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Microsoft and Sony were wrong-footed by the internet.

Microsoft and Sony were wrong-footed by the internet

List 10 world-beating products of recent times, and they are likely to include Microsoft Windows, Microsoft Office, the Sony Walkman and the Sony PlayStation. All four had the 'wow' factor that transformed their product categories and even the way we live our lives. For a number of years after they were introduced, Microsoft and Sony could do no wrong.

But times have changed. Microsoft has been widely criticised for embarrassing misses in music players (dominated by the iPod), smart-phones (where the iPhone is king), search engines (where Google holds sway) and social networking (led by Facebook). Sony's profitability, meanwhile, has been eroded by new technologies such as the tablet computer.

Ashlee Vance (T01, BBWI) examines the dramatic changes that chief executive Steve Ballmer has brought about at Microsoft to catch up on the computer-related innovations it has missed over the last four years and to strengthen its move from a PC-driven organizational culture.

Since Bill Gates retired from the day-to-day management of Microsoft almost four years ago, Ballmer has ordered the company's product groups to work more closely together. As a result, Microsoft arguably now has what Ashlee Vance calls 'possibly the best product line-up in its history'. It includes Windows for smart-phones, Skype, the Xbox gaming console and an online version of Office. Later this year, the company will introduce Windows 8, which will unite all its internet-connected offerings.

The company's retail, wireless carrier and hardware-manufacturer teams have also been combined into a single group.

Even though Microsoft has almost tripled revenue and more than tripled profit under Steve Ballmer, its share price has been static. Shifting that could be his next big challenge.

Meanwhile, Bryan Gruley and Cliff Edwards (T29, NT) look at the problems facing Sony. While the company thrived in the era of stand-alone electronics, it was left behind by the internet. The iPod eased out the Sony Walkman, while Sony was slow to come up with its own smart-phones and tablets.

The company has been trying to adapt to the internet age for at least a decade. It remains, however, a sprawling manufacturer, with 168,200 employees, 41 factories and more than 2,000 products. Its mobile-phone joint-venture with Ericsson alone offers more than 40 handsets - a number the company is trying to reduce.

Sony has even lost nearly $8.5 billion on TV sets over the last eight years and expects to keep losing at least into 2013. 'Samsung, Vizio and other upstarts have driven prices so low that one Sony executive says the company charges less for some TVs than it cost to ship them a few years ago,' Bryan Gruley and Cliff Edwards s explain.

Sony is working on prototypes to replace commodity LCD and plasma TVs. Other products coming out this year include binoculars that can record video and goggles for watching 3D video games and movies.

Sir Howard Stringer, chairman and chief executive, acknowledges that change can be difficult to achieve at Sony because Japanese laws and the country's culture of lifetime employment limit the ability to close plants and shed jobs.

'Sony's Japanese tradition of consensus-building does not help it to battle competitors that respond quickly to the orders of a strong leader,' Bryan Gruley and Cliff Edwards continue.

Sir Howard Stringer is tackling these and other problems such as the 'silo' mentality in the firm. He has made plenty of progress, but much remains to be done before Sony can be said to have returned to the glory days.