned about 10% of Sony. Yes, as of 1999, the family controls a 10% share, which at the time was worth roughly $5 billion.

• 2024-11-12 12:13 And again, this starts so counter to the lean startup methodology. There is no job to be done when they start this. They kind of get lucky in finding their way to the stenographers and the court reporters. As a market, they initially go out to sell this thing, and people are like, whoa. Why would I pay so much money for that thing? No one has any money. And it’s like a little bit of an accident of history. They actually found a use case for it. Totally. Yeah

• 2024-11-12 12:14 I mean, especially then, once we get to the integrated circuit, it’s so wildly different than the path that technology was already on that it was kind of unlikely that, like, anybody else toiling in a lab was going to independently find their way to it at the same time. So once this thing gets invented and all these brand new use cases sort of emerge, the opportunity to license that technology and use it to commercially make products in your country, that’s huge. Keep in mind what we were saying for the last few minutes here, about the size of these various, you know, technology, quote unquote, products that were being used. You know, the radios that were the size of console tables and tape recorders the size of nightstands. So the transistor is available for license.

• 2024-11-09 19:56 It works in every language, every culture around the world, and it really becomes synonymous with innovation for decades.

• 2024-11-12 12:14 They have the Sony salesforce that sells the products to the distributors, retailers. They get special custom shirts made for all of them with a slightly larger than standard pocket so that they can demonstrate putting the radio in the pocket. It’s amazing. Again, the Steve Jobs peril. Like the showmanship of that, you know, it’s like the MacBook Air in the envelope.

• 2024-11-12 12:15 And I think Morita would later say that this was the single, like, biggest and best business decision of his career. He turns them down and says, nope, you can sell the Sony TR 63 or you can sell nothing. It is really brilliant. I mean, it is a mark of what was to come and also something that truly defined the company, because company culture and company values don’t mean anything until they’re tested. And when, I don’t think he used the phrase direct to consumer, but when they sort of decided they wanted to be a direct to consumer company.

• 2024-11-12 12:15 That’s cute and all until someone offers you a big pile of money to be a white label OEM product. But I think when you really test it and when it comes out is when he says, nope, we refuse this order

• 2024-11-12 12:16 I’m going to keep making apple parallels, by the way, as much as we like to hold up Steve Jobs, he did come out with the Hp iPod. Oh, that’s right. Oh my goodness, I forgot about that. There was that like itunes phone. That was actually a Motorola phone. That was a piece of the rocker. Yeah, the moto rocker. That’s right. But the HP iPod truly was just an iPod with an HP logo on the back. Did it have any special colors or anything? I remember I had the u two ipod that was black and red. That thing was awesome. That was cool.

• 2024-11-12 12:16 And that is independent. True. They did not stem from the same company. No, they are completely different. And yet Sony ended up buying both of them in their future. Unbelievable. They didn’t reunite the Columbia as they united the Columbia for the first time. Okay, so back to 1966. CB’s newly re interested in Japan. They’re looking for a partner to set up a JV to access the japanese recorded music market.

• 2024-11-09 20:10 Morita and Oga were really the triumvirate for a long time. Oga was a classically trained musician.

• 2024-11-13 10:48 When we started doing this research, David, I had no appreciation for how much harder it was to do color television than black and white. I just assumed that, like, oh, when color television came out, everybody started buying color tvs, and black and white tv went the way of VHS, which we’ll get to in a minute when DVD’s came out. No, not the case. For many years, color tvs were on the market, but people kept buying black and white tvs because the color tvs, the picture quality was so crappy, right? Without getting too far into the details, because we’ll get way over our skis.

• 2024-11-09 20:13 Yep. So Sony goes to work for years trying to make a really, really great color tv.

• 2024-11-13 10:48 like decades from when the Trinitron TV comes out, Sony is the number one by market share tv manufacturer in the world.

• 2024-11-13 10:47 But Betamax, yeah. For many listeners listening, it’s like the butt of a joke. You don’t want to be the next Betamax. Exactly. So they introduced it in 1975.

• 2024-11-13 10:47 And the killer feature that they market for this, it’s the first product to market of a video, a video cassette recorder that consumers can use to record television programs. So they market the killer feature as time shifting. It’s kind of amazing that the first killer feature isn’t a. You can take movies that you used to only be able to watch in theaters and watch them at home, and that will be a distribution channel for movies. No, it’s tape stuff off your tv.

• 2024-11-10 15:16 I wonder if them essentially anointing VHS and Matsushta as the winners was enough to drag the whole industry. Okay, so Sony lost Betamax versus VHs.

• 2024-11-10 15:16 Interestingly, the seventies had a lot going on for Sony, the first of which was in 1970. They became the first japanese company to be listed on the New York Stock Exchange.

• 2024-11-13 10:47 This is Merida’s folly. Yes. He single handedly thought that, hey, we’ve got this cassette player, but really, it’s a cassette recorder, and it doesn’t have speakers. It’s a little chunky, but people kind of can take it out in the world and record stuff and listen to it on the speakers. I think there’s a market for people who want a sort of slimmer, sexier version of that where we throw away the recording capabilities, we get that write out and stop taking up space with it.

• 2024-11-13 10:45 And you have Marita going, no, it’s going to be low power. Because we’re going to make these amazing low power headphones. We only need to produce a little bit of sound because it’s going to be right next to people’s ears. This was a consumer behavior that did not exist in the world that Akio Morita just said, everybody, trust me, let’s invest in this. And completely changed human history forever.

• 2024-11-13 10:45 The sentiment on the board and in the company against Morita Marita at this point is the CEO of Sony was so strong that he had to make a promise that if the initial 30,000 unit production run didn’t sell by the end of the year, that he would resign from Sony.

• 2024-11-13 10:46 But it is one of these things. The way Morita phrases it in the book is this quote that is Steve Jobs before Steve Jobs. And I think I’m going to make that point eleven times in this episode. Because it’s not that Steve Jobs is a ripoff of Akio Morita, it’s that he so badly wanted to be Akio Morita. And he was such a better marketer in his time of a lot of the concepts that a lot of us grasp on to Steve’s version of them, even though a lot of the concepts are actually Akio’s version of them.

• 2024-11-13 10:46 And yet the Sony Walkman has literally changed the habits of millions of people around the world. He said this in 1986. Steve Jobs would sort of say things like this.

• 2024-11-13 10:45 Apple doesn’t do focus groups. You have to invent something. People can’t tell you what they want, blah, blah, blah. These are all marina isms

• 2024-11-10 18:59 His quote about Steve is that he was a freak about Sony and that it was nearly fetishistic. In fact, he even had a collection of Sony Letterhead and marketing materials and he talks a lot about how the Mac factory was designed to emulate the Sony factory.

• 2024-11-10 19:00 And this whole thing comes totally full circle when Morita eventually passes away. Steve Jobs in 99 is giving the Macworld keynote, and he starts the keynote by putting up a picture of Akio Morita, who they used in the think different campaign, and says, and this is a quote from Steve on stage while he was leading Sony.

• 2024-11-10 19:02 All in. Sony sells a quarter billion walkmans in the life of the product.

• 2024-11-10 19:04 Unfortunately, after the discman, then they do. The mini disc, which I bought like a fool. Me too. Me too.

• 2024-11-13 10:48 So it’s not unreasonable to think Sony could buy all of CB’s records. The other thing happening in the eighties is that Japan’s currency has massively, massively appreciated versus the dollar. And it is much easier for japanese companies to go make acquisitions abroad than it would have been otherwise, which is. Of course, feeding many Americans fears of Japan taking over all of american business. I mean, there’s this incredible xenophobic, even through the nineties, very anti japanese business mentality among Americans that they’re gonna come buy all of our staples.

• 2024-11-13 10:49 These cameras are incredible, but they are. Not fun to shoot with. It’s not like shooting with a Fuji and the menu system on these sonys. When you need to interact with the software on the devices, it is like. Oh, my God, it is truly torture. So frustrating. I think you really nailed it. Where they can make these fantastic devices, they’re the opposite of Apple. They don’t know how to build fantastic software and services that differentiate their hardware. They just make great hardware.

• 2024-11-13 10:49 We are seeing Sony decide, I think that they’ve basically done a first look deal with Netflix. So anything that comes out from Sony Pictures, Netflix has the first opportunity for. But they also have signed a licensing deal with Disney, for Disney and Hulu, too. So they’re basically saying, look, we kind of don’t care who wins here.

• 2024-11-11 11:50 The Sony PlayStation that plays Super Nintendo games.

• 2024-11-11 11:51 And I think both gaming business history and japanese business culture, this is the ultimate betrayal.

• 2024-11-11 12:23 By the end of the system life it gets 8000 unique games compared to the N 64 which came out later, only gets 400 unique games on the platform.

• 2024-11-11 12:25 And the other thing that the PS two had was backwards compatibility with the PS one. And that was a totally new concept in the industry. So, like day one, the PS two, you had 8000 games from the PS one that you could play.

• 2024-11-13 10:49 We’ve briefly mentioned the Vaio PC division. That never works.

• 2024-11-13 10:49 They end up selling it in 2014 and then mobile and smartphones are just an unmitigated disaster for Sony. The whole Xperia thing was just a colossal failure. In fact, if you look back at the annual report in 2018, they decided for their electronic products and solutions segment to break down to sub segments in this annual report. So you can see that it’s all mobile’s fault.

• 2024-11-13 10:50 Why did they eventually lose tvs? I think Sony doesn’t know how to make computers and as things become computers, they lose. I 100% agree with that. Phones became computers, computers matured to be the modern PC that we know today, you gotta worry about them against Microsoft. If Microsoft’s 20 year vision of the computer in your living room actually becomes a meaningful, useful computer in your living room that you spend a lot of time with, smart tvs would kind of tell us that that is coming true.

• 2024-11-13 10:50 So continuing their arms dealer strategy, I think as they realized how bad they were going to be at making cell phones, there was a thing that was happening that started 1520 years before, which was innovating on sensors, in particular camera sensors. And this was really beneficial for their Powershot line, this was really beneficial for all of their pro and cameras. They kind of invented the mirrorless segment. I mean, the Sony Alpha, I hate this word, but it’s so applicable here. The prosumer concept of like, hey, people want a reasonably compact thing with interchangeable lenses that they can take out that isn’t a big gigantic SLR.

• 2024-11-13 10:50 roadly, they are able to put sensors in lots and lots of other phones. Too.

• 2024-11-13 10:51 But the long and the short of it is, I think it’s the first time that two studios that are rivals like this have. I mean, because this is two of the big five shared really important ip and actually created successful product out of it. That is so cool. And the movies have been incredibly successful.

• 2024-11-13 10:51 There’s even something more nutty. Like, for another 10 million, I think Sony could have licensed all the Marvel characters, but somebody was like, eh, they’re all kind of bad. Except Spider man. No one cares about any of the others, which was kind of true. At the time, no one really cared about Iron man.

• 2024-11-13 10:51 They sort of invented the MCU out of second tier characters. And so Sony was like, no, let’s just go get Spider man. Let’s do that. This is like a confederacy of dunces here. Who is more stupid than the other?

• 2024-11-13 10:52 I anecdotally felt this as a consumer at the time, but 8000 games on the PlayStation versus 400 on the n 64.

• 2024-11-13 10:52 I think if the Sony camera was twice as expensive as a comparably good canon, I definitely would get the canon

• 2024-11-13 10:52 I don’t think there’s any reason why they’re able to be extra profitable there and they historically haven’t been. Financial services are just generally good businesses, so no surprise that that’s a profitable one for them.

• 2024-11-11 16:31 I dont think ive ever owned a Sony product that worked with another Sony product in a meaningful way at all.