Counting Sony's 8 years of Web3 layout, why should we not overestimate Layer2 "Soneium"?

Author: flowie, ChainCatcher

Editor: Marco, ChainCatcher

Recently, Sony Group announced with great fanfare that it will launch the Layer 2 "Soneium" on Ethereum, attempting to promote the large-scale adoption of Web3 and bringing considerable imagination to Web3.

This Japanese giant, with a market value of over $100 billion and nearly 80 years of history, has businesses covering various fields such as consumer electronics, gaming, film, music, and finance, establishing subsidiaries or factories in more than 140 countries and regions worldwide.

According to Sony's 2023 financial report, its net profit for the entire year of 2023 was 970.6 billion yen (approximately $6.619 billion).

Whether in bringing a large number of Web2 users to Web3 or in potential financial investment, it seems to be a positive signal for Web3.

In fact, this is not Sony's first foray into Web3. Since announcing its investment in blockchain research and development in 2016, Sony has ventured into various Web3 segments, including hardware wallets, metaverse/blockchain games, NFTs, stablecoins, and cryptocurrency exchanges.

However, in the long innovation cycle of the Web3 field, Sony may also find it difficult to escape the shackles of "big company syndrome." On one hand, although its reach is broad, the eagerness for quick success can lead to abandoned projects without follow-up; on the other hand, it often selectively applies technologies like blockchain, where marketing hype may outweigh actual implementation.

For the Web3 industry, perhaps there should not be overly high expectations for the participation of traditional giants in this wave of innovation.

Web3 Layout is Broad but Shallow, Often Just Skimming the Surface

"Before getting too excited about Sony and its new L2, remember that its last crypto project was an NFT marketplace called SNFT, which no one actually used." Crypto KOL @beaniemaxi, who has 200,000 followers on the X platform, expressed skepticism about Sony's high-profile announcement of its Layer 2 strategy.

In @beaniemaxi's view, Sony may end up like most large companies, launching 100 products and quickly abandoning 95 of them if they do not gain attention.

Looking back at its eight years of Web3 layout, Sony has indeed been good at keeping up with trends, but often just skims the surface. Many announcements related to Web3 have not been followed up, with products remaining on paper or in research, failing to achieve large-scale application.

Sony's earliest foray into Web3 can be traced back to 2016, when Ethereum and ICOs had not yet risen, and Japan's cryptocurrency trading had not yet been subject to regulatory oversight.

Sony primarily attempted to utilize blockchain technology to build shared databases for encrypted data transmission and sharing.

In early 2016, Sony International Education announced the introduction of blockchain technology into the K12 field to achieve encrypted transmission of student data.

Subsequently, Sony made similar attempts in real estate and transportation. For example, in 2019, Sony established a laboratory with a commercial bank to maintain transparency of information in real estate transactions through blockchain and create an environment conducive to transactions.

In 2020, Sony announced plans to develop a public database platform (referred to as BCDB) to record and share anonymous travel history data, aiming to achieve revenue distribution and improve the efficiency and transparency of travel services.

These plans are similar to the popular concepts of RWA and DePIN in recent years, but due to compliance and technical issues, it has been difficult to find initial results after implementation.

In addition to software, Sony also attempted to create a cryptocurrency hardware wallet.

In early 2018, Sony announced the development of a contactless cryptocurrency hardware wallet, based on Sony's Felica smart card technology.

According to Nikkei Review, the global shipment of Felica chips reached 1 billion in 2016. If Sony successfully integrates and enables Bitcoin payments, it could bring significant adoption to the crypto market.

However, Sony has not announced any plans for the application of this hardware wallet.

That year, Sony, which has a large gaming business, also announced its adoption of blockchain games.

At the end of 2018, Sony announced that it would release the blockchain game "Plague Hunters" in the first quarter of 2019, claiming it would be the first game to utilize blockchain technology. However, in 2019, there were no announcements or player data regarding "Plague Hunters."

In 2020 and 2021, as concepts like blockchain games, metaverse, and NFTs exploded, Sony, which has deep involvement in gaming and music, began to accelerate its exploration of Web3. Beyond simple collaborations with Web3 projects, Sony later established subsidiaries to carry out related businesses.

In terms of NFTs, Sony's initial operations were relatively simple, mainly launching NFT movie tickets through partners and strategically collaborating with NFT marketplace platforms to develop some NFTs.

For example, Sony Music Entertainment (SME) partnered with Solana's NFT platform Snowcrash, which could release celebrity series NFTs, but the platform has been relatively quiet since January 2023.

On April 13, 2022, Sony Network Communications announced the establishment of an NFT business company in Singapore, a joint venture with software development company Sun Asterisk, with Sony Network Communications holding a 70% stake.

Its business includes "NFT business strategy planning support," "NFT issuance support," "unique token issuance support," "NFT game development support," and "NFT promotion support." The joint venture operates an NFT marketplace called SNFT, but it has not gained much presence in the market.

This summer, Sony Bank attempted to provide digital services for its bank NFT users and digital securities users by launching the Web3 mobile application "Sony Bank CONNECT."

In addition, Sony has applied for multiple NFT patents. In early 2023, Sony Interactive Entertainment applied for NFT-related patents to allow consumers to use NFTs within the Sony ecosystem, while also supporting third-party game developers like Nintendo and Microsoft.

In the metaverse and blockchain gaming space, Sony has established strategic partnerships with metaverse infrastructure developers like Hadean and digital avatar technology companies like Didimo.

In March 2022, Premier League champion Manchester City Football Club formed a three-year partnership with Sony to build a football stadium in the metaverse. In October 2023, the leading metaverse platform Roblox also launched on Sony PS4 and PS5.

As the hype around the metaverse and NFTs faded in 2022, and with the rise of public chains and other infrastructure, Sony began to shift its focus to more foundational infrastructure or financial services.

The recently announced Layer 2 public chain plan by Sony actually began in 2023.

In September 2023, Startale Labs announced it received a $3.5 million investment from Sony Network Communications and established a joint venture to promote the development of Sony Chain, claiming that the chain has the potential to surpass Coinbase's previously released Layer 2 network Base.

On April 5, 2024, Sony Bank also announced the official launch of a stablecoin issuance pilot project linked to fiat currency, aiming to reduce transaction fees for individuals during payments and transfers while exploring its application potential in intellectual property-related businesses in gaming and sports.

Web3 Investment Exceeds $1 Billion, Heavy Bet on Metaverse Games

In addition to exploring Web3 through business expansion, Sony is also laying out Web3 through investments.

In Web3 investments, Sony has not established a dedicated investment fund.

Sony invests through its Sony Financial Ventures, as well as its Sony Innovation Fund and Innovation Growth Fund I L.P., focusing on emerging fields such as artificial intelligence, robotics, and fintech. The Sony Innovation Fund and Innovation Growth Fund have funding scales of 10 billion yen (approximately $68 million) and 20 billion yen (approximately $136 million), respectively.

From 2019 to the present, over five years, Sony has made about 10 investments in the Web3 field, with its largest bets in metaverse games, having made five related financings.

Among them, in April 2022, Sony announced a $1 billion investment in Epic Games to accelerate the construction of its gaming ecosystem in the metaverse. After the investment, Epic Games was valued at $31.5 billion.

Epic Games is the developer of the most profitable game on the internet, "Fortnite," and holds the most widely used "Unreal Engine" in mainstream AAA games.

Before the metaverse concept exploded, Sony had already invested $250 million and $200 million in Epic Games in 2020 and 2021, respectively.

Although the hype around the metaverse has subsided, Epic Games remains a leading player in the metaverse concept. In early 2024, according to foreign media GamesIndustry.biz, Epic Games received another $1.5 billion investment from Disney to create a new gaming entertainment universe.

Anzu, which focuses on embedding advertisements in metaverse games, received $20 million in financing from Sony in 2022 and secured $48 million in Series B financing led by Emmis Corporation and participated by PayPal Ventures in 2023.

Entering 2024, Sony's two Web3 investments are still focused on gaming. Sony is investing in double jump.tokyo, the developer of the Japanese legacy gaming public chain Oasys, to promote its development on Sony Group's blockchain "Soneium."

Among the early Web3 startups that Sony invested in, the asset tokenization platform Securitize has shown the most robust growth. After the RWA boom in 2023, it became a foundational technology provider for many institutions involved in RWA. After receiving investment from Sony, Securitize raised nearly $100 million through two rounds of financing.

In Securitize's $47 million financing in May this year, BlackRock also participated as a lead investor. In March, BlackRock collaborated with Securitize to launch a new fund—the BlackRock USD Institutional Digital Liquidity Fund.

Recently, Securitize also provided tokenization support for Sony's new film. Sony Bank and Sumitomo Mitsui Trust Bank utilized the Securitize platform to offer digital securities to clients.

However, the cryptocurrency bank and NFT marketplace that Sony invested in early on have not performed well.

The cryptocurrency bank Nuri, which Sony invested in 2019, announced bankruptcy in August 2020 after failing to find a buyer and external investment.

In 2021, MakersPlace, in which Sony invested, was once among the top five NFT trading platforms by trading volume.

MakersPlace collaborated with Christie's to auction the digital artwork "Everydays: The First 5000 Days" by artist Beeple for a staggering $69 million, gaining significant user attention.

However, as of September 2, 2024, according to NFTscan data, MakersPlace has seen almost no trading volume in the past week and month.

In addition to traditional investment models, in May 2023, Sony, through its subsidiary Sony Network Communications, collaborated with the Polkadot parachain Astar Network to launch a Web3 incubation program, reaching out to early Web3 projects through "Demo Day" events.

Behind Sony's High-profile Entry into Web3, Growth Challenges Persist

As we enter 2024, Sony's layout and announcements in Web3 seem to be more high-profile.

In the past, Sony's Web3 layout mostly involved limited engagement with blockchain technologies or riding the wave of vaguely defined Web3 concepts.

However, in July this year, Sony first announced the acquisition of Amber Japan (now S.BLOX) to enter the cryptocurrency trading field; recently, it announced a partnership with Startale Labs to launch Layer 2 "Soneium" on Ethereum, aiming to build a universal blockchain.

In a Japanese crypto market traditionally viewed as closed, conservative, heavily regulated, and slow-paced, Sony's recent moves have indeed attracted attention.

From Sony's own business development perspective, it is indeed seeking a growth path following the PS5.

In February this year, after disclosing its Q3 2023 performance ending December 2023, Sony's total market value had evaporated by about $10 billion.

Some Wall Street analysts noted that prior to the quarter from January to March 2022, Sony's gaming division had an operating profit margin of about 12%-13% over the past four years, while the operating profit margin for Sony gaming in that quarter was the lowest in nearly a decade.

Faced with slowing growth in its gaming business, after releasing its fiscal 2023 report in May, Sony Group President Hiroki Totoki mentioned a new growth strategy, stating that "we will maximize the synergy of content IP through gaming, music, and film," exploring a growth model that continuously monetizes its owned content. Additionally, it plans to implement a ¥1.8 trillion merger and acquisition (M&A) growth investment plan over the next three years.

Cryptocurrency exchanges and public chains are traditionally seen as some of the most profitable areas in the crypto space. Sony's high-profile moves in the crypto field this year may be an attempt to alleviate growth challenges.

Public chains, as general-purpose blockchains, also facilitate Sony's realization of content IP synergy. Startale Labs CEO Sota Watanabe recently revealed on social media that Sony's blockchain Soneium is focusing on building a creative IP platform for everyone, aligning with Sony's growth strategy of "maximizing content IP synergy."

Moreover, the loosening of regulatory constraints may also provide positive factors. In April 2023, Japan's largest political party, the Liberal Democratic Party, released the "Japan 2023 Web3 White Paper," attempting to ease regulations. Officials up to the Prime Minister have been supporting various Web3 conferences to express their supportive stance.

With Sony's high-profile announcement of its entry into the crypto field creating a demonstration effect, it is expected that more major Japanese players will announce their crypto layouts in the future.

However, there are still many skeptics regarding the crypto plans of traditional Japanese giants like Sony.

From the overview of Sony's Web3 layout, most of its participation has been through strategic partnerships or equity investments. The recently acquired cryptocurrency exchange and the upcoming launch of the Sony Chain are no exception, as the core team of Sony is not the main driver.

Given the vast scope of its business, how much investment and persistence Sony can allocate to this part of the business remains a question mark.

Secondly, there are limitations of traditional Web2 thinking. Crypto KOL @Lorrainelooloo stated that if the final product of "Sony's Web3 ecosystem" (Soneium) is still a "selective application of blockchain technology as a marketing gimmick, with a core still relying on traditional top-down approaches," it may fail to achieve more innovative breakthroughs and could further stifle the creativity of Japan's crypto industry.