Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

To understand the future that awaits Kazuo Hirai, consider this: Sony Corp.'s PlayStation4 is 39 percent cheaper than Apple Inc.'s iPhone 7, yet it ships a tenth as many units annually.

The reason is obvious. Smartphones have morphed from a geeky business tool into a ubiquitous must-have. Sadly for the CEO of Sony, games consoles have not.

Kaz has done a fabulous job turning Sony around over the past five years. Bloomberg's Yuji Nakamura outlined this resurgence in a series of charts that show how he cut staff and shipped fewer devices to drive profits, resulting in a doubling of the company's share price since April 2012.

Resurgence
Sony CEO Kazuo Hirai has led a turnaround that's driven the company's shares higher
Source: Bloomberg

Now it's time to look to the future. According to a company statement Tuesday for investors' day, the key will be to "remain the 'last one inch' that delivers a sense of 'wow' to customers," expand recurring revenue, and pursue new businesses.

Those three strategies are closely linked. With TV sales in decline, its Vaio PC business spun off, and its smartphones barely a blip on the radar, Sony's last inch is heavily dependent on the PlayStation.

Nicely Played
Sony's Game & Network Services business has grown at both the top and bottom lines over the past five years
Source: Sony company filings
Note: Segments were reorganized from Game to Game & Network Services in fiscal 2013.

But the games console business is stuck in time. That Sony boosted PS4 sales last year is testament to an enduring nostalgia for the platform, and the fact that this $399 box offers incredible value for money.

Price Strategy
Sony's PS4 is 20 percent cheaper than its predecessor, and only 61 percent the cost of Apple's latest iPhone
Source: Bloomberg

To be sure, Sony's profit growth won't come from hardware, and Kaz doesn't pretend it will. Competition for recurring revenue confronts Sony from all corners including Netflix Inc., Spotify Ltd., The Walt Disney Co. and even Amazon.com Inc. and Apple.

Networking Effect
A cheaper price for the PS4 dragged down hardware revenue per unit, yet network sales climbed
Source: Sony, Bloomberg

What Sony has that others don't is its PlayStation. The nearest equivalent is Apple and the iPhone. Few competitors have hardware in 78 million homes. On Tuesday, Kaz said now was the time to harvest that base, which includes 70 million active users each month who spend 600 million hours per week on the PlayStation network.

That's an impressive figure, but Sony will have to ship a lot more than 20 million units a year if it wants to expand its customer base.

Building a Base
It's important that Sony continue to sell more hardware in order to secure recurring revenue from content and services
Source: Sony company filings

Sony needs to build a device that will be far more ubiquitous and can appeal to consumers beyond the current male-skewed slowly aging hard-core gamer base. Amazon and Alphabet Inc., with Echo and Home, are two such examples, and Apple will probably follow suit.

With its background in audio, video, sensors and entertainment, Sony has all the right parts to make it happen. For the company that invented the Walkman, dreaming up another hit shouldn't be so hard.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net