We all know about the Newton, the Apple handheld computer that was supposed to become a game-changing PDA. The Newton’s failure almost obliterated the Cupertino company. But it’s far from the only crushing financial disaster in computer industry history.
Many products and services have tried and failed to become the Platonic ideals their developers had imagined. And we’re not just talking about the work of few guys in a garage with a dream. We’re talking multimillion- (even billion-)dollar investments given to established enterprises with boards of directors and shareholders to answer to.
They messed up. But now you don’t have to. You can learn from their mistakes right here. And you don’t have to spend a dime.
The Kin Phone
$1 billion dollars and two years of effort went into Microsoft’s KIN ONE and KIN TWO’s development in the promise of making it a social networking superstar. Updates from your friends acted as the phone’s wallpaper, a dynamic multi-paneled display known as “tiles.” This constantly updated access, “the Loop,” really did make you feel like you were in the loop.
With these smartphones, you could also easily respond and comment by dragging a single tile down to the “KIN Spot” at the bottom of the screen. Best of all, you could use your computer to access your phone’s history via the Kin Studio. For those who live and die by social networks, this was the phone for you.
The KINs also acted as a Zune, so if you bought music through Microsoft’s Zune Marketplace, your KIN phone would play it. (The KIN’s social network rival, the Sidekick, which was developed by Danger Inc., couldn’t say the same.)
What went wrong
Launched on April 12, 2010, the KIN lasted a mere 48 days on the market in the U.S. and it wasn’t even released in Europe.
Although the Kin targeted social networking, it had a 15-minute delay on Loop updates. For a phone that put teenagers and enthusiastic marketers in their crosshairs, this was a serious design flaw. And then comes the pricing: $30 a month for a data plan.
But that wasn’t the real problem. No, the real issue was internal company politics. It started when Microsoft acquired Danger Inc., and put its staff to work on the Kin. The former Danger crew wanted a Java-based platform, while for the Windows Mobile Division, the future was Windows Phone 7. With delays in design, the release took two years and yet was so rushed it lacked basic features like a calendar. And a calculator.
Not even a calculator? Game over, man. Game over.
If you’re planning to enter a market through acquisition, make sure you learn what makes your acquisition’s product successful before you start issuing orders. And if you have two rival divisions in your company, for heaven’s sake, merge them and make sure the young don’t eat each other in the nest.
Iridium Satellite Phone
Ask anyone who ever had her cell phone drop a potential client’s call: Who wouldn’t want a phone that works everywhere? And by everywhere, we mean Iridium satellites support at your home, your office, the North and South poles, and every point in between (except North Korea, which blocks the satellite signal).
In May 1997 Iridium Communications Inc. launched a constellation of 66 satellites, with back-up satellites at the ready, to ensure you would always have instant access to your clients.
You can manage an entire fleet with an Iridium phone. Some people do.
What went wrong
Those 66 satellites? They were meant to be 77 — the atomic number of the element iridium — but Iridium scaled down the network to try to avoid running out of cash. Only nine months into Iridium Communications Inc’s life, and after winning billions of dollars in investment, in 1999 the company filed for Chapter 11.
Iridium Inc. acknowledged they had difficulty getting customers. How can that be, when they had a product that does its job better than any mobile phone in existence?
Essentially, Iridium solved a problem that didn’t need solving. Had the company done a little bit more research, they would realize most users aren’t willing to pay extra for phone that works in mountains, in the air, or at sea. Their service competed (and still competes) against technically less capable – but in actuality more convenient and inexpensive – cell phones.
Other snags made the Iridium a losing proposition. You know your hard-to-reach tech support guy? Iridium only works if your phone can see sky (satellite phones don’t work inside buildings as easily as cellphones can, with their much closer cell masts). Plus, the phones are heavy and bulky – although a slimmer version appeared in late 2008 – which knocks out the adventure travel crowd.
Despite the commercial failure of the Iridium company, the network is actually very much alive. It operates to this day thanks to their U.S. Department of Defense contract, as well as rentals on far-flung vacations for those entrepreneurs who can’t relax. (It’ll cost you approximately $20-$45 a week, depending on the model of the phone, plus $1.78 per minute.)
Know your market. Don’t try to take over everything; niches can be profitable. Had the Iridium stuck to government contracts, it could have been a quiet success.
Back in 1987, GO Corporation was on the vanguard of pen-based computing, and investors handed the enterprise $75 million to make the world eschew the keyboard and mouse. In 1991, GO released its OS, PenPoint, designed specifically for the new market and it included gesture recognition. Not only was GO’s technology well received, but also it was implemented in several IBM computers, including the first ThinkPad.
Microsoft took notice and developed a competitor, the Windows for Pen Computing OS, which was little more than an interface for its Windows 3.0.
GO then spun off its hardware division, EO, which made the Personal Communicator, a wireless device with its own applications. AT&T bought it out in 1993, specifically to pair with their new Hobbit microprocessors. The future was so bright for GO, it had to wear shades.
What went wrong
A mere two weeks after AT&T acquired EO, it cancelled the Hobbit, leaving GO with no revenue. GO was going, going, gone.
In reality, GO suffered from two different problems. The first was the lack of sales, which came as a result of negative press from finicky handwriting recognition. (Also, no matter how you slice it, typing will always be faster than handwriting.)
The second was Microsoft, which seemed to develop its OS only as a response to competitors gaining footholds in the market. After GO folded, the second iteration of Windows for Pen Computing was late and didn’t deliver promised features — a sure sign Microsoft had lost interest once the competitive threat was eliminated. Microsoft then put its efforts into notebook computers.
If you’re going to sell off a division of your business, make sure your other divisions aren’t entirely reliant on it for the viability of your product — or have iron-clad contracts with whomever you sell it to. Alternatively, get enough cash for it that you can start another company, so you still have a market if the first gets wiped out.
By the early 2000s, it was becoming clear that DVDs couldn’t give us the high-definition viewing that we craved. Standards emerged to take its place, and that included HD-DVD.
Toshiba created HD-DVD, and it initially looked like a success. That was particularly so since HD-DVD’s main competitor, Sony’s Blu-Ray, initially required a protective caddy to prevent user mishaps. HD-DVD was backed by enterprise (Microsoft, HP, and Intel) as well as by Hollywood (Paramount, HBO, Universal Studios, and Warner Brothers).
The icing on the cake: HD-DVD was cheaper than Blu-Ray. And if we learned anything from the Betamax-VHS wars, it’s that cheaper wins out. HD-DVD even beat Blu-Ray to market by three months.
By the early 2000s, it was clear the DVD would fade away as the preferred video standard. Long live the HD-DVD.
What went wrong
After two years and almost $1.4 billion dollars, Toshiba cried uncle in early 2008.
Blu-Ray was also not without allies, including Panasonic, Sony, Phillips, LG, and Sharp. Plus, Blu-Ray could manage a whole 50 gigabytes per disk, as opposed to HD-DVD’s 30.
But according to the Toronto newspaper The Globe and Mail, Sony paid Warner Brothers $400 million to throw in with Blu-Ray. The world quickly declared a winner.
Fans of HD-DVD can take comfort knowing that Blu-Ray may eventually fold due to the prevalence of digital downloaded content.
In any sector, when you have rival formats duking it out for dominance, you know one will eventually meet a grizzly fate. Investing heavily in either side of a format war gives you a high chance of ending with a lot of expensive, useless technology. Worse, the losers have to conform to the winner’s product, the technological equivalent of making Red Sox fans wave Yankee banners (ouch).
It’s best to avoid it.
The OS/2 Operating System
IBM’s OS/2 had a long and occasionally illustrious history, starting with its humble text-based origins back in 1985, all the way through to the last release of OS/2 Warp 4 in 1996. (E-ComStation provides support for those who still rely on the OS today, and in fact has a brand-new release.) Originally a co-development project between Microsoft and IBM to create a superior replacement for MS-DOS, OS/2 eventually became a wholly IBM platform competing against Microsoft’s Windows. IBM invested an immense amount of resources to develop and support OS/2.
OS/2 was designed to be a superior operating system, first as an alternative to DOS, and later an alternative to Windows. It became the first truly 32-bit operating system in April 1992, and had true hardware-based multitasking (taking advantage of support built in to Intel’s 386 processor) as well as virtual DOS boxes; no one program could crash the whole operating system.
OS/2 wasn’t the most stable operating system, but compared to Windows it was a paragon. But since OS/2 was a clearly superior offering, what other choice could a customer possibly make?
Microsoft developed Windows. Early iterations were unpolished, but Microsoft was a persistent marketer, and it carved out market share for its own, wholly owned operating system. Microsoft let IBM market OS/2 to large enterprise IT organizations, and quietly put all its energy into marketing Windows to consumers and smaller businesses. By the time Windows 3.0 came out in May 1990, Microsoft discovered that it could make more money from Windows than from OS/2. An increasingly fractious rift between the two companies saw them part ways. Microsoft took its evolution of OS/2 and renamed it Windows NT.
Having let Microsoft branch off OS/2 into a rival and more successful operating system, the remaining OS/2 users demanded compatibility for their Windows applications. IBM duly built this into OS/2, calling the result OS/2 Warp and licensing the right to run Windows programs from Microsoft.
Of course, Microsoft soon realized that they had no need to continue to provide that right, and duly stopped, eliminating a large part of OS/2’s toehold in the marketplace. The rest, as they say, is history.
If you build it, they may not come. But if you market it, they will. Also: keep your friends close and your enemies closer. And your lawyers closer still.