This week on Behind the Business, we’ll
be taking a look at one of the most innovative
companies to ever emerge from Japan.
The inventor of such brilliant technologies
as the transistor radio, the Walkman, the
CD player and the PS Vita, Sony.
Our story begins in March 1945.
World War 2 was still in full swing, but by
that point the Axis powers were crumbling.
Russians were swimming in the Oder, Hitler
was on suicide watch, and a fleet of Boeing
B-29s was firebombing Japan into oblivion.
The bombing of Tokyo on March 9 was the deadliest
air raid in history, and it threw the Japanese
military into panic mode.
Numerous emergency meetings were held that
week, and one such meeting brought together
two men that would eventually change the course
of history:
Masaru Ibuka, a Navy lieutenant, and Akio
Morita, a weapons researcher.
Their brief military careers ended just a
few months later when the Japanese Empire
surrendered, and faced with unemployment,
the two men found work wherever they could.
Masaru got a job repairing radios for a department
store, but in 1946 he convinced Akio and several
of his friends to start a business together.
They borrowed $530 as initial capital and
founded the Tokyo Telecommunications Engineering
Corporation, or Totsuko for short.
Despite the name, they didn’t have the R&D
budget to develop telecommunications and so
their first product was actually a rice cooker.
It didn’t really sell, though, and pretty
soon Masaru gave up on the home-appliance
market.
His first success came in 1949, when he got
to try a tape recorder imported from the US
by the Japan Broadcasting Corporation.
Back then tape recording was a very new technology,
and Totsuko became the first to market it
in Japan.
They released their G-type tape recorder in
1950, and although sales were slow initially,
as the Japanese economy started to recover,
so did Totsuko’s fortune.
Then, in 1952, Masaru got wind of a world-changing
invention: the transistor.
It had been invented more than five years
earlier by Bell Laboratories, but it was used
almost exclusively by the military.
Back then consumer electronics were based
on the vacuum tube, which was much bigger
and used many times more electricity.
Masaru immediately saw the transistor’s
potential and so he did whatever it took to
get his hands on it.
He managed to license the technology from
Western Electric for $25,000, a price tag
so expensive it nearly bankrupted Totsuko.
Masaru put everything on the line, and by
1955 Totsuko had successfully created Japan’s
first transistor radio, the TR-55.
It was a monumental achievement.
They didn’t just create a radio that was
small and portable; they also managed to improve
 the transistor technology itself.
You see, under normal conditions, the germanium
used as the base for Bell Labs’ transistor
isn’t conductive at all.
Only when you add impurities to the germanium
does it actually function as a conductor,
and this is where Akio’s knowledge in physics
came in handy.
By adding trace amounts of phosphorus, he
greatly amplified the transistor’s capabilities.
This improvement proved vital because Totsuko
wasn’t the first company to produce transistor
radios.
A small American company called Regency Electronics
beat them to it by a few months.
The transistors they used, however, were built
by Texas Instruments, and they were vastly
inferior to those developed by Akio.
This gave Totsuko an edge.
They saw huge potential in selling their radio
not only in Japan, but even in the US, where
the market was much larger and equally untapped.
To appeal to Americans, however, Totsuko needed
to build a distinctive brand.
Fittingly, they derived their name from the
Latin word for sound, ‘sonus’.
Thus, in 1955 the Sony brand was born.
The success of the Sony TR-55 caused a paradigm
shift in the West.
You see, back then ‘made in Japan’ carried
the same connotation that we associate with
‘made in China’ today.
Sony’s radio, however, was objectively better
than anything on the market, and it kickstarted
the company’s reputation.
Sony put their transistor technology to further
use in 1960 by creating the world’s first
transistor television.
They then made an even bigger leap by developing
innovative color TV technology.
Akio’s team managed to improve the electron
guns behind color television, and they created
a vastly superior version.
Unveiled in April 1968, the Sony Trinitron
received universal acclaim and became one
of the most popular TVs of its time.
Sony made another great move that year by
partnering up with CBS to make vinyl records.
The early 1970s showed even greater promise,
as they saw the rise of the videocassette
recorder, or VCR.
In its earliest days, there were many competing
videocassette formats and Sony were eager
to get in on the action.
They had developed a prototype format in 1969
with Matsushita Electric, the company you
now know as Panasonic.
The format was prohibitively expensive, however,
and it’s lack of mass market adoption eventually
led to Sony and Matsushita parting ways.
Each started developing their own videocassette
format, and the end result was one of the
fiercest format wars in history.
Sony created their format in 1975 and called
it Betamax.
It could only record a maximum of one hour,
but it’s quality was by far the best in
the market.
Matsushita released their format, called VHS,
a whole year later.
Although Betamax was considered superior,
Matsushita were the biggest electronics manufacturer
at the time and their power was considerable.
They owned JVC, and also managed to convince
Hitachi and Mitsubishi to adopt their format.
Even though Sony had a whole year head start,
they couldn’t get enough manufacturers to
use their format and so eventually they had
to start making VHS machines.
Despite their defeat though, Sony were eager
to make a rebound.
Their strategy was to improve consumer electronics
and to make them portable, and there is no
better example of this than the Sony Walkman.
Released in 1979, the Walkman completely revolutionized
the way people listened to music.
A cheap portable stereo was completely unheard
of at the time, and yet Sony managed to sell
their Walkman at a comfortable $150.
Since then it has sold over 385 million units,
and it’s become one of their most iconic
products.
That same year Sony teamed up with the Dutch
electronics firm Phillips, who had pioneered
the optical disc medium through their LaserDisc
technology.
Together the two companies developed the Compact
Disc, and in 1982 Sony began selling the first
commercial CD player, ushering in the era
of digital music.
Sony also kickstarted the popularity of camcorders
by developing one of the earliest lightweight
video cameras in 1985.
They further cemented their hold on the music
industry by buying CBS Records for $2 billion
in 1987, which gave them access to the world’s
largest music library.
Two years later, Sony broke into the film
industry by buying Columbia Pictures from
Coca Cola for $3.4 billion.
As the world entered recession in the early
1990s, Sony were getting ready to conquer
their next market: console gaming.
They had tried to partner up with Nintendo
in the late 1980s, but when deal fell through
in 1992, Sony had to finish the project on
their own.
Then, in December of 1994, Sony unveiled their
masterpiece, the PlayStation.
It was an immediate success, bringing in a
swarm of developers that made iconic games
like Metal Gear Solid and Resident Evil.
The PlayStation was so technically innovative
that it remained in production for 11 years,
selling over 100 million units.
Sonny continued to innovate throughout the
1990s.
They introduced their first flat screen TVs,
their VAIO computer brand and even a robotic
dog.
Sony kicked off the new millennium with the
PlayStation 2, which to this day is the best
selling video game console of all time.
In 2001 they bought Ericsson’s mobile division,
thus giving birth to Sony Ericsson.
They then topped off their content library
by acquiring Bertelsmann in 2003 and Metro-Goldwyn-Mayer
in 2004.
Sony released the PS3 in 2006, and although
it didn’t hit PlayStation 2 levels of popularity
it still did pretty well.
Now, over the past decade it’s pretty clear
that Sony has started to lose some of its
steam.
It’s not that they’ve become bad, but
rather that everyone else has become better.
Whereas before Sony were famous for leading
dozens of markets at once, now they’re struggling
to innovate at all.
Their competition has blown past them in almost
every department.
Their mobile division has less than a 1% market
share, Warner Brothers and Universal have
dominated the film and music industries, their
smart TVs are just downright stupid, and … PS
Vita.
That said, the situation isn’t all doom-and-gloom.
The PlayStation 4 has had a phenomenal run,
selling almost 60 million units in its first
three years.
Interestingly enough, one of their most profitable
segments over the past ten years was their
financial division, which was established
all the way back in 1979.
Of course, although the PS4 is carrying them
right now, Sony have a lot of catching up
to do.
Luckily, they’ve got a great opportunity
to shine in the latest up-and-coming tech
industry, virtual reality.
They’ve already made their first steps,
but the industry is still very young and right
now it’s anyone’s game.
Sony are really gonna have to make VR count,
however, since in the tech business you rarely
get second chances.
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In case you missed it, do check out our previous
video on the history of AOL, from the earliest
days of the internet to their fall as America’s
dial up overlord.
You should also check out the full Behind
the Business playlist, where you’ll find
the interesting stories of other big companies.
Once again, thanks a lot for watching, and
as always: stay smart.
