Betamax vs VHS. A Case Study of the Competitive Battle of Video Cassette Recording Systems

Term Paper, 2015

16 Pages, Grade: A


Table of Contents

1. Introduction

2. Analysis of the reasons of Sony’s failure

3. Analysis of factors which made Matsushita’s approach successful

4. Analysis from Technology point of view

5. Strategic choices Sony could have made differently

6. Discussion and Conclusion

7. References

Table of Figures

Figure 1 Design of the tool to chose the right comercialization strategy

Figure 2 Sony business level analysis

Figure 3 Network effect on video-rental market

Figure 4 High technology marketing uncertainties

Figure 5 Matsushita's business level strategy

Figure 6 Factors of Matsushita's success

Figure 7 Technology adoption life cycle

Figure 8 Product Category life cycle compared to the technology adoption life cycle

Figure 9 Trade Off between Market Acceptance and Profit Appropriation

1. Introduction

In 1975 Sony introduced into the market the Betamax video cassette recorder (VCR). This has been the main actor of an interesting competitive battle in the consumer electronics industry. In detail, this industry was at its early stage, and standards were not defined yet. Apparently Sony built a valid and good strategy that was supposed to win the standard war against its main competitor VHS, a VCR provided by Matsushita. However, Matsushita performed a different strategy that have lead it as winner (Raynor 2007).

Even if Sony’s strategy was well-built, Sony lost this standard war due to other unpredictable factors such as market and technological uncertainties. This paper aims to analyze these factors in detail, with a complementary identification of the rationale beyond Sony’s strategic choices, and a consequential identification of the strategic choices that it would have done differently. Furthermore, rationale beyond Matsushita’s strategic choices will be studied as well, and the competitive battle will be analyzed also from the technology point of view.

Hence, it’s interesting to observe how these two firms have adopted so different strategies, in alignment with the firm corporate strategy, and how they focused in different product attributes. So, the outcome of this paper will be understandings of the insight of Sony’s strategy in relation to relevant literature.

2. nalysis of the reasons of Sony’s failure

In order to analyze the reasoning beyond strategic choices of Sony it’s necessary to go through them step by step in relation to relevant theories. First, in order to launch a new technology Sony made the decision about either collaborate or compete with incumbents. Indeed, the main incumbent was the Japanese company Matsushita. Actually, at the moment of taking this decision Sony have already collaborated with this firm due to lack of resources, but it didn’t work because of Matsushita’s low manufacturing capability. So, based on this experience, Sony decided to compete, even if with fewer resources.

In detail, in order to fully understand this strategic choice it’s possible to apply a tool proposed by Lead to Win, who supports firms to launch new businesses. In fact, the purpose of this tool is to let firms to decide either to compete or collaborate with already established companies and what are the best strategic choices based on the market situations in terms of incumbents. The outcome of the application of this tool is to identify the potential result of a commercialization of a new technology (Lead To Win n.d.). The main factors that influence this decision are the amount of available resources and complementary assets, and the presence of a market for ideas. Basically, it is the possibility to prevent through patents incumbents to imitate the new technology. In addition, it’s necessary to consider if the complementary asset is bottleneck or checkpoint. In other words, it’s necessary to consider the strength of the path dependence.

Hence, analyzing these two factors allows to identify the plan potential outcome. Once it has been identified, it is possible to get further details of how the commercialization plan should be. So, regarding the new technology Betamax it’s possible to state that for Sony there was a strict appropriation regime since it could avoid imitation and keep the intellectual propriety of the technology, but it didn’t have the full control on the complementary asset of the new technology. Thus, within the following table that shows the tool matrix, Sony can be identified in the cell that corresponds to “yes” regarding the possibility to get a patent and “yes” regarding the dependence of complementary assets over incumbents. In other words, Sony’s new technology depends on assets and resources that the competitor own.

illustration not visible in this excerpt

Figure 1 Design of the tool to chose the right comercialization strategy

Regarding the dependence of complementary assets, it’s possible to state that the asset dependent on the competitor is the format of the device. This is related to another factor that it is necessary to consider: the maket timing. Basically, it is the option of entry in the market before or after the establishment of dominant design. Domimant Design are feautures always present in a product. On the other hand, standards are associated with the interface and are only a component of the dominant design. Within an industry, there are standards only if there are enough modularity (Gallagher 2007).

So, Sony was entring in the market before standards were definied since the industry was still at a early staage and modularity was not present yet.. Indeed, there was only a format, and it cannot be considered a standard. So, Sony’s decision of competing could have been a cause of a format war, and so a strandards war. Sony decided to run this risk, supposing that customers would have chosen the format of their product, since it was better in terms of quality and performance. As result, it entries in a eraly industry aiming to establish its product as stantard.

In contrast, according to the tool proposed by Lead to Win Sony should have collaborate with the competitor since its profits were depending on its negatiation power with the incumbent. However, as already stated Sony preferred to compete counting on the fact that it would have developed a better product, which would have been dominant in the market.

The next step of Sony’s strategic choices is based on this statement, and it is related to decide if the product should focus either on gaining a cost advantage or a differentiation advantage. In order to ensure an alignment with the firm’s strategy and the well-known brand awareness Sony decided to aim to gain a differentiation advantage, which can be recognized as a price premium gained thanks to the uniqueness of the product (Grant 2010; Raynor 2007). Moreover, it decided to not focus in a spefic target customer segment, keeping the industry-wide as competitive scope. As a result a business level, Sony’s went for a differentiation strategy and it can be rappresentaed as follow:

illustration not visible in this excerpt

Figure 2 Sony business level analysis

As a consequence, the focus on quality had as drawbacks a lower level of manufacturing capacity, marketing budget and distribution. Moreover, Sony was not able to exploit licence fees. Overall, these points can be considered as disadvntages of perfoming a product-differentation strategy. On the other hand, advatges would have been acquiring a high value for the new technology, set standards and exploit a higher price.

Thus, once it has been identified the strategy that Sony decided to perform, it’s necessary to investigate more about the value of the technology it launched in the market. Basically, a value of a technology is composed of the technology utility, the installed base and the complementary goods availability (Schilling 2013; Gallagher 2007). The installed base equals to the number of Betamax users. The technology utility can be idefitied witht the technology itself, or in other words the stand- alone technology. Then, one of the compelmentary goods is the Sony Triniton television. Indeed, Sony launched them as a boundle, and only after one year Betamax reached the value also as stand- alone technology.

Furthermore, anothe rimportant aspect that it is necessary to point out in order to identy the cause of Betamax fail is the performing by Sony of a deliberate strategy. Indeed, through ’70 VHS was gaining more and more market share over time, since Matsushita was licensing its production to other manufacturers, who were performing various strategy, and in this way customers were mainly always matching with one of them. However, Sony got stick on its differentiation strategy, not paying attentions about competitor’s moves and market changes. Since its product was anyway keeping its differentiation characteristics, it was hoping to keep a niche market share who would still appreciate the better characteristics of the product and who would still have the willingness to pay more for that product (Raynor 2007). For those reasons, it didn’t really considered signals of market changes.

Then, Sony reached the point when it was losing all its market share. So, it launched a new version of the same product, but it didn’t pay attention about integration between the two versions. From Sony’s point of view, it was more important to focus on new customers than avoid the resistance of the early users against the new Betamax version (Raynor 2007). Apparently, this rationale is very stable. Nevertheless, since it is in a standard battle context, compatibility is a key critical point in order to not lose the value already gained.

In fact, even with the introduction of the new version of the product Betamax’s market share kept decreasing over time for two main reasons. First, its competitor VHS was achieving more and more of Sony’s market share. Second, the network effect regarding the video-rental market.


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Betamax vs VHS. A Case Study of the Competitive Battle of Video Cassette Recording Systems
University of Southern Denmark
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VCRs Competitive Battle, Technological Changes
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Giulia Lucarelli (Author), 2015, Betamax vs VHS. A Case Study of the Competitive Battle of Video Cassette Recording Systems, Munich, GRIN Verlag,


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