What if Microsoft Bought Sony? Blame Apple!

By Andrew McLaughlin | April 9th, 2006

An interesting article over at Bona Fide Reviews discusses the possibility of Microsoft acquiring Sony. The article got me thinking and after considering the possibilities for a while, maybe it isn’t such a far fetched idea. The recent announcements by Apple are significant and it’s clear that the market is changing quickly. We’ve already speculated on how the Playstation 3 could be the death of Sony, but what if it really happened? Is it possible that Microsoft might need to buy Sony to extend its business beyond software? We’ll take a look at a few product categories and speculate on how Microsoft could enhance their position with a Sony acquisition.

First, what would happen to all the Sony products we’ve come to love so much? An acquisition of Sony doesn’t necessarily mean that all of a sudden your digital camera, cordless phone and camcorder are going to be branded Microsoft. Sony has too powerful a brand for that to happen. But Sony also has some powerful and underutilized assets in the digital lifestyle and home entertainment markets that could be very attractive to Microsoft.

PC and Laptop
Sony’s market share in the PC and laptop business is small despite having a pretty sleek design and feature-rich lineup. This is mostly due to the lack of support in the corporate / business market and the premium price of the VAIO brand. All things considered, Sony has done a remarkable job of keeping their R&D focused on developing innovative products for a non-core part of the business. I don’t know if it was true or not, but it’s no wonder the Internet was wild with rumors of Apple seeking ex-engineers from Sony’s PC business when the transition to Intel was announced.

But what would Microsoft stand to gain from entering the PC business? Up to this point Microsoft has had a relatively competition free marketplace supplying Windows to almost every PC and laptop sold in the world. It seems the days are quickly coming to an end. The symbiotic relationship between Microsoft and PC hardware providers is being quickly jeopardized by Apple, not to mention advances in Linux. Dell has already stated openly they would sell PCs with OS X. And Apple has quietly entered the full fledged PC business with the release of Boot Camp. Perhaps a Microsoft PC isn’t all that out of the question. They could bundle software and drive significant cost advantages over its hardware competitors.

Software
OK, Sony’s no powerhouse when it comes to software but there is one area where Sony does have a full suite of software tools: multimedia audio and video editing. It’s also an area where Microsoft is significantly lacking. Multimedia editing is becoming more mainstream everyday and Apple’s iLife suite is a major selling point when it comes to purchasing a Mac. Acquiring Sony’s Vegas video, Acid audio and related media applications and integrating them into Vista’s revised photo and media suite could be a compelling alternative to iLife.

Another software related advantage is slightly less obvious but significant nonetheless. Microsoft’s big disadvantage over Apple is its need to support thousands of drivers and hardware for every device and peripheral manufacturer around the globe. A closed hardware environment would allow Microsoft to refine the software and drivers reducing the number of blue screen of death crashes that typically result from 3rd party hardware. This assumes Microsoft chooses to get into the PC business.

Portable Digital Audio/Video
Talk about missed opportunities. Sony’s inability to dominate the market for MP3 players has to be one of the biggest corporate mistakes by Sony. By every account, no one was better positioned to follow up on the walkman craze to develop an integrated music platform for consumers. Of course, we all know who won that battle. Apple owns this market hands down. But Sony still has a tremendous brand and they still have control over all those Sony artists’ and their catalog of both music and video. Microsoft has also discussed the possibility of releasing a product to compete in this space.

Considering the rate at which Apple continues to release new iPods it is clear that consumers are willing to upgrade these devices every few years. What would it take to really compete in this space? Two things seem to be critical to succeeding in this market. The first is a decent player with some reasonably flexible DRM needed to get the support of the major studios. The second is an integrated hardware/software platform to distribute and mange digital audio and video. Neither Sony nor Microsoft is really in a position to pull this off on their own. As a combined entity, however, there might enough hardware, software and media connections to pull it off.

Home Entertainment
The war for the digital home will be fought and won in the living room. No one has stepped up to the plate to integrate the PC, TV, software and digital media. The lack of integrated solutions is slowing the digital transition and the market is anxiously awaiting someone to setup and solve the problems. The Xbox is clearly part of Microsoft’s strategy as are the media features planned with Vista’s release in 2007. The question is whether or not this will be enough to own a market that isn’t yet defined? Perhaps a tightly integrated and networked set of Sony consumer electronics (TV, DVD, HiFi, etc.) would be a compelling set of products.

Do you remember the big rumor earlier this year leading up to Macworld? That’s right, it was all about Apple’s supposed entrance into the consumer electronics business by releasing a 42 and 50 inch HDTV plasma television. As we all know now, no such product was released by Apple. What was interesting, however, was how everyone responded to the rumor with such excitement. The worlds of PC monitor and HDTV are converging and the concept really wasn’t all that much of a stretch. A Sony / Microsoft combination with integrated media center extender functionalities could really corner the market on converged devices. It’s a market that is growing quickly and lacks a leader.

Gaming
Oh boy, I’m not even going to touch this one since the article over at Bona Fide Reviews attempts to cover this delicate subject. Suffice it to say that the worldwide market for gaming platforms is big. Very big. And the stakes are pretty high. Microsoft hasn’t fared well in the key market of Japan and they are spending big to penetrate gain share there. I don’t even want to speculate what impact a merged Xbox and Playstation platform would have on gaming market, but I assume it would be significant.

Wrap Up and Final Thoughts
For what it’s worth, I don’t think Microsoft is going to make a run at Sony. There are cultural issues and integration issues that would be difficult to overcome. It is interesting, however, to think through the possibilities of a merged entity and the potential synergies between the two companies. I think the whole issue speaks more to the innovation of Apple and Steve Jobs who have changed the competitive landscape and forced a whole new way of thinking about the PC business in recent months. The release of the Intel architecture and now the support of XP on Mac hardware are significant events. It creates real hardware competition for Apple and gives them another avenue to cause PC users to ‘Switch’.

Microsoft also has to be concerned that Apple is going to unleash OS X on the open market. It probably won’t happen overnight but there is a point where Apple would have to consider opening up the operating system to drive mass adoption. Software clearly has an inherent advantage over hardware due to its scalability and natural upgrades. While it’s probably not in Apple’s best interest to drive this transition now, what happens when some hacker figures out a way to get OS X installed on a PC? It may already be too late and it’s not something the folks in Cupertino wouldn’t have considered. So it’s reasonable to assume Apple has a strategy to deal with this ‘issue’.

These are the questions and issues that probably keep Bill Gates up at night and the answers to them aren’t easy. Microsoft’s current strategy could be at risk if Apple is successful in executing its strategy, PC manufactures start supporting OS X and consumers start to perceive Apple as the dominate force in digital home entertainment. These are all real threats to Microsoft. I’m not saying a Sony acquisition is imminent, but it does give them a strategy to compete against Apple.