EIS Main Project, Fall 2012
Table of Contents
Context Surrounding the Innovation of Segway 3
The Innovation 3
Formation of Kamen’s Company 3
Competitive Landscape 4
Kamen’s Expectations for Segway 4
The Initial Segway Launch Strategy: 6
Ecosystem Analysis at Initial Launch 7
Research & Development 7
State Regulations 8
What Happened 10
Red Light #1 - Customers 10
Red Light #2 - Local Governments 12
What Segway Should Have Done 14
Ecosystem Reconfiguration 14
Alternative Paths to Full Rollout: Minimum Viable Ecosystem 15
What Segway Ended up Doing 16
Security and Patrolling 16
Why the new Markets are Successful 18
Context Surrounding the Innovation of Segway
Dean Kamen, inventor of the Segway, believed that his product would revolutionize society by making travel easy, safe, energy efficient, fun, and less expensive. He imagined a world where Segways dominated personal travel. Now, 10 years after their 2002 launch, Segways are relegated mainly to security and tourist uses. This market refinement and vast overestimation of the market size did not result from any engineering issue, but from Segway’s lack of understanding of the ecosystem surrounding its own remarkable technological innovation.
Segway is a battery powered personal transportation device. It enables riders to adjust their speed and direction simply by shifting their body weight and moving the steering column in the desired direction of travel. The gyro stabilized balancing systems prevents tipping over and regulates speed. Segway was the first method of personal transportation that does not isolate people from other pedestrians by allowing them to travel as slowly or as fast as people around them.i
Engineers took the idea of balancing an inverted pendulum and adapted that concept to balance someone on top of the pendulum, as the entire structure moved forward. The Segway prototype had demonstrated high stability; it was virtually impossible to push over a rider. It could ride through water, up and down on ramps, curbs, gravel, sand and spin on its axis, all while carrying highly unbalanced loads.
Formation of Kamen’s Company
Dean Kamen had built his career by licensing inventions, but establishing Segway was the first time Kamen created his own company instead of licensing his technology. He believed that a traditional automotive company would bury the idea in a research lab and that a consumer electronics company would view it as too far outside of its core. Kaman was abnormally exuberant about Segway and believed that, “all 6 billion people in the world owning one of these products was only going to be a matter of time”.
Segway had two goals: first, increasing the efficiency of urban transportation, and second, doing it by helping conserving the environment. Kamen was concerned about rising CO2 levels and global warming. Total global emissions of CO2 had increased by 60 per cent between 1971 and 2001 and the transportation sector’s share in emissions had boomed from 19.3 per cent in 1971 to 28.9 per cent in 2001.
Even before the initial launch Segway received considerable media coverage. Consequently before selling a single product, Kamen leased a brand new 77,000 square foot factory near his house in Manchester, New Hampshire and forecast that by the end of 2002 his enterprise would be producing 10,000 machines per week. His best-known backer, venture capitalist John Doerr, predicted Segway would rack up $1 billion in sales by the end of 2002, faster than any company in history.
For Kamen, cars and walking were Segway’s main competitive threats, but he believed that no other products were true competitors as Segway was so different from other methods of transportation. A few other companies had tried to launch products into a similar space. The most notable of these was the Smart car. Smart was brought to life in 1998 as a compact, forward thinking car, specifically designed for efficient urban transportation.
Kamen’s Expectations for Segway
Kamen was confident that Segway would meet both his own and his investor’s expectations not only in terms of popularity but also in sales. In addition to urban commuters, he believed that large cargo companies, airports, postal services, and warehouses would all quickly adopt Segways, resulting in more orders than Segway could fulfill. Kamen said, “People don’t realize they need a Segway before they hop on one.”
Kamen envisioned four distinct markets for his invention.
Personal mobility for consumers
Kamen expected Segway’s to replace automobiles in congested cities. Driving a car on a 12 mile commute would require about 80 cents of gas while a Segway would only use 10 cents of electricity for the same trip. In most congested urban areas, Segway’s 12 mph speed would easily outpace a taxi. For longer distances, commuters could ride their Segways right onto rapid transit vehicles. Kamen believed that consumers would adopt the product because of convenience, speed, maneuverability, low cost, and environmental attractiveness. Segways had lower operating, insurance, and maintenance expenses than owning a car. Additionally, large scale commuter adoption of Segways would reduce infrastructure requirements allowing governments to reduce road construction and maintenance budgets.
Commercial uses with short or prescribed routes
Kaman foresaw demand from several types of companies and organizations such as manufacturing facilities, utility meter readers, tourist offices, and security providers. The benefits of transitioning to Segways included better maneuverability, ease of use for stop and go applications, low acquisition and running cost compared to motor vehicles, and ergonomic benefit for workers who have to carry loads over distance.
Made to specification markets such as high maneuverability robotic and military uses
Another application of Segway technology was in military robotics. Segways could turn by rotating about the vertical axis allowing them to reach confined spaces while handling rough and variable surfaces without dislodging cargo. Segway’s software based control architecture made them suitable for other purposes such as surveillance, data collection, environmental analysis or transporting equipment.
Developing countries where low cost, energy efficient forms of transportation were particularly valued
Segway was thought to be suitable for countries with huge populations, overcrowded roads, and limited infrastructure. Also throughout the developing world, Kamen believed there would be a market for people who could not afford a traditional automobile.
The Initial Segway Launch Strategy:
Segway’s initial launch strategy included a mix of creating mystery behind the product, raising expectations, and relying on Dean Kamen’s reputation as a brilliant innovator. Kamen’s goal was fundamentally changing the way humans move within cities; he believed that Segway "will be to the car what the car was to the horse and buggy." ii The two target use cases at the launch were commercial uses that required people to cover short distances / make frequent stop (e.g. warehouses) and personal use for short commutes in the urban areas. While both use cases were important, multiple media sources used the term “revolutionizing walking” eventually making the personal use the primary target segment.
Ecosystem Analysis at Initial Launch
At the initial launch, the ecosystem (see exhibit 1) included Segway’s research and development, parts manufacturers, manufacturing, marketing / advertising, distribution, state regulatory bodies, local governments and transportation authorities, and consumers. With the exception local governments / transportation authorities, Dean Kamen had a good understanding of the players in the ecosystem; he did not, however, understand how to properly align them.
Exhibit 1: The Ecosystem map at the time of initial introduction.
R&D is the piece of the initial strategy that Dean Kamen truly nailed. The company consisted of the brightest most risk-taking engineers that were drawn to Kamen and his extraordinary reputation as an inventor and patent-holder.iii
Before Segway, DEKA, Dean Kamen’s research and development company, focused on creating technologies that would be licensed to other companies. Therefore, the licensees would usually take care of manufacturing. Despite the lack of the experience, Kamen not only went with in-house manufacturing but also decided to base manufacturing facility in Bedford, NH. This decision posed significant distribution challenges as the location was not cost-effective for the country-wide distribution. To ensure that the company would be able to meet the potential demand, Segway relied on standard automotive industry components from suppliers like Michelin and Delphi.iv
Kamen clearly understood the importance of state regulators in the success of his invention. According to Kamen, Segway was designed to be pedestrian-friendly. Kamen stated, “A bike is too slow and light to mix with trucks in the street but too large and fast to mix with pedestrians on the sidewalk. Our machine is compatible with the sidewalk. If a Segway hits you, it's like being hit by another pedestrian."v Supported by the test results from the pilot program, Kamen approached state regulators to allow Segways on the sidewalks. Starting with company’s home state of New Hampshire, Segway got a total of 31 states to pass laws allowing the Segway to operate on sidewalksvi. It is important to mention that local governments and transportation authorities that were not involved in this effort.
Segway’s marketing strategy for the initial launch had several parts. First, the company created hype around the invention through online auctions at Amazon.com. Second, Segway was showcased in trade shows. The product won multiple awards, including a Popular Science Magazine award in 2002: Best of what’s New Award in the general technology category. Third, In order to reach its target customers, urban populations, the company conducted demonstrations in the major cities throughout the United States. Another important aspect of Segway’s marketing was Dean Kamen himself. Kamen was highly regarded among inventors, politicians, techies, and nonprofits; simply having Kamen involved brought credibility to Segway.
Prior to the product launch, the Segway decided to conduct an initial trial to not only test the invention but also create a bigger hype around the product: “The first customers to test the Segway will be deep-pocketed institutions such as the U.S. Postal Service and General Electric, the National Parks Service and Amazon.com--institutions capable of shelling out about $8,000 apiece for industrial-strength models”vii. The pilot not only gave Segway a public testing ground but also helped to build a case for state regulators who then had to decide whether Segways will be allowed on the sidewalks.
Kamen’s choice of sales channel to the public was an online retail platform, Amazon.com. At this time, 2002, the platform was almost as novel as the Segway itself and therefore attracted customers willing to be early adopters. Segway’s strategy was to start selling the product before the official launch through auctions, keeping product specifications vague and igniting people’s interest in it. Customers were forced to commit to buying the mystery product which was not going to be delivered for a few months. While this strategy appealed to the early adopters who wanted cool exclusive ”vehicle”, the same strategy was foreign to more mainstream consumers who did not want to pay several thousand dollars and have to wait for months before receiving their Segway. This strategy also meant that customers were not able to test-drive the Segway, get a look and feel of it, and potentially make an impulsive decision because they loved the “vehicle”.
Segway did not spend too much time thinking about their customers and whether these customers would gain value from a Segway. Kamen believed that the product was so great that it would sell itself.
Given that the Segway was an “engineering marvel” with projections to be the “fastest outfit in history to reach $1 billion in sales”viii, why did they only sell 50,000 units from 2001-2009?
Segway failed because they did not properly manage the adoption chain or adequately asses the value captured by each member of the ecosystem. In particular, Dean Kamen captured too much of the value he created; he did not create enough value for consumers to encourage them to purchase the product. Additionally, Segway’s business model was too heavily weighted on consumers because he believed they were most critical in achieving his goal of changing way people moved in cities. Kamen was smart enough to recognize that he needed to be aware of the ecosystem around Segway, but did not pay enough attention to two critical parts of the ecosystem, his customers and local governments.
Dean Kamen’s initial strategy eliminated the adoption and execution risks of all the players in his view of the adoption chain. He realized manufacturers wouldn’t build the Segway without volume commitments so he moved manufacturing in-house and took on that risk. He understood the big hurdles in establishing a distribution network and/or breaking into existing distribution networks so he partnered with an up and coming online retail store, Amazon.com. He understood the need to create buzz, get reviews, get multiple stakeholders advocating on his behalf; he did this by getting his investors, politicians, and nonprofits behind him. These activities, however, were not sufficient for Segway to be a success in the market.
Red Light #1 - Customers
What he took for granted was the customer adoption. By exploring the value creation and where the surplus lies, it quickly becomes apparent that Dean Kamen’s assessment of the customer was superficial and that he overestimated the surplus created, red light number 1.
When assessing the individual customer, Dean Kamen asserted the following benefits:
Can cover larger distances
Enhanced and seamless maneuverability
Less energy exertion
He failed to understand the following mitigating factors on these positive benefits:
Price (at $5000 this cost the same and even more than a used car)
Parking and storage costs and hassles
Uncertainty of use on sidewalks
Negative experience and image of bikes on sidewalks transferring to Segways
Loss of social benefits of walking together with people
Image of using a Segway – was it ‘cool’?
Less energy exertion (no exercise!)
The value proposition for customers was severely limited when looking at the Segway as a replacement for walking. To provide the benefits of saved time and increased distances versus walking, Dean Kamen had to allow the Segway to travel faster than the pedestrian 5mph average and closer to the 12mph maximum. To enable this, he had to get permission for use of the Segway on roads, perhaps with dedicated lanes or allowed use in bike lanes, which would position the Segway as a great alternative in places of heavy vehicle traffic (Segways bypass traffic by going through bike lanes). He would then have to look at ways to address the parking problem. Do Segways use car parking spots? What’s the availability of these spots? Would the customer value proposition fall short because of the hassle of finding parking spots and then paying for them?
Since Segway was a totally new type of product, potential customer s would want to try it out before purchasing. Segway, however, wanted to maintain the secrecy. Its only distributor was Amazon.com. Being an online only distributor, customers could not test drive a Segway before purchasing. The value proposition also eroded when looking at the cost. With a price point higher than many used cars and well above high-end bikes, Segway lost credibility as a walking replacement. It became a replacement for driving, and the Dean Kamen’s launch strategy, product design, ecosystem management, and product positioning was not set-up to deliver that value proposition.
Red Light #2 - Local Governments
Kamen also failed to take into account the local government and transportation authorities, red light number 2. Let’s explore the benefits and disadvantages of the Segway for the local governments and transportation authorities.
Less congestion on roads
Energy efficient in comparison to cars
Good public relations
Time and investment required for new signage and other infrastructure
Creating new rules for operating Segways on sidewalks
Creating new rules for parking
Decreased revenue from public transportation
Safety concerns of pedestrians
The risk of creating a new regulatory framework without customer adoption
Clearly the benefits for a city do not outweigh the significant investment required and the risk of consumer adoption once the investments are made. Dean Kamen did nothing to alleviate these costs and without bringing the local governments and transportation authorities on board, he had little chance to drive mass adoption by customers.
Exhibit 2: The Ecosystem map with red, yellow, and green lights.
Dean Kamen focused on developing Segway as a product innovation not as a solution; he overlooked the importance of aligning the ecosystem to support customer adoption of Segway. Kamen aligned the ecosystem so that both his customers and local governments did not capture value from the innovation. This resulted in Segway’s failure at achieving its goal of revolutionizing urban transportation.
What Segway Should Have Done
Kamen could have dramatically increased sales and adoption if he would have followed the strategy outlined below to properly align the members of the ecosystem and ensure that every member was capture value from his innovation.
In order for Segway to have been successfully adopted, Segway needed to reconfigure the ecosystem to remove the minuses from customers and local governments. It should have taken the following four steps:
Relocate sales and distribution from the online only Amazon.com to brick and mortar dealers. In 2002, many people we uncomfortable with online shopping and were reluctant to make a major purchase. While this choice was cutting edge, it backfired because it limited the market to people comfortable buying online. Kamen himself said that people would buy after trying the product out. With an online only merchant, customers we unable to take Segways on test drives further limited potential sales.
Relocate the investment costs of new infrastructure, signage, and regulation from local governments to Segway reducing the cost of implementation for municipal governments. Since local governments have little incentive to make the necessary changes, Segway should directly pay for costs of new lanes and other required infrastructure improvements. Segway will make less money, but this step is required to ensure that local governments capture value from this innovation.
Add a new player, Segway Leasing, to the ecosystem. If customers can lease Segways they do not need to pay the full upfront cost of $5,000. Segway Leasing can have hubs where Segways can be picked up and dropped off, and mass consumers can travel from hub to hub by renting the Segway for a small fee. These hubs should be located at strategic locations, such as subway stations, bus terminals, major commercial buildings, major grocery stores, schools, and within residential communities.
Add a parking infrastructure for Segways much like Zipcar. If people know that they can park their Segway it eliminates a major concern of using them.
As Segway stands to benefit the most from the successful adoption of Segway, it is best positioned to lead the reconfiguration of the ecosystem to ensure that there is a benefit to all actors in the ecosystem. Through these ecosystem changes we believe the minuses for mass consumers and regulators / government will be turned into pluses.
Alternative Paths to Full Rollout: Minimum Viable Ecosystem
In addition to reconfiguring its ecosystem, Segway should have used a minimum viable ecosystem, instead of a pilot demonstration. Instead of starting nationwide, Segway should have launched in one urban location. With only one location, Segway could have built out the necessary infrastructure, secured government buy in, generated a critical mass of early adopters, and created enough hubs to make the product a viable transportation alternative. The hubs could initially be chosen based on a narrow target market in the minimum viable ecosystem. For example, if Segway was targeting people who do grocery shopping, they should have placed hubs in residential communities, as well as major grocery stores and megamarts. The hub network could have been increased over time to include other mass consumers who use Segway for other purposes, until the complete ecosystem was implemented in the test area. Following that, Segway can then replicate the success in other cities, before implementing the same ecosystem overseas in developing countries.
Despite its failure to make the initial sales estimates, Segway did not disappear. While Segway did not take our recommendations, they did eventually reconfigure the ecosystem and found a limited yet successful market for their products.
What Segway Ended up Doing
Segway recognized that its original strategy was not successful. In 2006, Segway changed its strategy and instead of focusing on consumers focused on security and tourism. As a result, Segway quickly expanded its business internationally. Currently, Segway boasts a worldwide network of more than 250 distributors, dealers, experience centers and authorized tours in 80 countries around the globe.
Security and Patrolling
Segway patrolling models primarily aim to serve three user segments: law enforcement, private security, and emergency responders. They have been adopted by more than 1,200 police and security organizations.
Segway has been successful in entering into the security / patrolling market by differentiating its position from traditional patrolling vehicles such as cars and motorbikes. Segways allow patrolling on pathways and boardwalks in parks, and beaches and at stadiums where traditional vehicles cannot enter. Another obvious advantage of deploying Segways in patrolling is that the vehicle gives better visibility and ability to respond more quickly than walking or sitting in a car.
Exhibit 3: Segways for police use
Another factor that supported deployment of Segways in security uses is that the customer is not an individual. Instead, municipalities or security organizations purchase the Segways dramatically reducing price sensitivity. These organizations want the best product for any given situation and in the case of parks, beaches, airports, rail stations, and stadiums that product is often a Segway. In these situations, users do not have to worry about any parking concerns because at the end of the day all Segways are returned to fleet operations.
Segway tour models are purchased by local tourism authorities and business owners in touristic areas. Since there have been ways to cover touristic areas such as bikes, horse rides or mini buses, Segway aims to replace those traditional tourist vehicles by focusing on the tourism niche.
As opposed to users reluctant to ride on Segway in their day-to-day lives, tourists regard Segway rides as a fun new experience and an easier way to get around than walking or taking a taxi. Previously, consumers viewed a communal or daily use of Segway as a “dorky” choice. Segway was able to overcome the barriers of user adoption by encouraging a leisurely use of the vehicles.
Also, the purchase decision makers are business owners in touristic areas, and once they open a kiosk for Segway rental, they make their own efforts to promote the rides to end users to generate profit in their investments. Sequentially, Segway relieved its responsibility to market the products to end-users. Similar to the case of patrolling uses, the responsibility of maintenance belongs to the kiosk owner.
Segway tours can be found in 63 tourist attractions in the U.S., and 50 international locations.
Exhibit 4: Segways for tourist use
Why the new Markets are Successful
Segway’s successful progress in these two niche markets has been possible because of the following changes in its positioning and operations: (1) addressing transportation needs within a limited distance and circular travel, (2) establishing a designated station for charging, parking and maintenance, and (3) transferring purchasing to organizations instead of individuals.
Reflecting from the failed attempts to penetrate the general market, Segway continues to expand its business in these niche markets.
Instead of going after their initial targeted markets, Segway now targets markets where the ecosystem in place can succeed. Now the vast majority of people who use Segways never purchase them. Despite an incredible technology, Kaman’s original vision remains unfulfilled in part because he failed to recognize that he needed to properly align the ecosystem around his innovation.
iii Managing Segway’s Early Development; Sep 15th 2004; HBS