Kartik Hosanagar

Innovation in Tech Firms:

Google, Apple & Pixar

Wharton’s First Free/Open Livecast

• History

• Acknowledgements

– Yujin Chung

– Dale McCook

– Corey Pierson

– Allan Yang

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

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

Being Innovative/Visionary is Hard

• “There is no reason anyone would want a

computer at home”

– Founder and CEO of Digital Equipment Corporation

Outline

• Google

– Discussion

• Apple

– Discussion

• Pixar

• Summary & Discussion

• 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

Google

Revenue: 23.65B

EBITDA : 9.84B

Mkt. Cap: 171.18B

: More than Just Search

Developed in-house Acquired

What has helped drive this growth?

Key Factors

Strategy

Managing

People

Decision

Process

Product

Development

Innovation

Culture

Consumer

Psychology

Strategy: Business Model

Google generates most of its revenues from ads

Sponsored

ads

Business model (contd)

Google runs auctions to sell ad space

Select

Keyword

Submit Ads and

bids on Google

Attract

Customers 21 3

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

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)

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

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

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?

A Pricing Experiment

Hershey’s Ferrero Nothing

A (1,26)

B (0,25)

A Pricing Experiment

Source:

Shampaner & Ariely

Accounting for Transaction Cost

Implications: Loss leader like Maps/ Docs might draw enough people to Google. Traffic can then be monetized through Google search

Source:

Shampaner & Ariely

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

Outline

• Google

• Apple

• Pixar

• Discussion

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)

• $10K invested in 1997 would now be worth $450K

Steve Jobs’ Shareholder Returns

Apple: Collaboration

“Real artists ship”

No Concept Products

– GM, Microsoft, others often make

concept products

– Last concept model: Knowledge

Navigator (1987)

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.

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

Outline

• Google

• Apple

• Pixar

• Discussion

• 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

Box Office Success

Release Date Movie NameWorldwide

GrossBudget

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

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

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

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

Outline

• Google

• Apple

• Pixar

• Discussion

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