A Company Doomed to Mediocrity

Yesterday, Sony (NYSE: 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 (Nasdaq: 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 (Nasdaq: AMZN  ) Kindle has been a smash success, and Barnes & Noble's (NYSE: 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 (Nasdaq: 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.

For some analysis of another tech giant, some of the Fools here have compiled a special free report that delves into Microsoft's future. It's available now, at absolutely no cost to you. It's called "The Two Words Bill Gates Doesn't Want You to Hear... ." You can click here to access it now.

Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services have recommended buying shares of Apple, Amazon.com, and Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 03, 2011, at 3:30 PM, Darwood11 wrote:

    When I study Sony, I sometimes think of Apple. Yes, I know, AAPL is doing much better than SNY. But I do remember the time when the "walkman" was in and hip and I also remember the Beta video format.

    When I look at Apple, I see a similar company. I know, I'm a heretic. But this is the possibility with technology companies.

    I've always assumed that Apples greatest strength was that of the underdog. It had to design better products to survive. It even needed the help of Microsoft, the "empire" to survive.

    Today, Apple is playing the game of "fence building" to protect its turf, it's using legal firepower via the courts to fend off rivals.

    I say, Apple could be the next Sony. This is not a prediction. It's an observation. Of course, when or if it happens, the acolytes will say it was because "Steve is gone."

    I say that if it happens, it will be because Apple lost it's way, and became what it most loathed.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1583292, ~/Articles/ArticleHandler.aspx, 11/26/2014 10:06:00 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement