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Marketing Analysis: Why did Microsoft Kin Fail?

2011-01-08T13:05:00.000-08:00

BRIEFING

Just 48 days after the lunch of the Kin phone, Microsoft discontinued it because of disappointed sales. Using the 5C’s framework, this report analyzes the root causes for Microsoft Kin’s failure in the summer of 2010s. An assessment is also performed to determine what could have been done from the marketing perspective to avoid this product’s failure.

BACKGROUND

On July first 2010, The New York Times announced that Microsoft will discontinue the Kin just 45 days after the company begin selling the phone. Microsoft said it would cancel the pending release of the Kin in Europe and would work with Verizon Wireless to sell existing inventories [1]. The Kin was targeted to young users and was designed for social networking sites such as Facebook. However, Microsoft has experienced intense competition from Apple with its iPhone and recently from Google with its Android operating mobile software. After two years of development, The Kin was a failure from the beginning pursuant to a number of marketing mistakes. Several sources indicate that Microsoft only sold anywhere from 503 to 8,000 Kins.

CUSTOMER

Product & Service

The Kin was aimed at the same market the Sidekick used to own: 15 to 25 years old. After Microsoft’s purchase of Dangler in 2008, Microsoft also acquired Sidekick and spent the next two years developing the Kin as a new entry for the Sidekick demographic. However, Kin lacked a number of features used for the demographic it was targeting: speed, applications, and flash. Kin's social media feed updated every 15 minutes, making the device far from a real-time social media experience[2]. In addition, Kin lacked the strongly demanded applications and games that the iPhone and other smartphones offer. The value of sleek and well engineered hardware matters less than ever, just ask the world's largest mobile phone makers as they battle Apple's vast iPhone ecosystem of applications[2]. Lastly, Kin lacked the flash technology required to share videos. With the popularity of video sharing on the rise, how are teen-agers going to accept a phone that does not allow them to share videos?

Target Market

According to Robbie Bach, president of Microsoft’s Entertainment & Devices Division, the phones’ target was “the sharing generation” for whom “social life is their priority number one.” However, by the time Microsoft launched the Kin, teenagers already had many options to the Sidekick. Alternatives include the iPhone, Google’s Android phones, and prepaid phones for the budget conscious. Even worse, the Kin was considered a smartphone by Verizon, which required an additional $40 a month for data services. Therefore, the Kin was wrongly positioned as Sidekick alternative with limited features but at the monthly plan of an iPhone. Clearly, Microsoft did not understand its customer very well. Microsoft envisioned teenagers using the Kin for social networking, but the Kin’s functionality did not meet customer’s expectations.

Distribution Channels

Microsoft selected Verizon to distribute the Kin through Verizon Wireless stores and authorized retailers. Verizon has 2,500 stores and uses key retailers such as Best Buy, Office Depot, and Costo to distribute its phones. Verizon has near 100 million customers and operates the largest wireless voice and 3G network. Given the right product at the right price, Verizon would have successfully marketed the Kin. The problem was not the distribution channel per say, it was the wrong market positioning and price. However, given that Verizon was not willing to sell the Kin at a more affordable subscription cost, it is questionable if Verizon was, in fact, the right distributor for the Kin. Furthermore, even if Verizon had provided a lower monthly plan, the Kin could have failed because of the lack of features.

Promotion

Using the 6’M framework, we analyze the tasks in planning a communications strategy:

Market: The Kin was targeted to 15 – 25 year old social media users but the product did not have the adequate features used by this market segment.
Mission: Microsoft’s mission was to communicate the benefits of the Kin to its target market. However, given that the product was wrongly positioned, it could not communicate the benefits that it aspired.
Message: Microsoft failed to communicate the benefits of automated cloud back up on its advertising. The Kin was the only phone at the time to be able to back up all phone contents online, including contacts, pictures, and messages automatically online.
Media: Microsoft used the right media to convey the wrong message.
Money: A less than a smartphone for the price of a real smartphone.
Measurement: It did not take too many days for Microsoft to realize Kin’s failure.

Pricing

The Kin phones were too pricey from the beginning. They weren't exactly a smartphone, but they were priced as one. The Kin One costs $130, and the Kin Two $150 with a two-year Verizon contract (before a mail-in rebate). Verizon dramatically slashed the Kind prices in late August of 2010 by $100, with the Kin Two at a mere $50 and Kin One at $30[3]. Regardless, price alone was not the main reason that the Kin failed in the first place. According to Advertising Age:

“Kin was a poorly designed product filling a poorly defined niche… pricing may have been part of it—but not as big a part as the fact the phone didn’t do much of what its target audience expects from a phone these days”[4].

The most damaging aspect of the Kin pricing strategy was the monthly service fee. Since Verizon considered the Kin a smartphone, it also required data and voice charges amounting to $70 per month. This monthly fee is more than most teenagers can afford, and the ones who can afford it, could easily instead select a real smartphone. Microsoft might have had a shot with Kin if it had convinced Verizon to offer pricing like boost mobile’s $50 monthly prepaid plan, which includes unlimited talk and data [5].

COMPANY

Microsoft develops, manufactures, licenses, and supports software products for many computing devices. Below is a SWOT analysis for Microsoft[6]:

Strengths	Weaknesses
Strong brand image Focus on research and development Consistent balance sheet	Low Search Engine Market Share
Opportunities	Threats
Launch of Windows 7 Rising importance of virtualization Growing demand for cloud services	Intense Competition Patent Lawsuits

Microsoft should have considered that its core competency is to develop operating systems and not hardware. It was possibly a better fit for Microsoft to enter the mobile phone market by partnering with phone manufacturers to include its mobile operating system. This should have required Microsoft to develop applications as Google did with Android to convince manufacturers to use Microsoft's operating system. However, there are still many opportunities for Microsoft to gain market share by focusing on its Windows 7 Mobile operating system.

COMPETITORS

Microsoft continues to face intense competition across all markets for its products and services. In the smartphone market, Microsoft faces RIM, Apple, HTC, Samsung, Palm, and others. In the mobile phone operating system area, Microsoft competes with open source systems such as Symbian, Linux, and Android. Key closed source systems include RIM Blackberry OS, iOS from Apple, and Palm webOS. However, Android has been growing in popularity as fast as 886% in the second quarter of 2010[7]. Clearly, Microsoft’s key competitor is Google as it recently decided to compete head to head with Microsoft in the operating system market. By focusing on developing the Kin for two years to access social media, Microsoft may have gotten distracted, and left a door open to allow Google to en
ter its operating system market.

COLLABORATORS

In order for Microsoft to successfully sell the Kin, it had to offer more applications. Microsoft needs partners committed to developing applications that run on Windows Phone 7. Apple currently has more than 200,000 applications in its Application Store [8]. Google, arguably Microsoft's biggest competitor in the market, has more than 50,000 applications available [8]. Another option for Microsoft was to partner with cell phone providers as Google has been successfully doing with Android. Microsoft could have offered its Windows Phone 7 operating system on multiple phones allowing it to gain more market share. Instead of focusing on focusing on Microsoft’s core competency, which is developing operating systems, Microsoft chose to focus on hardware. Without enough collaboration with strategic partners and developers committed to use Windows Phone 7, Microsoft is at risk of losing market share in the mobile operating system sector.

CONTEXT

Spotting key changes before a competitor does is critical to remain competitive. This includes changes in the context of politics, economy, society, and technology. For simplicity, we’ll focus on changes in technology that Microsoft should have spotted when it started developing Kin. While Microsoft developed the Kin, there were many technological changes including the growth of iPhone applications. By the time the Kin was introduced, teen-agers consumer preferences changed because they now had more options. Microsoft missed the boat by introducing the Kin too late. Microsoft should have instead taken into consideration the technological changes to better position the Kin in the market.

ASSESSMENT

Microsoft (MS) should have collaborated with developers to create more applications.

MS could have partnered with vendors to have its mobile operating system on multiple phones.

Features such as speed, applications, and flash technology would have better positioned the Kin.

Kin’s innovative features such as automated cloud backup should have been better advertised.

MS should have watched Google closely before it attacked MS’s core competency with Android.

MS should have also negotiated with Verizon or with another carrier to offer the Kin at a lower monthly fee affordable to its young target market.

MS should have better spotted technological changes as it introduced the Kin at a time when most of its functionality was already obsolete.

CITATIONS

1. Helft, M., Microsoft Kin Discontinued After 48 Days, in The New York Times. 2010.

2. Why Microsoft Killed Kin Six Weeks After Launch, in Media. 2010, Haymarket Media Limited.

3. Lonescu, D. Why Microsoft's Kin Phones Were Destined To Fail. 2010 [cited; Available from: http://www.networkworld.com/news/2010/070110-why-microsofts-kin-phones-were.html?hpg1=bn.

4. Enough Already With The Silly Marketing Excuses, in Advertising Age. 2010, Crain Communications, Inc.

5. Hardawar, D. Courier, Kin, and Microsoft’s relentless failure to innovate. 2010 [cited; Available from: http://royal.pingdom.com/2010/05/25/courier-kin-and-microsofts-relentless-failure-to-innovate/.

6. Microsoft Corporation Company Profile. 2010, Data Monitor.

7. Android Smart Phone Shipments Grow 886% Year-on-Year in Q2
2010. 2010 [cited; Available from: http://www.canalys.com/pr/2010/r2010081.html.

8. Ten things Microsofts Mobile Chief Must Do to Beat Google Apple. 2010 [cited.

Why is a Business Plan Critical for Long Term Survival?

2010-07-07T11:32:00.000-07:00

Businesses often prepare business plans when they encounter one of the following circumstances: borrowing money, raising capital, forming partnerships, and launching special projects. Although a well written business plan can help a business achieve those specific goals, it does not mean that the business plan would not be necessary otherwise.

In fact, according to the Turn Around Management Association (TMA), not having a business plan is a sign of trouble for a company because plans are carried according to individual interpretation. A good analogy could be driving a car without a map; businesses that don’t understand their strategic position in the marketplace risk losing market share to the competition at the least excepted moment.

Also, management should compare business performance to competitors as GE did during the 20 years of success when Jack Welch headed the conglomerate. In this example, GE compared performance metrics such as sales growth, gross margin, ROI, and ROE to leading competitor and industry benchmarks. This allowed GE to monitor its performance against competitors enabling it to stay ahead of its competition. However, most businesses only perform a variance analysis comparing year over year metrics. Even though this approach allows the business to compare itself to past performance, it does not capture business performance against the competition. A well written business plan supported by comprehensive market and industry research provides businesses with a map of the marketplace allowing them to navigate the complex and changing competitive landscape.

Steps to Write a Good Business Plan

2010-06-30T13:24:00.000-07:00

Writing a business plan can be a challenging and time consuming task. However, the business plan process can be more affective and completed faster by following a number of key steps.

The first step is to identify the uses for the business plan, either for internal or external purposes. For internal purposes, a business plan can be used as a planning tool to help management plan for growth and industry changes. The business plan can be updated on a yearly basis to ensure its relevance. Even though business plans can be very useful as a management tool, they are more often used for external purposes. External users of business plans include lenders, investors, buyers, and partners such as customers and distributors.

The second step is to outline the structure of the business plan. Once the outline is defined, it would be easier to start working on specific areas. The executive summary should be completed last since it should be a summary of the most important points on the business plan. After outlining the structure, the third step is to create a data gathering list of documents and information that will be necessary to write the business plan. Some of this information includes a marketing plan, financial forecast and management bios. Once all the information is gathered, the fourth step is to perform market and industry research. There are several sources of market research information including local libraries, university libraries offered to alumni, government sources, and business sources offered at a fee. After completing market and industry research, it is important that the financial forecast represents feasible projections. For instance, it would be difficult for an investor or a lender to accept financial estimates that represent gaining 50% of the market share during the next five years.

The last step is to complete the executive summary which should include the most important information the reader should know. This summary is generally two or three pages long and should be supported by the rest of the business plan. Following these steps would not only shorten the business plan writing process but would also result in a more coherent business plan. A well written business plan can help make a good first impression to a potential investor, lender, or business partner.

Business Plan Data Gathering

2010-05-29T19:40:00.000-07:00

Data gathering is the very first step in a consulting engagement and just as important it is for a consultant it is for a business plan writer. Most business owners will have to write a business plan for either internal or external uses, and it is vital to know what information is required before starting to write a business plan. Having the right data upfront will not only speed up the process but will prevent delays pursuant to frequent interruptions to gather additional data.

According to Deloitte, below is a list of key data to gather for business plan writing:

Company Description

Name
Legal form
Location
Financial highlights
Shareholders

Management and Sales

Organization chart
Key management
Board of directors
Consultants and advisors
Compensation and other employment agreements
Other shareholders, rights and resolutions

Market and Competitors

Market statistics
Competitor data
Market and customer surveys

Product and Services

Product literature and technical specifications
Contracts and/or purchase orders
Competitive advantages
Patent, license, and trademarks
Regulatory approvals or industry standards
Operations plan
Research and development

Marketing and Sales

Marketing plan
Marketing vehicles
Marketing materials

Financial Information

Financial statements for up to past five years
Financial forecasts and projections and assumptions
Amount and timing of needed funding

The next steps after data gathering include determining the purpose of the plan, the type of plan (full, summary, or operational plan), and outlining the plan. If you need help in writing a business plan, Boniche Consulting Group can help you write a professional business plan or to review and update an existing one. Go to www.bonicheconsulting.com for more information.

How to Perform Market and Industry Research

2010-05-25T16:19:00.000-07:00

Not everyone is aware that there is plenty of information available at low or no cost that would otherwise be quite expensive to obtain. This includes industry journals, research databases, newspapers, and other websites with costly subscriptions or license fees. Most Fortune 500 companies have business intelligence departments that have access to this information and use it for strategic planning. But, it does not mean that this information is inaccessible to individuals or small businesses. Below are some sources of information available to the general public:

1. Alumni Library Services: Most universities provide access to their library and online databases at a low or no cost. Just keep in mind that information obtained through university libraries is only for personal use.

2. Public Libraries: There is a great amount of information found at public libraries free of charge. One of my favorite databases is ReferenceUSA, which has contact information on 14 million U.S. businesses and 205 million residents. You can search for business addresses by zip code, industry, sales, and dozens of other attributes free of charge at some public libraries.

3. Government Sources: These sources have a vast amount of demographics information available free of charge. Two popular sources include Federal Statistics: http://www.fedstats.gov/ and US Census Statistics: http://censtats.census.gov/cbpnaic/cbpnaic.shtml.

With years of market and industry research experience, Boniche Consulting Group can quickly deliver comprehensive market and industry research that fits your needs.

Valuating a Business

2010-05-24T12:26:00.000-07:00

The number one question business owners ask themselves when considering selling their business is for how much can they sell their business. We have to keep in mind that business valuation is more of an art than a science; even though we have several valuation methods, the sales price is the minimum amount the seller is willing receive and the maximum amount the buyer wants to pay.

There are several valuation methodologies including the income, market, and asset based approach. The most popular approach is the income based approach, which attempts to calculate the present value of future cash flows. This can be done through the Discounted Cash Flows method (DCC), but it is more practical for small businesses to use the multiples approach. Here are the steps to value a business using the multiple approach:

1. Forecast Free Cash Flow (Owner's Benefit)
Most business brokers calculate free cash flow, also known as the owner's benefit, based on last year's actuals. In reality, it should be a forecast of the cash flow which typically is the cash flow 5 years from today. The point is to use a yearly cash flow that best represents the actual cash flow the business will generate annually. Note: it is more common for mid-size and larger businesses to use EBITDA instead of Free Cash Flow.

2. Calculate Free Cash Flow or EBITDA Industry Multiple
The first step is to get a list of similar businesses sold last year in the same industry; "similar" in terms of sales, assets, number of employees, or any other category used to find comparable businesses. It is important that the businesses pertain to a common industry because multiples vary across industries. Next, divide sales by Free Cash Flow or EBITDA for each business to calculate the multiple. For example, if a particular business sold for $1 Million and its Free Cash Flow during the year it was sold was $200K, the multiple is 5. Calculate the multiple for all businesses and then obtain an average multiple.

3. Calculate Continuation Enterprise Value
To calculate the business value, we then multiply the FreeCash Flow or EBITDA times the average industry multiple we calculated in step 2. For example, if five years henceforth Free Cash Flow results to be $100K, the continuation value would be $500K ($100*5). In conclusion, the value of the business $500K, which should approximate the present value of future cash flows by using the DCC method. This is because in the long run, businesses in the same industry have similar growth rates, profitability, and risk and consequently, the multiple approach is a reliable estimate.

When working with a real estate or business broker, it is important for business owners to understand the basics of business valuation. Some business brokers will not take a listing, unless the business is sold for no more than a two times the annual cash flow multiple. The reality is that during the last few years, small businesses generating less than three million dollars in annual sales sold at an average of two times yearly cash flow. However, it does not mean that a business can't sell at a higher multiple, in fact, businesses often sell for much more, but it mainly depends on the industry and type of buyer. For instance, strategic buyers are willing to pay more than the average for a particular business. To learn more about small business valuation, I recommend to read the Business Reference Guide by Tom West. This guide is used by business brokers as a starting point to value small businesses.

What is Strategy?

2010-05-14T15:55:00.000-07:00

According to Michael Porter, strategy is the creation of a unique and valuable position, involving a different set of activities (HBS Nov-Dec 1996); in other words, doing things differently than competitors do. Strategy is not simply doing things better, cheaper, or faster. Instead, it can be a combination of those three attributes and other ways in which a company can differentiate itself from the rest. And, by differentiating from the rest, tradeoffs are required to maintain a sustainable strategic position. What is critical is to identify and implement a number of unique activities that are consistent with the overall strategy.

For instance, a large retailer performed several key activities that are consistent with their strategy, which has been to sell brand products at low costs. Some of these activities include buying in bulk to obtain discounts, using cross-docking to reduce inventory costs, using satellites to link their POS (Point of Sale) systems directly with vendors to manage inventory more efficiently, and requiring consultants to share corporate apartments to reduce travel expenses. In summary, everything this retailer does is generally consistent with their low cost strategy.

It is also important to note that tradeoffs are required in order to maintain a sustainable strategic position. This retailer saves costs by buying in bulk from few suppliers, but the tradeoff is that it can't offer a broad product selection as a gourmet supermarket does. Even though this strategy was successful in the U.S., results were not as favorable in China where customers longed for fresh local products. For the retailer, this meant lost economies of scale because offering local products required buying products at low volumes from nearby vendors. It is important to keep in mind that a strategy that works in one market does not necessary work in another market.

A company can attain a competitive advantage simply by doing a few things differently than competitors do, but tradeoffs are required in order to accomplish it.