I.        Analysis

Summary of the case report:

     In 1975 Sony introduced the Betamax videocassette. It was not only the successor of U-matic, it was also the first product for a novel market, the home video recording market. In JVS with its VHS format, Sony encountered an incongruous adversary. One day in late 1975, RCA proposed to Sony to built a videocassette which would last longer than the actual 1 hour. Sony refused when JVS accepted ...

In 1974 Sony has finished the development of a new video tape recording format named Betamax, which is a small version of Sony's U-Matic video tape format. The U-Matic technology was in these days the world-wide  standard for video cassettes  but unlike  U-Matic the Betamax format allowed to build cheap and small enought cassettes and recording devices to  create  a new market, the home video recording market. Sony was practically ready to start manufacturing but to make Betmax a world wide standard as well, they tried to convince their largest U-Matic manufactering partners, Panasonic and JVC in Japan and  RCA in  the USA, to  adapt the Betamax technology as well. But, they unexpectedly declined because they were not happy with the fact that the Betamax cassettes could only record one hour of video. Sony started the manufacturing of Betamax devices anyways, but did not OEM nor give licences because they started, with some dislike, to evolve the Betamax format to support two hours playing time. In the meantime JVC had developed their own format called VHS which supports two hour playing time from the beginning on. JVC was preparing itself well, formed lots of alliances and manages to launch VHS before Sony's second version of  Betamax. Now how should Sony react on JVC's VHS format.

The relevant cases of the class lectures

1. Docomo (Format war) --> PRIMARY SUBJECT
2. Ford Taurus (Customer needs)
3. VLSI (Attacker’s advantage)
4. PS2 (Disruptive Technology)

Discussion questions

How did Sony take advantage of its earlier launch of Betamax? How did Sony failed to take advantage ? Which mistakes did they do? (Marcel)

--> J'AI FAIT UNE QUESTION...

What advantages did Sony get from being first to market with Betamax and how did they deal with it?

One sentence answer

Sony had many advantages from being the first-to market including a technological lead but failed in several or almost all points to make profit out of it .

Extended answer (outline):

1.failed to flood the market in the first place. when the demand outgrew Sony's supply capabilities (page 8).
2.generating the market took to much time (page 7 of the triumph of...)
3.incompatible betamax 2 (appendix of the triumph of...)
4.alliances, OEM, licences --> could have 'closed' the market for competitors
5.beta and vhs were technically almost the same. the difference was made later with complementary assets >> prerecorded tapes. how to argue at the beginning? page 11

[mistake of Beta2 not compatible with Beta1 --> advantage of 100% early market share gone]

How did Sony prepare the launch to become a standard with Betamax? (Thomas)

One sentence answer:

The strong believe in its own values and capacities made Sony loose sight of the importance of alliances and marketing to enforce a new standard and therefore only trusted in customer’s choice for their high quality and renowned products to become a de facto standard.

Extended answer:

At the time prior to the introduction of Sony's home videocassette tape recording system Betamax, Akio Morita and Masaru Ibuka successfully created the U-matic format. It was one of the first video formats using a cassette containing the videotape. U-matic was considered as an improvement compared to the various open-reel formats of the time.Due to this development in the videotape systems, Sony reached in March 1970 a cross-licensing agreement for video recording patents together with Matsushita, JVC and five other non-Japanese companies. Even though the partners were equal, Sony took the most benefit out of this agreement in terms of profit and revenue. Soon after the establishment of the U-matic format in professional settings and TV networks, the engineers of Sony started the development of a more compact system for a home version of a VCR.

Sony, as well as other manufacturers, believed in the high potential of a home VCR device. The sale of such a compact system was not anymore limited to professional customers as the preceding U-matic. Akio Morita, with his deep understanding for innovation and his sense of marketing, instantly perceived the potential. The introduction of such a product would open an entire new market of home users. Sony was aware of the revolutionary character of the product on its hand. But still, the future customer all over the world had first to be convinced about the benefit from the Betamax Home Video System in their home. All the same Sony strongly believed in its capacity of innovation, research and development. Further more they considered the public to be aware of the high quality and innovativeness of Sony products as well as of their high reputation in the electronics market. Therefore the public would respond positively to the new technology which Sony considered to offer new freedom to the user.

Sony believed in their technology, “Betamax will revolutionize television… It will change the concept of prime time so that any time can be prime time.” Keeping this believe in mind, Sony met Matsushita and JVC to propose to jointly adopt the Sony VCR standard under development. At the same time Sony also showed their new Home VCR to RCA in order to access U.S. market. RCA then stopped their development of an own system but didn’t adapt the Betamax because recording time was considered too short. In fact, development at Sony was already close to completion and first steps to manufacturing made. Discovering this Matsushita decided to go with JVC for an own standard.

As far as strategic marketing planning for such a radically new product, as such Betamax was perceived by Sony,  was concerned, Akio Morita clearly stated the exclusive trust in the marketing effect of Sony’s technical advantage, “We don’t believe in market research for a new product unknown to the public…so we never do any. We are the experts.” Sony therefore entirely overlooked the impact of social issues. E.g. they were completely unaware of people’s demand for full-length feature films. Finally Sony lost all of its advantage of a first mover in the Home VCR market.

U matic success -> cross-licensing agreement -> high potential -> develop home video product -> negotiation with agreement partners -> Sony’s believe in its tech superiority and advantage in time, decide to go lonely way -> agreement partners unied -> sony launches betamax.

Sony strongly believes in its position, reputation and its skills in technology -> “time-shift” marketing ->  product brings frees costumers, social issues,  the product was considered so innovative that costumer would automatically follow,

Keynotes:
(standard related) Did they take into consideration their past (u-matic)? Did they market research to know the customer needs?
[Attempt to find alliance partners (former partners for u-matic). They prepared to manufacturing plants before announcing Betamax. As Sony considers Betamax as the regular successor of u-matic, they think their experience with u-matic is enough market research ]



Sony inventions...

Betamax 5 years - failure
Triniton Screens 39 yrs - success
Walkman 79-now -success
CD 82-xy - success
Discman 84- -success
Handycam 85- -success
DAT 87- somehow success
DVD 97- success
Minidisc 93- close to failure
PS1 1994 - success
PS2 2000 - success
PS3 2006 - success
Blueray 2006 - betamax revival...?

What had JVC to offer to its possible alliance partners Sony did not have? (Donato)

The main asset is that JVC allowed OEM and licencing. Moreover they also provided assistance in manufacturing and marketing.

Extended Answer


TODO: Write short answer (1-2 sentences). (until Sunday night)
TODO: Write long answer (1-2 pages including figures, graphs, charts). (draft version until Sunday night, final version until Friday, 28/12/2007)

TODO: Bullet list of recommendations (or implications) for the company's decision / dilemma based on long answers.
TODO: Bullet list of 2-4 lessons learned, stepping back from the case and elaborating general principles of management of technological innovation. (do not mention the case... general lessons learned).