The traditional version of this story is that in the late 1970s Sony dominated the video market and expected their high quality Betamax product to keep any competitors at bay. However, VHS, an inferior standard, entered the market with some marketing advantages and secured some 70% of the US market within a few years, leading to the death of Betamax as a popular, home format.
The moral being that the best product does not always win (the Apple Mac and the PC are often cited as another example of the same phenomenon).
The more detailed picture is that Betamax was released in 1975, based on the professional U-matic standard. Betamax was soon offered by most of the leading brands of home video players (but home video was pretty small at the time).
VHS was launched by JVC in 1977, because they did not want to help Sony gain a strangle hold on the market, in the way it had for the professional market with U-matic.
Initially Betamax had several advantages over VHS, more companies were using it, the picture quality was better, the tapes were smaller (which meant the machines could be smaller). However, VHS tapes allowed longer recording times - although this was not seen by the 'experts' as a key benefit at the time.
VHS came more into its own with the demand for a camcorder that could be used to play a video back and to use the same video (without translation) on a VCR (a player/recorder that tended to be bigger than the TV in many cases). The Betamax version required the tape from the Betamax camera to be converted before it could be played on a Betamax VCR.
By 1980 JVC’s VHS had gained 70% of the US market, at a time the market was growing strongly. This market advantage allowed it to sell its products in Europe at lower prices, because of economies of scale. In the UK Betamax had a 25% share in 1981 but this fell to 7.5% in 1986. In 1988 even Sony had to start making VHS machines.
The following is a direct quote from Wikipedia (13 August 2010) as it illustrates the way that enthusiasts can be so different from the masses:
“Many of these people maintain (on technical merits, not related to run time or availability of prerecorded titles, but more akin to professional video concerns) that Betamax is superior to VHS in many ways, including picture quality, tape wear, and system design and convenience of use. For many of these people, VHS never rendered Betamax obsolete, and DVD may not either; the discrepancy between their view and the mainstream arises from a difference in the criteria (i.e., the interests) on which they judge. Also, some appreciate Betamax decks as examples of superior engineering or innovation for the time—Sony's Betamax was first with many features, such as hi-fi sound, full threading on load (which allows faster transitions between stop, play, and fast winding tape transport modes), and digital freeze frame (never available on a large number of VHS recorder models), which VHS adopted later. Because of their high build quality, many Sony Betamax machines are still working well today, and high-featured models sell regularly for hundreds of dollars on eBay and elsewhere.”
One warning for market researchers is that in this case listening to the early adopters and the technically minded would probably have resulted in believing that Betamax would win out. The problem was that the people who knew about the field were not typical of the people who did not know they were going to be the future customers.