That fell apart because Sony didn't anticipate what direction things would take, letting Apple overtake them along with just about everyone else.
I don't think that's quite right. Sony did anticipate the direction things were going take, they just tried to control it too tightly and had an overinflated idea of their own power to steer things.
I think the Sony Network Walkman predates the iPod. I had an NW-MS9 and I think in many ways it (and the earlier versions) were ahead of their time. Tiny, digital, sleek, even the name "Network" hints and some anticipation of a future of medialess distribution.
However they utterly ballsed up the execution. Partly on the software side (the associated software was an absolute dog which seemed to go out of it's way to make things painful) but mostly because they were trying to own the future with their MagicGate DRM (which they even seemed to be trying to sell as something exciting for the consumer, though it was responsible for much of the pain in using the software) and codec restrictions.
Sony saw the future, they just wanted to own it and in trying to do so produced something that served them more than it served the buyer.