A Company Doomed to Mediocrity
Nov 3rd 2011 1:34PM
Updated Nov 3rd 2011 1:50PM
Yesterday, Sony (NYS: SNE) announced it's on track to report a fourth straight year without turning a profit. The once-mighty Sony has fallen; still, can investors say they haven't been warned? For years, Sony exhibited plenty of signs it was on a doomed path to corporate mediocrity (and dwindling shareholder value).
One of my biggest warning signs for a company that's doomed to mediocrity is one that's so arrogant it frequently takes advantage of or angers customers, and Sony has built a massive track record for years running.
About five years ago, things got really ugly for Sony:
- Sony's laptop batteries exploded. A lot. (2006. With a reprise in 2008.)
- Sony repeatedly stood up gamers waiting for PlayStation 3. (2006)
- Sony got "flogged" when Netizens realized it had created a fake blog to push its PSP. (2006) (Incidentally, this kind of marketing fakery wasn't new -- Sony created a fake critic to talk up one of its 2001 films.)
- Music unit Sony BMG took antipiracy efforts so seriously it went anti-customer and sold discs designed to install rootkits (popularly considered spyware) on buyers' computers. (2005)
- Sony got in hot water for payola -- yeah, for real. (2005)
If I dug through the Foolish archives, I'd probably find far more examples, but I have word-count limits. Let's just leave it at this: You could say Sony's worked overtime on making itself look bad over the years.
Maybe working on tarnishing its own brand was a tremendous distraction from actually innovating. Sony was well known for the old-school hit portable music player, the Walkman, and somehow managed to cede the market for the next generation of portable music to Apple's (NAS: AAPL) iPod.
More recently, Sony's trying to launch a tablet to rival the iPad. Uh, good luck with that. The tablet and e-reader market already has some real winners. Amazon's (NAS: AMZN) Kindle has been a smash success, and Barnes & Noble's (NYS: BKS) Nook is another formidable contender in the e-reader space. Hey, remember Sony's e-reader? Oh yeah, right ... maybe you don't.
Even to this day, Sony's problems persist: Hackers have repeatedly cracked online accounts associated with Sony and PlayStation, presenting yet another reason for customers (and investors) to feel insecure about Sony (and likely far safer with gaming rivals Microsoft (NAS: MSFT) and Nintendo).
Right now, much of the blame for Sony's massive and ongoing losses is directed at its television business. However, investors might want to think about the company's history, and the fact that its competitive advantage has been crippled for a long time. This will likely make salvaging the television business back to profitability difficult.
If you notice a company making a habit of disappointing people -- not just Wall Street analyst people, or investor people, but actual customer people, too -- steer clear of its stock. Turning around companies with tarnished brands is easier said than done. To some, Sony's stock might have looked like a cheap turnaround play all the way down; the doomed path to mediocrity over the last five years or so hasn't been pleasant for investors who bet on Sony.
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At the time this article was published
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