Despite Sony's aura in consumer electronics business becoming rather bleak, the company's financial performance has amazed many industry analysts. As reported in the Wall Street Journal, strong performers include PlayStation, smartphone-game and image-sensor units. Upon reporting mostly annual losses over the period of last ten years, Sony's revival to report record operating profit of more than $11 billion in its 72-year history deserves analysis to draw a lesson.
Sony's $4.5 billion net profit is the highest since $5.26 billion in 1998. Image sensors with more than $8.0 billion revenue contribute one-third to Sony's such glittering profit numbers. As reported by Bloomberg, Sony now controls roughly 50 per cent of the world market of image sensors, up from about 40 per cent in 2015. One of the significant growth areas for Sony imaging sensors is in dual-camera smartphones, particularly those targeting the booming Chinese market. But how has Sony reached this remarkable performance in image sensor business? How has it been shaped from faint potential in the 1970s to such a mega success is worthy of investigation to glean lesson.
Sony's digital imaging history dates back to 1970. This long journey is full of lesson for development planners and business professionals alike to create wealth from generating knowledge and turning it into technology leading to innovation. We are often supportive of the impression that innovation is about having a great idea. Often perceived mistakenly though, people tend to think that once someone has such an idea, money could be made in a very short span of time. But, in reality, innovation is a long, uncertain journey. In the beginning, the potential is very faint, and the possibility of underlying technology to support successful innovation is quite weak as well. The challenge moves from having a great idea to manage a long, uncertain journey to translate the faint potential into a profitable business. Here is a brief snapshot of Sony's imaging sensor journey.
In 1970, by looking into the technical report on solid-state imaging sensor based on Charge Couple Device (CCD) technology of Bell Laboratories, Sony's Shigeyuki Ochi saw the innovation potential. With his leadership, Sony set the target to cause disruption to tube-based video camera and Kodak's film imaging business. But, noisy poor resolution technology was quite unacceptable to create desired willingness to pay-for creating the substitution effect. Using CCD technology, 8x8 (64) pixel image sensor was developed by Sony in 1970. The target of camera using CCDs at a price under 50,000 yen within five years was set. In 1977, The CCD R&D team was termed as "expensive, good-for-nothing," and the members had to endure criticism from their colleagues. CCD was commercialized as the "ICX008", 120,000 pixels in 1979. Total investment until that date amounted to 20 billion yen--with no revenue. In 1980, order to deliver custom built 26 digital cameras for ANA termed as "eye" of ANA's Sky Vision system was conceived. Price of the CCD was 317,000 yen, far higher than the 50,000 yen target price that Sony team had specified. In 1985, the CCD-V8, an 8 mm camcorder (i.e. single-unit VCR and camera) with a 250,000 pixel CCD chip (the ICX018) as its "eye" was introduced worldwide, marking the opening of new business for Sony.
Such uncertain and a long journey of turning a faint potential into large-scale wealth reservoir not only brought fortune to Sony, but also disrupted the tube-based video camera and film-based still camera industries. Taking a series of rational decisions to stay on course to turn the potential into wealth with technology and innovation is a critical competence to have. How to take such rational choices appears to be far more challenging than having an idea, or having the expertise in developing technology, or engineering products as per given specifications. Developing countries having an aspiration to benefit from innovation economy must carefully build this capacity among individuals, families, firms, government officials, politicians, and the society as a whole.
With this newly-found technology strength, Sony kept improving its camcorder range of products, making Handycam as the iconic consumer electronics product. In the mid-1990s, Sony focused on compact digital camera product to leverage its solid-state sensor technology. Sony's Cyber-shot emerged as another iconic success story in the consumer electronics business. Such success led to Sony's record net profit in 1998. The company also partnered with Ericsson to venture into mobile handset industry to leverage its success in consumer electronics and digital imaging. But Sony's such hard-earned success did not last long. With the growing popularity of the camera phone and the debut of iPhone in 2007 started crushing Sony's iconic digital imaging-based consumer electronic business. Smartphone with high-resolution camera and video recording as well as playback capability became a strong substitute to Handycam and Cybershot. Within 10 years of reporting a record profit in 1998, Sony started reporting loss, year after year, reaching $5.6 billion loss in 2011. Industry analysts became sceptical about the popular brand's survival.
Strong foothold in digital imaging technology showed up as one of three pillars for the revival of Sony. The company kept on improving the quality and reducing the cost of imaging sensors for meeting the growing as well as stringent demand of smartphone cameras. Sony's remarkable ability to create underlying scientific knowledge and turning it into technology to produce an increasing number of pixels on a tiny sensor with decreasing noise level became the underpinning of the success. As opposed to $3,000 for a sensor comprising of just 0.12 million pixels offered in 1979 generating loss-making revenue, Sony now charges less than $20 for a sensor having 20 million pixels to report record profit. Sony's such technological capacity to produce a high-quality image sensor has led to 50 per cent market share -- thereby giving enormous scale advantage by way of reducing the price and increasing the profit simultaneously.
Although Sony lost its iconic consumer electronics innovations to smartphones, its underlying science and technology capacity gave the footing to succeed in developing even a larger business superseding the smartphone makers, who disrupted Sony's innovations. Primarily the world's half of smartphones, including Apple's iPhone, carried Sony's image sensor, generating $20 revenue for each sensor. Creating the demand of dual sensors for each smartphone, our selfie love affair has become a bonanza for Sony. The company's journey in digital imaging is a remarkable success story in innovation dynamics. Upon disrupting still camera and tube-based video camera, Sony's iconic innovations got disrupted by smartphone within just 20 years. Instead of fighting back smartphone progression, Sony's strategy of fuelling smartphone innovation by supplying an increasingly performing image sensor at decreasing cost has brought in success for it.
Many developing and middle-income countries are desperate to enter into the technology-driven innovation economy. To them, Sony's digital imaging journey over the last 47 years brings multidimensional lessons. Instead of assembling existing products or trying to imitate in the name of re-innovation, the focus should be on next-generation innovation around emerging technology potential. It's well-understood that such a journey is very long and uncertain, but there appears to be no alternative. Instead of hopping around for easy targets, often elusive though, broad-based technology competence acquisition and innovation agenda should be chalked out to generate knowledge for its consistent integration into products and processes to produce them to turn latent potential into innovation success story-thereby creating new wealth.
M. Rokonuzzaman, Ph.D, is academic, researcher and activist: technology, innovation and policy.