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Sony's iPod Assault Is No Threat To Apple

It might have been a coincidence, but it still must have hurt. Sony Corp. (SNE) last fall booked a Tokyo nightclub for the unveiling of its latest Walkman music players. But halfway around the globe in San Francisco, just hours before Sony turned on the strobe lights, Apple Computer Inc. (AAPL) introduced the business-card-sized iPod nano. Although the nano isn't aimed at precisely the same market as the new Walkman, many saw the confluence of events as deeply symbolic: Here was the Japanese electronics giant that had pioneered the portable music market 26 years ago taking yet another body blow in a fight that it should have dominated.

Today, although iPod is still kicking the stuffing out of Walkman, Sony's offering is finally putting up a decent fight. In January, Apple had 45% of the Japanese market for digital music players, vs. 15% for Sony. That's a modest improvement for the Japanese company, from the 53%/11% split a month before the new Walkman hit store shelves, according to research firm BCN Ranking.

Sony is hoping the new machine will help the company find its groove. This spring, Sony plans to introduce the new Walkman in the U.S., though execs decline to give any details of the launch. The three models, with disk drives ranging from 6 to 20 gigabytes, would broaden Sony's lineup in the U.S. To date, the company has offered only players that use flash memory, with a storage capacity of 1 GB or less. Those have trailed the iPod -- which has 74% of the U.S. market, compared with Sony's 2% -- and even offerings from smaller rivals such as SanDisk (SNDK), Creative Technology (CREAF), and iriver, according to researcher NPD Intellect.

For Sony, this is no routine makeover. In September, Sir Howard Stringer, Sony's new chief, declared the player one of the company's main "weapons against commoditization." To break the new Walkman out of commodity status, Yujin Morisawa, a designer who was just three years old when the original Walkman came out in 1979, sketched a curvaceous shell that looks something like a smooth river stone. "I thought, 'How can I give shape to the music?"' Morisawa says. Other team members brainstormed new ways to organize music and came up with an "Artist Link" button, which analyzes your music tastes and suggests new artists you might like, and a "Time Machine Shuffle," which plays only music from a given year.


Sony is attacking Apple in Japan with its Mora online music store as well. With some popular songs from its record label's vast catalog, Sony bypasses iTunes and sells them only on Mora. That encourages many Japanese pop fans to opt for a Walkman instead of an iPod, because Sony's machine is better integrated with the site. In December the site sold 1 million songs, nearly triple the total of a year earlier.

Still, the new Walkman has some serious disadvantages. About the size of a deck of cards, the $280 NW-A3000 Walkman is bigger than the $300 iPod, but it offers just 20 GB of storage space (enough for about 5,000 songs) compared with the Apple machine's 30 GB. And Sony's Connect music site in the U.S. is no match for Apple's user-friendly iTunes software and music store. "The new Walkman is better than what Sony had before, but I don't think that many people are going to go out and buy one," says Ming-Kai Cheng, an analyst at brokerage CLSA. And with the latest iPods offering video, the music-only Walkman has more catching up to do. By 2007, predicts researcher iSuppli Corp., 55% of all music players will also show video, up from 5% last year. "Video is now standard because Apple includes it," says iSuppli analyst Chris Crotty. "You have to match Apple, at least, to compete."

The iPod's elegant click-wheel, simple software, and countless adapters to plug into a car or home stereo have helped give Apple an edge, too. In 2005, Apple shipped more than 32 million iPods worldwide, says researcher Gartner Dataquest -- seven times Sony's forecast for the Walkman for its fiscal year ending Mar. 31. Facing numbers like that, even a distant No. 2 might well be considered a victory for Sony.

By Kenji Hall

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