Product Innovation Versus Business Model Innovation: The Case of the Walkman and the iPod.

Sony used to be one of the Japanese companies with the highest brand value. According to InterBrand, one of the world's leading brand consultancies, Sony was worth $16.4 billion in 2000, which ranked the company 18th in the world in the brand value at that time. However, after the collapse of the Bubble Economy, Sony lost its brand value gradually. In 2004 it was ranked 52nd in the brand value with the worth of $8.13 billion, and now has fallen further into the "losers" in the Japanese industry. Even today Sony has not been able to recover; it is regarded as an ordinary company that does not remind us at all of its glorious days in the past. Why has Sony declined so quickly? What are the causes of it? The authors answered these questions by considering them from the perspective of innovation. First, the authors discussed the structure of innovation. It consists of the product (goods or service) innovation, the process innovation (it means to make the same goods or provide service in improved ways), the business model innovation, and the social innovation. Then, the authors examined Sony's success in the product innovation and its failure in the business model innovation with the Walkman as a case study. The Walkman was Sony's long seller item. It was born in 1979 and its 220 million sets were sold worldwide by March 2010. Nevertheless, the device failed to avoid becoming obsolete on the market. The greatest enemy of the Walkman was Apple's iPod. Unlike Sony's way to incorporate music into the hardware, Apple has developed a new method to download music on the Internet. This embodies the business model innovation rather than the product innovation. Apple developed the concept of the product, designing the arrangement of the parts and appearance of the iPod, but it did not manufacture the product by itself. It hired the external contractors to do the job. In contrast, Sony made it a rule to do all of the work by itself. This is because it pursued the perfection of the Walkman. Therefore, Sony failed in the business model innovation rather than the product innovation. [ABSTRACT FROM AUTHOR]