Technological Pioneering and Competitive Advantage: The Birth of the VCR Industry

These six do not exhaust the list of those who attempted to bring videorecording into the home, but they shall suffice for purposes of our analysis. Other firms, mainly in North America, also sought to develop videorecording for consumer use in the early 1960s, but none of those opportunistic ventures persisted for more than a few years. See Rosenbloom Richard S. Freeze Karen J. , “Ampex Corporation and Video Innovation,” in Rosenbloom Richard S. , ed., Research on Technological Innovation, Management and Policy, Vol. 2 (Greenwich, CT: JAI Press, 1985). In the late 1960s, Philips N.V. , the European electronic giant, and Cartridge Television Inc. (CTI), an American venture capital start-up, began to pursue the same goal. Philips was the innovator in the European VCR market in 1972, but failed to keep pace with the advances made in Japan in the next 5–7 years. Cartridge Television was the only American firm to produce a VCR for consumer use, but its product was commercialized too early and CTI fell into bankruptcy and was liquidated in 1974.

For reviews of the treatment of technology and strategy in these literatures a decade ago, see Rosenbloom Richard S. , “Technological Innovation in Firms and Industries: An Assessment of the State of the Art,” in Kelly P. Kranzberg M. , eds., Technological Innovation: A Critical Review of Current Knowledge (San Francisco, CA: San Francisco Press, 1978); and Kantrow Alan , “The Strategy-Technology Connection,” Harvard Business Review (July/August 1980), pp. 16–21. Pavitt and Graham illustrate the current interest in “strategic” aspects of technology management; see, Pavitt Keith , “Technology, Innovation, and Strategic Management,” in McGee J. Thomas H. , eds., Strategic Management Research (London: John Wiley & Sons, 1986); and Graham Margaret B. W. , The Business of Research: RCA and the Videodisc (Cambridge: Cambridge University Press, 1986). Similarly, the strategy literature exhibits an increasing concern with issues of technology management; see Friar John Horwitch Mel , “The Emergence of Technology Strategy: A New Dimension of Strategic Management,” in Horwitch Mel , ed., Technology in the Modern Corporation (New York, NY: Pergammon Press, 1986). For example, in his most recent book, Michael Porter devotes a chapter to “Technology and Competitive Advantage,” a topic treated sparingly in his previous Competitive Strategy; see, Porter Michael E. , Competitive Advantage (New York, NY: The Free Press, 1985), and Porter Michael E. , Competitive Strategy (New York, NY: The Free Press, 1980).

Porter Michael E. , Competitive Advantage, op. cit., chapter 5.

Teece David , “Profiting from Technological Innovation,” Research Policy, 15 (1986).

The character of these choices is discussed in Rosenbloom Richard S. , “Managing Technology for the Longer Term: A Managerial Perspective,” in Clark Kim B. Hayes Robert H. Lorenz Christopher , The Uneasy Alliance (Boston, MA: Harvard Business School Press, 1985), especially pp. 311–314. Hamilton discusses the strategic options offering increased focus and commitment for a firm addressing an emerging technology. His “window” strategy corresponds to the idea of a “monitor's role” advanced here. See Hamilton William F. , “Corporate Strategies for Managing Emerging Technologies,” in Horwitch Mel , ed., Technology in the Modern Corporation (New York, NY: Pergammon Press, 1986), pp. 111–113. Useful managerial discussions are found in Gee E.A. Tyler C. , Managing Innovation (New York, NY: Wiley Inter-science, 1976); and Pake George , “From Research to Innovation at Xerox,” in Rosenbloom Richard S. , ed., Research on Technological Innovation, Management and Policy, Vol. 2 (Greenwich, CT: JAI Press, 1986).

See Rosenbloom , (1985), op. cit.

Betamax is a trademark of the Sony Corporation.

VHS is a trademark of Japan Victor Corporation.

For comparison, it should be noted that total output of VTRs in Japan ranged between 114,000 and 134,000 units annually from 1972 through 1975, averaging 124,000.

A VTR is a system combining magnetic, electro-mechanical, and electronic components. At the core are the magnetic elements—the recording medium (coated tape) and the transducer (head); unless they perform well, the system will not. Also important are the scanner and associated transport mechanism, through which the head scans the medium to “read” or “write,” and the electronic circuitry, which both processes the signals to and from the head and controls the mechanical actions of the scanner and transport.

The patent was issued in 1959.

Ampex had been founded in 1944 to manufacture motors and generators for naval radar systems. After the war, the company began to make audio tape recorders and military instrumentation equipment. For a description of Ampex and the invention of videorecording, See Rosenbloom Freeze , op. cit., pp. 115–122.

The Ampex VTR, its circuits designed entirely with vacuum tubes, was massive, complex, and expensive, filling a large console and two equipment racks the size of refrigerators. But it sold like the proverbial hotcakes to broadcasters.

Sony, in 1959, was smaller than Ampex but had already developed substantial expertise in semiconductor circuit design for both audio and video.

Television broadcasters used the VTR to replace the expensive and awkward kinescope recording method, generating cost savings that repaid the price of the VTR in 11 months.

Wall Street Journal, April 16, 1956, p. 16. Long was fired in 1960 when Ampex experienced a drop in revenues and a net loss for the year.

New York Times, April 22, 1956, II. p. 13.

RCA Industry Service Laboratory, RB-98, April 12, 1957.

Burns John , an “outsider,” was appointed President of RCA in 1957 and set about to reorient R&D in the company and diversify its businesses. He was forced out by David Sarnoff within 4 years. Graham , op. cit., pp. 81–83.

Sawazaki excited interest in helical scanning among parts of the American technical community with a paper presented at an SMPTE conference in California in May 1960. Sawazaki Norikazu , “A New Videotape Recording System,” Journal of the SMPTE, 60 (December 1960): 868–871. Following this, RCA initiated a small program for development of helical-scan VTRs, but it was aimed entirely at an emerging government market for compact recorders that could be used in space.

NHK, Nippon Hoso Kyokai (Japan National Broadcasting Corporation), ed., Nihon hosho shi (History of Japanese Broadcasting), Tokyo, 1965.

Nihon Keizai Shimbunsha, ed., “Gekitotsu! Soni tai Matsushita—bideo ni kakeru soryokusen” (Crash! Sony versus Matsushita—the all-out war waged on video), (Tokyo, Nihon Keizai Shimbun, 1978), pp. 29–30, 158–161; and Rosenbloom-Cusumano interview with Norikazu Sawazaki, September 7, 1985.

A self-educated engineer who had joined Ampex in 1954 to work on the VTR project, Maxey initiated and championed work on helical-scan technology, with no knowledge of Sawazaki's invention. The prototype he built in late 1957 was the first video recorder using the helical format to produce adequate television images. See Rosenbloom Freeze , op. cit., pp. 130–142.

NHK, op. cit., pp. 475, 645, 748.

Lyons Nick , The Sony Vision (New York, NY: Crown Publishers, 1976), p. 5.

Rosenbloom interview with Masaru Ibuka, July 24, 1980.

Ibid.; Ibuka Masaru , “How Sony Developed Electronics for the World Market,” IEEE Transactions on Engineering Management, 22 (February 1975): 17; Ibuka Masaru , “Watakushi no rirekisho” (My career), Nihon Keizai Shimbunsha, 18 (1963): 42–43.

Ibuka and Sawazaki interviews. This critical period is discussed also in Lyons , op. cit., pp. 150–151.

Lyons , op. cit., pp. 203–204; Rosenbloom interview with Masahiko Morizono, Sony Senior Managing Director, July 1980.

Ninon Bikuta Kabushiki Kaisha (Japan Victor Company—JVC), Nihon Bikuta 50-nen ski (A 50-year history of Japan Victor), (Tokyo: JVC, 1977), pp. 107–112. Established in 1927 as a subsidiary of the Victor Talking Machine Company of America, JVC had once been a subsidiary of RCA, which had acquired its parent (Victor) in 1929. Majority ownership was acquired by Toshiba in 1937 and was taken over by a bank in 1951 when the Victor Company was in deep financial difficulty.

Terakado Masaru , Nihon Bikuta no jinzai keiei (Personnel management at Japan Victor), (Tokyo: Purejidento-sha, 1980), pp. 103, 112–118, 123.

Cusumano interview with Kenjiro Takayanagi, December 28, 1984.

Nikkei shimbun (Nikkei Newspaper), January 10, 1960.

Takayanagi interview.

Sugaya Hiroshi , Katei-yo VTR no kanosei (Feasibility of a home-use VTR), Matsushita Denki Sangyo K.K., Chuo Kenkyusho Denki-bu, Dai-san ka, Project No. SE-002, March 1960; Rosenbloom interview with Sugaya, August 4, 1980; Cusumano interview, January 8, 1985. For a history of the company through the late 1960s, see Denki Matsushita Kaisha Sangyo Kabushiki , Matsushita Denki 50-nen no ryaku shi (A short 50-year history of Matsushita Electric), (Osaka: Matsushita, 1968). A survey of the video area is Denki Matsushita Kaisha Sangyo Kabushiki , Bideo Jigyo-Bu no go-annai (An introduction to the Video Division), (Osaka: Matsushita, 1980).

N. V. Philips introduced a VCR in 1972 that was technologically comparable (perhaps superior) to the Japanese designs, but failed to invest in the further extension of the technology until after the Japanese had introduced their half-inch designs.

American firms were also addressing an aerospace market for highly specialized satellite-borne equipment for secret application. But this market and technology had little influence on the path of commercial development.

Although both JVC and Ampex had developed helical-scan recorders designed for studio use, both firms pulled back from commercialization of those products in 1962 and turned their helical-scan developments toward the CCTV market.

LIFE, September 17, 1965, pp. 55–60.

Sales of color receivers had just begun rapid growth in the U.S. market.

This story appears in greater detail in Rosenbloom Freeze , op. cit., pp. 165–171.

In technical usage, a cassette is a package containing two reels (supply and take-up)—usually in the same plane. Because early designs required larger reels (a consequence of lower recording density), programs were packaged on an enclosed single reel (called a “cartridge”) and players designed for automatic threading. Tape from a cartridge had to be rewound fully before it could be removed from the player.

See, for example, “The Greatest Thing Since the Nickelodeon?” Forbes, July 1, 1970, p. 14; and Lessing Lawrence , “Stand by for the Cartridge Revolution,” Fortune (June 1971), p. 82.

In Japan, 358,000 yen for a VCR with built-in TV tuner for recording broadcasts. Matsushita and JVC introduced similar products simultaneously, as provided in the agreement between the companies. Not all Japanese companies were convinced this would become the dominant video technology. Hitachi and Mitsubishi, for example, took licenses from CBS for Electronic Video Recording, believing, at that time, that it would become the “center” of the video-entertainment field. See Sony Corporation, “Table of Sony VTR History,” August 16, 1977; and Nihon Keizai Shimbun, March 24, 1970, p. 7.

Graham , op. cit., chapter 6.

Ibid.

Rosenbloom interview with Akio Tanii, Manager of Matsushita VTR Division, 1980.

Rosenbloom interview with Kihara, 1980.

JVC, op. cit., p. 129.

JVC, op. cit., pp. 116–120; and JVC internal memorandum, September 29, 1981.

Cusumano interviews with Takayanagi, December 28, 1984, and with Shiraishi Yuma , December 20, 1984.

See Shiraishi Yuma , “VHS: Bideo kasetto rekoda” (VHS: Video cassette recorder), in Akira Egawa , Seihin senryaku no jidai (The age of product strategies), (Tokyo: Dobunsha, 1980), pp. 154–166; and Yanagida Kunio , “VHS kaihatsu dokyumento” (A document on VHS development), Shukan gendai (May 1980).

A demonstration for senior RCA technical staff failed to deter the latter's commitment to Videodisc, but it did convince them that the RCA VCR design had been outmoded.

Nihon Keizai Shimbunsha, op. cit., pp. 13–22.

JVC also licensed the VHS to Hitachi, Sharp, and Mitsubishi in Japan (which sold machines supplied by Japan Victor); to RCA, Magnavox, Sylvania, GE, and Curtiss in the U.S. (which sold machines produced by Matsushita); and to Thomson in France (supplied by JVC). Toshiba and Sanyo (which had their own VCR design) lined up behind the Betamax standard, and were followed by Pioneer and Aiwa (a Sony subsidiary) by spring 1977. Zenith and Sears, Roebuck in the U.S. also bought Betamax models on an OEM basis. Eventually, while 11 firms in Japan, the U.S. and Europe supported the Betamax standard, 42 adopted the VHS. See Nihon Keizai Shimbunsha, op. cit., p. 73; and School Nomura Management , VTR sangyo noto (VTR industry note), Tokyo, 1984, p. 47.

Toshiba captured a small share of the mass market as licensee of Sony's technology. RCA, buying VHS machines from Japanese suppliers, built a profitable but limited business marketing VCRs in the North American market. Ampex, the source of the most basic inventions in VTR technology, failed to establish any position in the VCR markets.

More precisely, there was a series of “breakthroughs” on critical elements of the design, achieved during four years of inventive effort. But all of them were achieved in secrecy within the small team working at Ampex. See Rosenbloom Freeze , op. cit.

Smaller reels of tape could be driven by smaller, less-expensive transport mechanisms, and the whole machine fitted in a smaller case.

The rotating drum on the Betamax scanner, for example, had to be machined to tolerances of +/-.01 millimeter. The tiny magnetic heads mounted on the drum had a thickness, initially, of only .06 millimeter and had to be positioned on the drum to accuracies measured in thousandths of a millimeter.

JVC's first VTR product used 2 heads, in contrast to the earlier Sony and Ampex machines with a single head. By 1965, Sony had switched to the 2-head design.

See Graham , op. cit.

See, for example, Sankei shimbun, April 27, 1965.

Rosenbloom interview with Kihara (1980).

Specifically, Takayanagi, Ibuka, and Nakao.

For the auto story, see Cusumano Michael A. , The Japanese Auto Industry: Technology and Management at Nissan and Toyota (Cambridge, MA: Harvard University Press, 1985). For computers, see Takahashi Sigeru , “Early Transistor Computers in Japan,” Annals of the History of Computing, 8/2 (1986); and Minamisawa Noburo , Nihon Konpyuta hattatsu shi (History of the development of Japanese computers), (Tokyo: Nihon Keizai Shimbunsha, 1978). For machine tools, see Harvard Business School, “Hitachi Seiki (A),” Boston, MA, Harvard Case Services, #9-686-1004, 1986. For Epson, see Imai Ken-Ichi Nonaka Ikujiro Takeuchi Hirotaka , “Managing the New Product Development Process: How Japanese Companies Learn and Unlearn,” in Clark Kim B. Hayes Robert H. Lorenz Christopher , eds., The Uneasy Alliance (Boston, MA: Harvard Business School Press, 1985). For semiconductors, see Weinstein Franklin B. Uenohara Michiyuki Linvill John G. , “Technological Resources,” in Okimoto Daniel I. Sugano Takuo Weinstein Franklin B. , eds., Competitive Edge: The Semiconductor Industry in the U.S. and Japan (Stanford, CA: Stanford University Press, 1984). For software, see Cusumano Michael A. , “Pioneering the ‘Factory’ Model for Large-Scale Software Development,” M.I.T. Sloan School of Management Working Paper, 1987.