Livecast Lecture Final

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Livecast Lecture Final

  1. 1. Innovation in Tech Firms: Google, Apple & Pixar Kartik Hosanagar
  2. 2. Wharton’s First Free/Open Livecast • History • Acknowledgements – Yujin Chung – Dale McCook – Corey Pierson – Allan Yang
  3. 3. Instructor Bio • Professor at The Wharton School at Penn – Research focus on Internet Commerce – Teach undergraduate, MBA and PhD courses on technology strategy, entrepreneurship and data-driven decision-making – Cofounder of Yodle Inc, a venture-backed firm with 250+ employees – Consulting/training work with firms from a variety of sectors: e.g. Yahoo, Amex, etc – Actively work with several Internet startups
  4. 4. Learning Objectives • Examine some of the most innovative firms of the past decade • Develop a common understanding of the factors that led to their innovativeness and success
  5. 5. Being Innovative/Visionary is Hard • “There is no reason anyone would want a computer at home” – Founder and CEO of Digital Equipment Corporation
  6. 6. Outline • Google – Discussion • Apple – Discussion • Pixar • Summary & Discussion
  7. 7. Google • Founded by CS PhD students • Incorporated in Sep 1998 at a friend‟s garage • Introduced to Bessemer Venture Partners: “How can I get out of this house without going anywhere near your garage?” • IPO in Aug 2004
  8. 8. Revenue: 23.65B EBITDA : 9.84B Mkt. Cap: 171.18B
  9. 9. : More than Just Search Developed in-house Acquired What has helped drive this growth?
  10. 10. Key Factors Strategy Managing Innovation People Culture Decision Product Process Development Consumer Psychology
  11. 11. Strategy: Business Model Google generates most of its revenues from ads Sponsored ads
  12. 12. Business model (contd) Google runs auctions to sell ad space 1 Select 2 Submit Ads and 3 Attract Keyword bids on Google Customers
  13. 13. Empower Your Employees The “20% time” policy • Employees spend 20% of time on projects they choose • Not a new concept – 3M‟s 15% employee time rule – Every division should generate 25% revenues from new products developed in past 5 years. • Follows traditional entrepreneurship: no budget and need to convince others • Strong signal: Google trusts employees and expects innovation
  14. 14. Empower Your Employees • 50% of features released in second half of 2005 came from “20% time” efforts Google News (news aggregator) Started by AI expert, news junkie googler Orkut (~Facebook) and Lively (~Second Life) Started by the same employee (named Orkut)
  15. 15. Iterative Product Development “Get Early Feedback from the Market” “…a few of our favorite ideas that aren't quite ready for prime time” Let the market decide: What products should we offer? How much to invest in a product? What features take top priority? Users are forgiving and Google can gather relevant data
  16. 16. Consumer Psychology “The Halo of Invitations” • Some products are released “by invitation only” – It helps balance the server load in the first stages – Problems are detected prior to release to general public – It creates a „halo‟ of exclusivity and privilege
  17. 17. Consumer Psychology • Pricing – Acquired Where2 Technologies and gave Google Maps away from free • Bottin Cartographes lawsuit for unfair competition – Google Docs and Spreadsheet priced at zero • Microsoft charges $149.95-$679.95 for MS Office – Should Google charge a small price to monetize these other products?
  18. 18. A Pricing Experiment Hershey’s Ferrero Nothing A (1,26) B (0,25)
  19. 19. A Pricing Experiment Source: Shampaner & Ariely
  20. 20. Accounting for Transaction Cost Source: Shampaner & Ariely Implications: Loss leader like Maps/ Docs might draw enough people to Google. Traffic can then be monetized through Google search
  21. 21. Decision Process “Data are apolitical” • „Open books‟ culture as a managing style – Decisions are based on actual data, eliminates politicking and lobbying – Empower through shared and common information – Allows flat organization and horizontal teams
  22. 22. Outline • Google • Apple • Pixar • Discussion
  23. 23. Apple Inc • Founded in 1976 by Steve Jobs & S. Wozniak – Jobs resigned in 1985 due to differences with CEO – Brought back in as CEO in1997 • Product launches: iMac (1998), iPod (2001), iTunes store (2003), iPhone (2007), MacBook Air (2009)
  24. 24. Steve Jobs’ Shareholder Returns • $10K invested in 1997 would now be worth $450K
  25. 25. Apple: Collaboration “Real artists ship” No Concept Products – GM, Microsoft, others often make concept products – Last concept model: Knowledge Navigator (1987)
  26. 26. Managing an Ecosystem • iMac, iPod, iPhone part of same ecosystem – Success of 1 product aids success of others • MacBook Air leverages interface design and the miniaturization of the iPod, iMac and iPhone.
  27. 27. Apple: Collaboration and Control Control believed to be centralized: Steve Jobs – iMac: “And they [engineers] said, 'Well, why?' And I said, 'Because I'm the CEO, and I think it can be done.'” – Ultimate source of Apple‟s vision, drives innovation • Risks associated with strategy
  28. 28. Outline • Google • Apple • Pixar • Discussion
  29. 29. • Movie industry background – Predicting what will be a hit is really hard! • “Raiders of Lost Ark” rejected by ~all studios (not Paramount) • Universal rejected “Star Wars” – “Nobody knows anything …Not one person in the entire motion picture field knows for a certainty what‟s going to work. Every time out it‟s a guess” – William Goldman (Adventures in Screen Trade) – Studios deal with uncertainty through a portfolio • Assumption: several movies will fail
  30. 30. Box Office Success Worldwide Release Date Movie Name Budget Gross 11/22/1995 Toy Story $361,996,233 $30,000,000 11/20/1998 A Bug's Life $363,398,565 $45,000,000 11/19/1999 Toy Story 2 $485,752,179 $90,000,000 11/2/2001 Monsters, Inc. $528,970,172 $115,000,000 5/30/2003 Finding Nemo $866,592,978 $94,000,000 11/5/2004 The Incredibles $635,564,642 $92,000,000 6/9/2006 Cars $461,982,881 $70,000,000 6/29/2007 Ratatouille $624,445,654 $150,000,000 6/27/2008 WALL-E $532,936,655 $180,000,000 5/29/2009 Up $472,690,456 $175,000,000 Totals $5,334,330,415 $1,041,000,000 Averages $533,433,042 $104,100,000
  31. 31. Pixar’s Success • All projects have become blockbusters – Never bought scripts • Success more impressive than Google or Apple • Two main ingredients for Pixar‟s success: – Processes – People and Culture
  32. 32. Processes Brain trust – Consultative body with senior directors, if needed Dailies – Show work to whole crew & gather comments – Tool for project communication Postmortems – Reviewing what went right/wrong at the end
  33. 33. People and Culture • Free communication – Person from any department can approach anyone without going through “proper channels” • Safe to provide new ideas – People encouraged to share work and feedback – Ideas grow
  34. 34. Outline • Google • Apple • Pixar • Discussion
  35. 35. Key Takeaways • An organization is defined by its employees, customers, products, partners and processes. – Employees: How do we empower them? – Customers: Get early feedback from them and foster communication among customers – Products: Explore synergies and develop ecosystems – Partners: Align their incentives with yours – Processes: that make problem-solving easy

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