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Summary:

Sony Ericsson recently reported huge losses for the second straight quarter, for which it blamed the struggling economy. The results included a $240 million quarter loss and a 21 percent drop in phone shipments, garnering a vote of low confidence among analysts. And as Dick Komiyama, […]

Sony Ericsson recently reported huge losses for the second straight quarter, for which it blamed the struggling economy. The results included a $240 million quarter loss and a 21 percent drop in phone shipments, garnering a vote of low confidence among analysts. And as Dick Komiyama, president of the joint venture between Sony and Ericsson, noted, the global handset market is contracting — in other words, the bleeding won’t stop anytime soon.

But Sony Ericsson faces more problems than most in that its phones don’t do anything particularly well. If it wants to avoid further losses, it needs to focus, notably on improved OS design, open systems, and flexible media integration.

Company Q1 2009 Phones Shipped Q1 2009 Revenue Q1 2009 Profit
Sony Ericsson 24.2 million $3.82 billion - $245 million
Apple 4.36 million $10.17 billion + $1.61 billion
Nokia 113.1 million $16.67 billion + $751 million

Apart from the Nokia-styled G705u, Sony Ericsson has failed to push the design envelope, impairing its phones with stale ‘candybar’ designs and small screen sizes. Most critically, its phones’ best features have been sabotaged by uneven executions. For example, 2008’s Xperia X1 phone has sleek media menus and direct YouTube support, but transitioning between productivity-heavy applications on its WinMo 6.1 OS is a mess. Similarly, the W890i has excellent audio fidelity and music features (like a MusicDJ that helps you compose ringtones), but it’s WiFi-free and its keys are uncomfortably tiny.

In order to truly find success in the mobile market, Sony Ericsson needs to:

  • Build media-friendly phone UIs that take better advantage of its Gracenote metadata software. Easier integration with wireless hardware (from cars to stereo systems) will allow people to stream content between all gadgets, not just Sony devices (See: PSP with PS3). While you can already do this to some extent, existing Sony Ericsson apps don’t make the process any smoother. Flexible apps would prompt people to use them more and increase a phone’s value.
  • Include visually dynamic software, like Microsoft’s MixView music recommendation engine. It would give people a direct incentive to use Sony Ericsson’s Play Now Plus download service, which is also hampered with DRM music.
  • Build a new operating system. Other phone makers have bypassed Sony Ericsson with a simpler OS and faster transitions between apps, as mentioned above. The company has promised an Android OS phone by the end of the year as well as an improved Windows Mobile 7.
  • Keep all handset prices competitively low. With their sub-$200 Blu-ray players, Sony and Samsung found out this winter that affordable products from big-name brands are the most successful in a bad economy.

Sony Ericsson also needs to simplify by cutting its number of phone models. Counting CES announcements, there will be 24 phones laced with its Project Capuchin API. That’s too many. The company succeeded with mid-market customers when ‘high-end’ features were the province of business users, but that ended when the iPhone brought multimedia and web access to the mainstream. Its newest phones do include high-end features but they’re split between the Cyber-shot and Walkman lines. One phone has an 8-megapixel camera, but doesn’t have gesture control; another has shake-shuffling without camera face detection. Placing the best features in one high-end phone would create an excellent competitor for the Palm Pre and the iPhone.

Sadly, Sony’s business plan centers around maintaining legacy systems and saturating the market with multiple phones (even if evidence in the last few years suggests customers don’t care about brand loyalty and expect the full feature suite), so don’t expect such an approach to change anytime soon. At the very least, Sony Ericsson should create one major Walkman phone, one photo phone, and one low-priced web/business phone that combines the improvements already mentioned. The rest should be discontinued.

Greater openness also means taking a risk with gaming applications. Recently, Sony rejected Ericsson’s idea for a PSP phone, probably to avoid diluting the strength of the console. But a new focus on open-source, App Store-like gaming development needs to extend to Sony Ericsson phones. If not, Nintendo might get there first and jump further ahead of its rival.

If Sony Ericsson doesn’t make some of these changes, it will continue its recent pattern of bringing features a year behind its competitors — and its decline will continue.

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  1. Disruption Matters » Blog Archive » Bad Times for Sony Thursday, January 29, 2009

    [...] Sony Ericsson is being surpassed by Samsung and LG growing faster, not to name its brand equity eroded by rising mobile device stars from Apple and RIM. If they do not do something striking quick, 2009 could be the last year for Sony Ericsson. [...]

  2. The last part of your post IS intriguing. AppStores success revolves a lot around games and sony ericsson would do well to integrate games into phones, Sony owning PSP tech makes this even more interesting. Adding games could move them away from a me too status that they have now …

    It is not technically easy because they are two completely different platforms which along with cannibalization could be the reason sony rejected the idea. But it is a project worth investing on….

  3. @yuvamani

    i think the biggest point here is how does SE standout and do something unique. I think PSP brand would help them do that. In fact the company should rebrand itself, PlayStation Mobile.

  4. Absolutely,
    Smartest thing they could do is create a PSP phone that plays PSP games and media.

  5. ה”ניו יורק טיימס” מפרגן לפרינג « תוכן סלולרי – הבלוג של גבע קרא עוז Thursday, January 29, 2009

    [...] צריכה לעשות סוני אריקסון כדי לצאת מהמשבר אליו נקלעה? שלל עצות לחברה [...]

  6. Fallacy of volume and revenue: The iPhone difference « counternotions Thursday, January 29, 2009

    [...] What Sony Ericsson Must Do To Stage a Comeback, Jose Fermoso includes an interesting [...]

  7. I took your numbers and underscored the per-phone profit differential among Sony, Nokia and Apple in:

    Fallacy of volume and revenue: The iPhone difference
    http://counternotions.com/2009/01/30/revenue/

    In any argument advanced to show why, for instance, Nokia is trailing Apple in the smartphone market, some will always counter by pointing to Nokia’s volume dominance in units shipped, which dwarfs Apple’s by a factor of 25X. Nokia’s revenue is about 1.5X higher than Apple’s as well. What’s more interesting for shareholders, however, is the fact that Apple’s profit is more than 2X over Nokia’s…Indeed, for every phone sold in this scenario, Apple makes over 55X in profits compared to Nokia…

  8. Apple 2.0 » Blog Archive » Five easy Apple charts Friday, January 30, 2009

    [...] Volume vs. Revenue. CounterNotions’s Kontra uses data from GigaOm’s Jose Fermoso to demonstrate that what matters is not how many smartphones you sell, but how much you make on [...]

  9. iPhone mostra que há diferença entre volume de vendas e lucro » AppleMania.info Friday, January 30, 2009

    [...] cita números divulgados em tabela comparativa publicada pelo GigaOM entre unidades embarcadas, receitas e lucros de produtos Sony Ericsson, Nokia e Apple segundo dados [...]

  10. Hi Jose,

    Interesting article. I’ve always been a die hard Ericsson/Sony Ericsson fan since 1995 and have never bought any other brand. My most recent model is the much lauded K750i and served me well for 4 years. Mine was from the first batch and produced exceptionally good pictures, but I later discovered that the W800i, which was essentially the Walkman version (and also the first Walkman SE phone) of the K750i – took even sharper macro photos despite both models sharing the same 2MP auto focus digital camera.

    My K750i was my trusty partner and two years later it survived a nasty fall onto the concrete pavement with only superficial scars and nothing else. I did change the original black cover to the silver one for a fresh look.

    By the time Sony Ericsson had already introduced myriad models – most of them slated below the (then) flagship K750i, in the non-Symbian OS category. At one time I was tempted to upgrade to the K800i, but it wasn’t much of a vast leap in advancement compared to the K750i so I passed.

    Recently, I finally decided to taste the much touted HSPDA/3G and video call experience and was baffled by the mind boggling number of new and recent models from Sony Ericsson. I had no idea what I was looking for – I didn’t want a CyberShot phone as I didn’t want any phone to rival my two existing Canon PowerShot digicams; nor did I prefer a Walkman phone either. I have a proper Sony Walkman NW-A808 MP3/MP4 player and I felt that nothing beats the sound quality of a dedicated Walkman.

    Any SE phone with a stylus is out of the question as that would render my Palm T|X redundant. So I was looking at the C702 for its GPS features, something out of the ordinary. Seller told me that the C702 been around for a while – “Look, here’s the new G705 that’s just introduced late 2008, it’s not much more expensive than the C702″.

    I took a look at the G705 and was pleased to learn that it had WiFi as well as GPS. It was the quickest decision in buying a new cellphone I have ever made in my life! Gone were the days when Ericsson/SE made few models and it was fairly easy to narrow down your choices.

    Thanks to your honorable mention of the G705u (albeit mine is the plain vanilla G705), I felt that I’ve made the right choice in selecting the G705. I didn’t realize the resemblance to certain Nokia models until I read your informative article.

    If there’s a gripe with the G705, it’s the lack of auto focus and macro capabilities, something that I wish that Sony Ericsson had included. I used my previous K750i’s camera to take close up photos of wrist watches at the stores, rather than general photography.

    Auto-focus and macro mode would have made the G705 the “perfect” SE phone, but understandably doing so will affect sales of its CyberShot models. Photography is one of my hobbies and I am a firm believer that a phone cam will never outperform a proper digital camera, no matter what the phone cam’s pixel count is.

    Interesting writeup, thanks! :-)

    cheers,

    Quartzimodo.

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