Betamax

Introduction

According to some beliefs (Cashberry, 2006), in order to become a strong brand a company should be the first to establish in a new category. Indeed, as mentioned by Al Ries “customers don’t really car about new brands, they care about new categories” (Cashberry, 2006), which can be supported by examples such Domino’s and Coca-Cola, both of which were the first in their category and still remain leaders nowadays. However, this theory is not a truth in all domains. In fact, in technology markets, often companies were bad at anticipating how customers would react to new technologies. Such an example is the failure of Sony’s Betamax video recorder.

Situation (videotape format war)

During the Sony’s new product development phase, the question was: would home-use video recorders (VCRs) become popular? Sony developed and released Betamax VCR in Japan in 1975. About one year later, JVC, which was the main rival of Sony, came out with the video home system (VHS). The main problem was that there was an incompatibility between the analog videocassette and videocassette recorders, in which Betamax and VHS format were involved. Indeed, Sony’s Beta format and JVC’s VHS format were technologically similar, however, the cassette sizes were different (see figure 2), thus there was more than one format available for customers, and each company started to fight for market share. Betamax and VHS started to compete in a fierce format war; nevertheless, despite being the first on the market, Betamax lost this war. Indeed, by 1980 JVC’s VHS format had control over 60% of the North American market, while in UK, Betamax saw its market share dropping from 25% to only 7.5% (Wikipedia, Betamax, 2014). In 1988, finally Sony recognized the defeat and began to also produce VHS recorders, but why did such a failure happen?

Problem

As a new product is released on the market, there is no guarantee that it will reach the customers targeted. Variables such as targeting the right market, the quality of the product, the marketing and so on are key elements leading to either a success or a failure.

Along this report I am going to present several problems that I spotted, all of which could explain the causes of Betamax’s failure. First of all, everything started with the “arrogance“ of the company. Indeed, since its creation Sony was an innovative company with the ambition to both introduce new products and create entirely new markets. However, Sony had the tendency to dictate what people needed and what the standards were, as it is supported by one of its co-founder – Akio Morita: “We don’t believe in market research for a new product unknown to the public…so we never do any. We are the experts.” (Students, 2007)

Because of this attitude, it seems that the firm did deficient or inadequate market analyses (topic 1 factor explaining NPD failures) before launching Betamax. In fact, Sony had already experienced inability to reach its market with the introduction of U-matic in 1971 (videocassette format oriented consumer market -> manufacturing cost, hence retail price too high -> only affordable for industrial, professional and educational sector) (Wikipedia, U-matic, 2014). Apparently Sony did not learn from its previous “failure”. Indeed, the company saw a technological breakthrough (topic 1) opportunity with its new product Betamax. We have learnt that development time (topic 1) is one key success factor of NPD, however, Sony seemed to confused speed with hast. In 1974, Sony showed its “Beta” prototype to other electronics manufacturers in order to convince them for a unique format “for the good of all” (Sony, The Video Cassette Tape, 2014). In late 1974, Sony introduced Panasonic a Betamax prototype when talking about the home video market future. Sony was not sure about its capacity to cover the world demand alone, thus, asked Panasonic to move together since they had already cooperated in the development of the U-matic. However, Sony was unaware at that time of JVC’s work. Short before launching Betamax, Sony, Panasonic and JVC met again and this time JVC showed Sony a VHS prototype. Despite giving the access to the patent technology (why did they do so?), “it was impossible for Sony to hide its shock and surprise” (Sony, The Video Cassette Tape, 2014). This reaction means that Sony did not take into consideration their close competitors, which is surprising because if a firm does a market analysis (e.g SWOT analysis), the firm should scrutinize the external threat as well to anticipate potential consequences. Nonetheless, VHS advised Sony “it was not too late to embrace VHS for the good of the industry”, but Sony management felt they were too close to the production to compromise it. Because the Sony saw an