Chapter12 Entering a Highly Competitive New Business Area

Entering a Highly Competitive New Business Area

In 1986, Sony displayed SIOS and
other computer-related equipment as
its first business products show since
exhibiting SOBAX sixteen earlier.

Sony's digital technology and computer development has a long history. The first computer-related product was the SOBAX, a desktop calculator introduced in 1967. However, Sony withdrew from this market in 1972 due to a severe price war. Utilizing transistors as the switching element, SOBAX had the potential of carrying Sony into the portable computer market. Yet Sony was unable to develop this product into a business model (see Part I, Chapter 13)

Influenced by the co-development of the microprocessor with Intel Corp. in 1971, personal computers (PCs) were introduced a few years later and the world set off toward digitization. However, Sony's management firmly stood by the belief that "the core of Sony's electronics business will always be audio and visual equipment for the masses" and suppressed its R&D efforts in the computer field.

Yet Iwama, who became president in 1976, had a strong feeling that any company without a deep understanding of computers would be unable to survive in the 90s. PCs debuted in 1975, and in 1978 Toshiba launched the first Japanese-language word processor. Iwama supervised the gradual development of computers at Sony. Toward the end of the 1970s, a group led by Yoshiro Kato and Kenji Hori began computer-related product development in the office automation (OA) and microcomputer (MC) fields.

In December 1980, Sony's efforts in the OA field eventually led to the introduction of the "Series 35" English-language word processor and the portable "Typecorder" typewriter, which featured a liquid crystal display. Both were targeted at the US market. In the microcomputer field, the SMC-70 Series, a microcomputer with high quality graphics capabilities, was introduced in September 1982. That year, Japan experienced a belated OA boom. The facsimile machine, PC, word processor, and copy machine began to be known as "the four sacred tools of OA." In the home PC field, the Sony "HIT BIT" model, which conformed to the Microsoft-led MSX standard, was commercialized in November 1983.

All these products followed Sony"s policy of offering compact size with portability. The "Typecorder," in particular, incorporated a unique concept by way of its compact size and convenience of use. In retrospect, this was the first step toward the introduction of laptop computers. In addition, the compact and large-capacity 3.5 inch micro floppy disk (MFD), first developed for use with English-language word processors, became an industry standard worldwide.

An interesting point concerning these Sony products is that they were never intended to be linked to computer products. The design and development of each product was based on Sony's traditional strengths in audio and video technologies such as magnetic recording and optical disk. Sony's business at that time was strictly related to traditional technologies, and Sony management had created a certain environment within the company which was not receptive to deviating from this strategy.

At one point, an attempt was made to integrate Sony's computer-related development efforts with the audio and video equipment businesses. This proposal was made to create an AVCC (Audio, Video, Computer and Communications) integrated systems business. The end result was the establishment of the MIPS (Media Information Products and System) Business Group in May 1983. Takao Ohira, who had joined Sony from Oki Electric and had extensive knowledge of telecommunications, was appointed MIPS general manager and Nobuyuki Idei, who was instrumental in the development of MSX and was knowledgeable about both computers and AV technologies, was appointed as his deputy. At the time, Ohga had just become president, and expanding into new business fields was one of Sony's main priorities. An aggressive step into the OA and telecommunications fields was part of his management strategy.

Unfortunately, in the middle of the new media boom, Sony was unable to establish a presence in this market, despite continuous efforts by the development team. Sony's computer-related products launched in the 1980s were eventually discontinued due to a lack of interest in the market.

NEWS - An Independent Venture

The NWS-800 series was the
first NEWS computer system.

Despite these circumstances, one computer launched in January 1987 was well received by the market. This was the NEWS (Network Engineering Workstation) system, an engineering workstation intended for use as an automated design tool like a CAD (Computer Aided Design) system. The workstation's development spun off from the MIPS Business Group and soon evolved into an independent venture business.

Twelve engineers unaffected by the mood within Sony to "stay away from those computer things" developed NEWS from an original perspective. This highly cost-efficient system became popular among university and corporate laboratory researchers as a high-performance computer for the design, editing and development of software. At the time, the Japanese government was promoting the development of a workstation for just such a purpose, and NEWS was one of the first models to appear on the market.

The person who led the development of NEWS was former MIPS Business Group member Toshitada Doi, renowned for his expertise in the digital audio technology used in Sony's CD players. Though sales of MIPS products were suffering, Doi began dreaming about a computer that used a newly developed 32-bit CPU (Central Processing Unit). Unfortunately, MIPS was in the red and overloaded with projects. Doi summarized his ideas in a report and presented it to his boss but, as he expected, his boss was unimpressed. Doi was persistent. He went directly to Ohga. Unexpectedly, the project was approved immediately. "Do it the way you think it should be done. But, there's one condition: the project must take the form of an independent venture." As the project did not comply with the MIPS group's concepts, Sony could ill afford to risk assigning to it too many personnel or a large budget.

However, the project was finally approved. Doi took four engineers with him from MIPS and another seven from the Research Center, starting the project in September 1985. The project was named "ICKI" (pronounced "ikki)" a combination of two Japanese words. In Japanese "ikki" means "in one breath" and was intended to refer to the engineers' hopes to complete the project in a short time. "Iki" means "chic," a reflection of the team's aim to develop a trend-setting computer.

In the beginning, Doi's concept of the workstation was a device, which was essentially an extension of current MIPS projects. He saw it as consisting of "a 32-bit CPU developed in a short time with unrestricted applications." Basically, he thought of it as an OA computer. However, the engineers Doi selected for his team did not listen to what Doi told them to do. They wanted to develop a workstation that could replace the VAX Super Mini Computer developed by Digital Equipment Corp. (DEC). This was a computer that the engineers often fought with each other to use while at MIPS because of the limited number. They wanted to develop something they themselves could use for their own day to day work. When Doi first learned of their intentions, he thought this was going to be a problem. The product had the potential of being rejected at the product commercialization stage, even if development could be completed. His engineers wanted to make an item that would have no relevance to Sony's line of AV products. Things did not look promising, yet Doi saw the excitement in his engineers' eyes and decided to go along with it.

Once the engineers reached a consensus, development progressed quickly. The hardware prototype took six months to build and the installation of the operating system took another six months. They knew exactly what they were aiming to develop; their single guiding concept was a distributed processing system. In other words, this computer would have to be able to connect to and be compatible with any machine using any system. Doi believed that gaining access to the CPU through a mainframe system would no longer be the only way. "The day will come when a CPU with a powerful user interface will be placed on the desk of each employee, and the demand for users to freely connect their machines together to create an open workstation system will grow," he said. "That's the only way that we'll be able to compete with IBM," he added. His fundamental principle was one machine per engineer. The size and production cost of the machine were considered accordingly.

After only a year of development, the NEWS system was announced in October 1986 and launched in January of the following year. NEWS used the UNIX OS (Operating System) and was capable of outperforming the conventional super mini computer, despite only being the size of a PC. It was priced between 950,000 and 2.75 million yen, a sensationally low price. At the time, the mainstream EWS (Engineering Workstation) cost approximately 10 million yen. NEWS was a very successful product, and it took only two months to recover the 400 million yen development cost. Doi's venture team was named the "Supermicro Systems Group" and its focus came to include DTP (Desktop Publishing) and CAD/CAM (Computer Aided Manufacturing) systems.

However, Sony's competitors soon began targeting NEWS, and the market became increasingly competitive. NEWS could not break into the U.S. market where Sun Microsystems, Inc. had already established the industry standard and was dominating the market. Moreover, NEWS did not sell well in Europe either.

Although NEWS made slow but steady progress, it was many more years before it became one of Sony's key businesses. As information processing and telecommunications became more and more digital, Sony was ambitiously working to extend NEWS applications to become a server of video on demand (VOD) and Internet systems. Sony succeeded in developing Japan's first VOD system using NEWS, and in 1995 the system was installed as part of ACROS Fukuoka, a multi-use event facility. Since then, sales of the NEWS system steadily increased.

Developing a New Recording Medium- The 3.5 Inch MFD

Sony created the 3.5 inch micro
floppy disk (foreground) and
the disk drive (back) from

"Companies that don't understand computers will not survive the 1990s." In 1975, Morita and Iwama repeated these words as if a chant. Iwama brought up the subject with Yoshiro Kato on their way to a computer show in Tokyo that year. "We can make floppy disks from existing technology at Sony. If we could make one with more than five megabytes of memory, then the disk will be able to store both text and graphics," said Kato. Iwama replied sadly, "The company seems to be allergic to computers and floppy disks." At the time, Kato worked in the TV Business Group. He had no idea he would eventually spearhead the floppy disk project several years later.

Four years later in 1979, Iwama created the System Development Division. He approached Kato and said, "Will you make some computer-related products? Sony already has a market in the US. How about an English-language word processor targeting this market? This will involve using Sony's high resolution CRTs, and you can make full use of magnetic recording technology to make floppy disks if you like." Kato immediately thought, "He has been preparing me for this new assignment all along." In fact, Iwama had asked Kato a year earlier to transfer to ISD (Information Systems Division), the group responsible for promoting the use of computers within the company. He now finally understood Iwama's strategy.

Kato and the ISD engineers had already been using computers and they had a number of criticisms about computers and floppy disks. Therefore, their development approach was based on creating the "ideal equipment" from the user's point of view. However, these engineers were all amateurs when it came to developing computers, so they had no idea of the difficulty involved. At the same time, they were fearless due to their ignorance.

Sony's development of floppy disks started as a project to create a storage medium for the English-language word processor. At the time, the mainstream floppy disk consisted of a magnetic film housed in a thin black resin cover. The 5.25 inch disk, developed by Alan Shugart's company in 1976, was set to replace the 8 inch disk developed by IBM.

"We want something smaller and easier to use with a larger storage capacity. A plastic shell is good, because it'll protect the magnetic film from potential damage through handling and will also keep dust out. As for the disk size, three inches is good." The first idea for the disk drive was of a thin box, measuring 10 cm square. They made a cardboard model and exclaimed, "This is good! This will do!"

The 3.5 Inch Plastic Shell

In 1981, the word processor
system, "Series 30" incorporating
both the newly developed 3.5 inch
micro floppy disk drive and
Typecorder was launched in the
US market.

When the engineers began making the disk shell from plastic, it was inevitable that the plastic would be thicker than the conventional resin cover.

"Let's just forget about the shutter and the dust remover and make something that's at the limit of plastic molding technology in thinness," they decided. Their first shell was roughly 3 mm thick, which was a good start, but such a thin shell would become deformed over time. The disk needed to be flat, or it would be unable to be inserted into the drive. At this stage, one of the engineers proposed a different approach. He said, "Why don't we make a flexible shell from the start? If we design it so that it straightens out as it's inserted into the drive, then to a certain extent, warping won't be a problem." The engineers tried this and it worked.

The next problem was that the shell was too thin to allow for the installation of a shutter spring, essential if the shutter was to automatically open and close when inserted in the drive. They decided to address the issue of thinness first. "Let's not worry about the spring until later." The first product Kato and his team made had a manual shutter. Later, they developed a 3.4 mm spring similar to that of a laundry peg.

As for the round magnetic film (the disk itself), they doubled the number of tracks it could hold in comparison with conventional models, achieving the target capacity of one megabyte, despite the disk's small size. When writing on or reading from a disk, the disk spins at a high speed within the shell. Over 70 narrow circular tracks occupy an area of 8.6 mm in diameter. Accurately following these tracks was the next problem. The engineers resolved this problem by fixing a hub the size of a coin in the center of the magnetic film. They placed a hole at the center of the hub and designed it so the axis of the drive's motor holds the film in place. This was a vast improvement in tracking accuracy compared to conventional 5.25 inch disks, where a mere hole in the magnetic film determined the placement of the medium. The Sony approach also reduced wear and tear on the medium, prolonging the life span of the disks.

This is how the 3.5 inch MFD was created. It was enclosed in a plastic shell measuring 3.4 mm thick with a storage capacity of one megabyte. At the time, this represented a major advance in recording media.

In December 1980, Sony announced its intention to enter the US market, where office automation was rapidly progressing with the Series 35 English-language word processor that incorporated the 3.5 inch MFD and Typecorder.

Iwama said to Sony employees, "The latest announcement is of a device developed by applying new technology to Sony's existing visual imaging, magnetic recording, and semiconductor technologies. I believe it will contribute to creating a new business in the office automation area. I ask you for your support in making this into a large business."

In autumn 1981, the Series 35 was launched in the US. The product launch in Japan was January 1983.