Brand Guru Al Ries says, “Customers don’t really care about new brands, they care about new categories. By first pre-empting the category and then aggressively promoting the category, you create both a powerful brand and a rapidly escalating market.”

However, this theory, although successful elsewhere, holds invalid in technology markets. Since consumers are slow to latch on to technology innovations, the first-mover advantage is lost.

A fine example of this would be Sony’s Betamax video recorders. During the 1970s, Sony developed a machine designed to deliver home video-taping equipment. The machine used Betamax technology, and hit the stores in 1975. In its first year, 30,000 Betamax VCRs were sold in the United States alone. But a year later Sony’s rival JVC came out with the VHS format VCR. By January 1977, there were four more Japanese electronics companies manufacturing and marketing VHS-based machines. While Sony was unwilling to license Betamax technology, JVC happily shared its VHS format.

As the two formats were incompatible, customers were forced to decide between them. Pretty soon Sony started feeling the pressure as its competitors dropped prices to as much as US $300 below Sony’s machines. By 1982, the price war was in full swing and Sony reluctantly joined in, offering a US $50 rebate as a ‘Home Improvement Grant’. In this year too, Betamax VCRs accounted for a paltry 25 per cent of the entire market and the public was being warned that the selection of video rentals available for Betamax owners would be slightly smaller than that for VHS owners.

Sony refused to bite the bullet though. Although it was steadily losing market share but the number of units sold still continued to rise, peaking with global sales of 2.3 million units in 1984.

However, three years later VHS had gone way beyond the tipping point with a 95 per cent share of the market. On 10 January 1988 Sony finally swallowed its pride and announced plans for a VHS line of video recorders.

But still, Sony was adamant that this should not be construed as the ‘death’ of Betamax. Even when it started to make VHS machines it didn’t abandon Betamax. Overseas production of Betamax hobbled on until 1998, and in Sony’s home territory, Japan, machines were still being made until 2002, although not in huge numbers (Sony produced just 2,800 units in 2001).

On 22 August 2002 Sony finally announced it would be discontinuing Betamax products.

Now, of course, VHS itself is under threat from the rapid rise in digital versatile disc (DVD) players, and may not be able to survive into the long term. While DVD has finally drawn a line under the battle between Betamax and VHS, it has also managed to create its own destructive war between different DVD formats, and therefore delayed the take-off of that market. However, at least some of the lessons of Betamax have been learnt. Sony and eight of its competitors eventually joined forces in 2002 to create a common format for DVD, meaning this time Sony will not be left on the sidelines.


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