Sony's Trojan Horse

Play Station 2 is more than just a games console. It is so powerful there are even fears it could be used for military purposes. Sony hope it will be their key to a broadband world domination

At the time, it seemed like little more than a joke - either that, or another mischievous publicity stunt by those clever people at Sony. It was March of this year, the month when Play Station 2, Sony's new generation games and entertainment console, was launched in Japan amid near-hysterical scenes. On the night before the new product went on sale, hundreds of customers were camping in front of Tokyo electronics shops. In the first three days, 980,000 units of Play Station 2 were sold. Then a curious rumour started doing the rounds - Play Station 2 had sinister applications.

At the time, it seemed like little more than a joke - either that, or another mischievous publicity stunt by those clever people at Sony. It was March of this year, the month when Play Station 2, Sony's new generation games and entertainment console, was launched in Japan amid near-hysterical scenes. On the night before the new product went on sale, hundreds of customers were camping in front of Tokyo electronics shops. In the first three days, 980,000 units of Play Station 2 were sold. Then a curious rumour started doing the rounds - Play Station 2 had sinister applications.

Eventually, a Japanese newspaper pinned down the truth. Inside the console is a memory card responsible for Play Station 2's greatest selling point, its fast and fluid graphics. The card is one of the most advanced of its kind, so sophisticated it has potential military uses. The Japanese authorities, it turns out, have imposed export controls on the new Play Station, because of the danger that it might be converted to missile guidance systems.

The idea of a teenage Streetfighter fan wiping out half of Tokyo with a missile launched from his games console is appealingly unlikely but, the principle behind it is accurate enough. For all that it may look like another sophisticated electronic toy, the Play Station 2, which will be launched in Europe and America in October, is regarded by Sony as much more than that. Instead it is an electronic Trojan Horse, intended to smuggle into family homes an army of functions and applications which can currently be performed only by computers.

"PS2 is more than a game machine, more than a PC, more than a consumer electronics product, and more than a consumer electronics product," says Nobuyuki Idei, Sony's visionary CEO. "This is the first mass-market product for the broadband world." And on its success rests the future of the Sony Corpor-ation.

If Mr Idei's strategy works, the Play Station 2, and future boxes of tricks like it, will be at the centre of "home-networks", linking all kinds of electronic devices via the powerful broadband networks which will soon bring even greater speed and power to the internet.

Users are unlikely to annihilate cities from their Play Stations, but through it, or its successors, they will be able to link and co-ordinate computers, home robots, televisions, videos, games consoles, audio systems, video cameras, and mobile phones. A woman sitting in her office will be able to retrieve files from her computer at home via her mobile phone. She can check what her children are watching on TV, switch channels to something more suitable, and turn down the volume. And she will be able to programme the oven to start cooking dinner as she drives home from work, while downloading a choice of music into her car stereo.

"Sony can be the number one company in the broadband network society," says Mr Idei. "That will a much bigger role than Sony has ever had. But we can't just wait until broadband arrives. We have to take advantage of everything the technology and the new economy provide. We have to prepare while we still have time."

Mr Idei has been implementing a thorough overhaul of Sony since becoming president five years ago. In the late 1980s and early 1990s, Sony's favourite buzzword was "synergy" between the corporation's software and hardware businesses. This was behind the purchase in 1990 of Columbia Pictures, to become Sony Pictures Entertainment. The studio would profit from the release of its films, then repackage them as videos and laser discs. "We talked a lot about hardware/software synergy, but there was none in the early Nineties," says Mr Idei. "A real synergy will be reality in the Networked Society."

In the old days, Sony's many different arms worked as independent kingdoms, developing their own products, and paying little attention to other departments. Under Mr Idei, all this will change. Just as the gizmos and appliances of the ideal home will be interlinked, so will be Sony's groups. Televisions, videos, and audio production are now controlled by a new department called the Home Network Company, which is developing protocols to ensure they can all interact with one another. The Core Technology and Network Co is responsible for the Memory Stick, a neat plastic finger of memory chips, the size of a piece of chewing gum, which is found in many Sony products. For example, it can be used to record music, which can thenbe played on a special Memory Stick Walkman. Eventually, the theory goes, users will purchase albums and download them directly onto the Memory Stick from the internet, eliminating CDs and tapes.

Sony will continue to produce computers, such as its prestige laptop, the elegant Vaio. But the point of Mr Idei's vision is to move from the conventional way people access the web, through a computer attached by a modem to a phone line. "A lot of people always assumed the PC would be the machine to control your home network," says Ken Kutaragi, one of Idei's lieutenants. "But the PC is a narrowband device that comes from a document-based culture and has only been retrofitted to play video and interactive 3-D graphics. The PlayStation2 is designed from the ground up to be a broadband device."

The logical place to implement this kind of thinking is Japan, where the IT revolution is already following a very different pattern from the west. Compared to Europe and America, few Japanese have computers at home. But no other culture in the world is so in love with the mobile phone - and it is through wireless technology that the internet is taking hold.

Services such as DoCoMo's i-mode, which allows access to specially formatted internet sites through conventional mobile phones, have millions of users, and through such alternative Internet portals, mobile phones and Play Station 2, Japanese companies hope to race ahead. "The United States is the clear leader of the network era in terms of PC-based commerce," says Mr Idei. "But I think the US is under the false impression that it is also the leader of the network era in the other two aspects - mobile and broadband networks, and non-PC net devices."

Mr Idei fits the tradition of Sony presidents established by the company's founder, Akio Morita - he is a cosmopolitan, with an unconventional business background. His immediate predecessor, Norio Ohga, was an opera singer; Mr Idei was a violinist, who played alongside Seiji Ozawa, conductor of the Boston Symphony. He studied in London and Paris, before his swift climb up the Sony hierarchy.

But so far, Mr Idei has little to show. The Play Station 2 is still a games console with a lot of interesting-looking ports, but nothing much to plug into them. Demand is huge, but in its excitement about the unit's future application, Sony appears to have neglected production priorities. Shortages of a crucial PS2 part prevented the company from keeping up with demand.

By the end of the year, the new Play Station can expect stiff competition from an internet-adaptable games console, Microsoft's X-Box. The Memory Stick is facing an challenge from an even dinkier memory-card from Matsushita, which is pushing its Secured Digital (SD) Memory Card as the industry standard. For Mr Idei this is particularly ominous, recalling the battle over video format in the 1980s, when Matsushita's VHS vanquished Sony's Betamax.

Several elements of Mr Idei's vision are incomplete - in mobile communications, competitors including Matsushita and Fujitsu, for example, are well ahead of Sony. The company's 1999 results were a disappointment, even allowing for the strong Japanese yen eating into overseas profits, and operating income was down by more than 30 per cent to $2.3bn. On 1 March, before those results and on the eve of the Play Station 2 launch, Sony's share price was a record $152; yesterday it was $97.6, on the eve of today's quarterly results.

Mr Idei compares the arrival of the internet and broadband to the huge meteorite which struck the Yucatan Peninsula 65 million years ago and changed the earth's climate forever. The mammals of the business world will be able to adapt and survive. "But organisations that move like hulking great dinosaurs," he says, "are destined to collapse under the weight of their own inertia."