Segway Human Transporter

Segway Final Presentation

Can Segway Enter the Tornado?
Management 266A Product Strategy in the Digital Economy
Charles Chen Miro Curac Antonio Gomez Dwight Huang Len Tiso

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Presentation Overview

Introduction Strategic Assessment: Moore Framework Stakeholders Critical Issues Analysis Bayesian Network Analysis Strategic Implications and Recommendations

Segway Human Transporter

Introduction
Motor-scooter like device Powered by electric motors Movement by shifting weight, turning wrist Turning radius of zero Designed by inventor Dean Kamen (150 patents)

Segway Human Transporter

3 Product Models

e series - Expeditor (cargo) i series - Industrial (business) p series - Personal (consumer) Commercial models faster, longer range, heavier Max speed 10.0 - 12.5 mph Maximum distance 14 - 17 miles (single charge) Device weighs 69 - 95 lbs.

Segway Human Transporter

Strategic Assessment: Crossing the Chasm

Segway in infancy stage of TALC Discontinuous innovation

Substitute for walking Value proposition (business and consumer) Amazon.com auction - $100,000 bids Amazon.com - first customer

Technology enthusiasts

Visionaries

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Strategic Assessment: In the Bowling Alley

Whole product solutions to niche segments

Pick on someone your own size Enlist the support of the economic buyer Post office, police departments Amazon.com, Michelin, GE Plastics

Government services

Businesses with warehouses

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Strategic Assessment: Inside the Tornado

Hypergrowth stage years away Consumers are ultimate target market

Production capacity 40,000 units/month Need to lower price point from $3,000/unit Builds awareness Overhype sets unrealistic expectations (e.g. artificial intelligence industry)

Media coverage is a double edged sword

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Stakeholders

Consumers Businesses Government Services Regulatory Authorities Environmental Interests Electric Industry Petroleum Industry Manufacturing Partners

Segway Human Transporter

Stakeholders: Consumers & Businesses

Stakeholder Groups Consumers Parties Individuals Urban commuters Local shoppers Recreational users Warehouses Plants Manufacturing facilities Interests Pleasure Increased mobility Social acceptance Increased productivity

Businesses

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Stakeholders: Government and Regulation

Stakeholder Groups Government Services Parties Post office Police departments Park service Federal, state and municipal authorities Department of Motor Vehicles Interests Better public service Increased productivity Public safety

Regulatory Authorities

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Stakeholders: Environmental and Electric Industries

Stakeholder Groups Environmental Interests Electric Industry Parties Environmental Protection Agency Environmental interest groups Battery manufacturers Public utilities Electric vehicle manufacturers Interests Environmental preservation Market demand for electricity Technological advancement of electric products

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Stakeholders: Petroleum and Manufacturing

Stakeholder Groups Petroleum Industry Parties Automobile, motorcycle and scooter manufacturers Petroleum exporters Suppliers of Segway Interests Market demand for petroleum products Corporate profitability

Manufacturing Partners

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Critical Issues Analysis

Highlight key issue for each area Political - Regulatory approval Behavioral - Consumer utility Economic - Segmentation Social - Fad or revolution? Technological - Segway imitators

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Bayesian Network

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Bayesian Network Analysis

Base scenario

Tornado viability = 12.10% Reasons for low percentage

Harder to enter Tornado than Bowling Alley Regulatory hurdles Consumer value key Ability to supply Competitive threats

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Sensitivity Analysis: Primary Branch Nodes

Market Demand Base Scenario High Demand Sensitivity Analysis High Demand Sensitivity Analysis High Demand Ability to Supply Base Scenario Adequate Supply Sensitivity Analysis Adequate Supply Sensitivity Analysis Adequate Supply Competitive Threats Base Scenario Low Competition Sensitivity Analysis Low Competition Sensitivity Analysis Low Competition Probability 20.81% 100.00% 0.00% Viability 12.10% 46.50% 3.06% Difference 34.40% -9.04%

56.60% 100.00% 0.00%

12.10% 16.27% 6.67%

4.17% -5.43%

46.51% 100.00% 0.00%

12.10% 16.58% 8.20%

4.48% -3.90%

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Sensitivity Analysis: Regulatory Issues

Regulatory Issues Base Scenario - Favorable Regulations Sensitivity Analysis - Favorable Regulations Sensitivity Analysis - Favorable Regulations Federal Approval Base Scenario - Expedited Approval Sensitivity Analysis - Expedited Approval Sensitivity Analysis - Expedited Approval State Approval Base Scenario - Expedited Approval Sensitivity Analysis - Expedited Approval Sensitivity Analysis - Expedited Approval Municipal Approval Base Scenario - Expedited Approval Sensitivity Analysis - Expedited Approval Sensitivity Analysis - Expedited Approval Probability 26.74% 100.00% 0.00% Viability 12.10% 20.12% 9.17% Difference 8.02% -2.93%

95.00% 100.00% 0.00%

12.10% 12.20% 10.23%

0.10% -1.87%

60.00% 100.00% 0.00%

12.10% 13.68% 9.73%

1.58% -2.37%

40.00% 100.00% 0.00%

12.10% 15.88% 9.58%

3.78% -2.52%

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Sensitivity Analysis: Customer Value

Customer Value Base Scenario - High Customer Value Sensitivity Analysis High Customer Value Sensitivity Analysis High Customer Value Consumer Value Base Scenario - High Consumer Value Sensitivity Analysis High Consumer Value Sensitivity Analysis High Consumer Value Probability 39.62% 100.00% 0.00% Viability 12.10% 19.64% 7.15% Difference 7.54% -4.95%

66.68% 100.00% 0.00%

12.10% 14.15% 8.01%

2.05% -4.09%

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Sensitivity Analysis: Ability to Supply

Distribution Channels Base Scenario Sufficient Channels Sensitivity Analysis Sufficient Channels Sensitivity Analysis Sufficient Channels Production Capacity Base Scenario Adequate Capacity Sensitivity Analysis Adequate Capacity Sensitivity Analysis Adequate Capacity Probability 60.00% 100.00% 0.00% Viability 12.10% 13.33% 10.25% Difference 1.23% -1.85%

68.36% 100.00% 0.00%

12.10% 13.77% 8.48%

1.67% -3.62%

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Sensitivity Analysis: Competitive Threats

Existing Transportation Base Scenario - Effective Substitute Sensitivity Analysis - Effective Substitute Sensitivity Analysis - Effective Substitute Alternative Electric Transportation Base Scenario - High Threat Sensitivity Analysis - High Threat Sensitivity Analysis - High Threat Probability 20.00% 100.00% 0.00% Viability 12.10% 11.30% 12.30% Difference -0.80% 0.20%

62.22% 100.00% 0.00%

12.10% 10.55% 14.65%

-1.55% 2.55%

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Market Valuation (all units in 000s)

Comparable Industry: Motorcycle and Bicycle Manufacturing Year 1 Year 2 Unit Sales Price (000s) $3.0 $2.5 % of Target Production 2% 10% Units Produced per Year (000s) 9.6 48 Revenue COGS Gross Margin Operating Expenses Operating Income/EBITDA Depreciation/Amortization EBIT Interest Expense EBT Income Taxes Net Income Capital Expenditures FCF Discounted FCF Preliminary Valuation $ $ $ $ $ $ $ $ $ $ $ $ $ $ 28,800 19,987 8,813 6,624 2,189 2,189 2,189 766 1,423 $ $ $ $ $ $ $ $ $ $ $ 120,000 83,280 36,720 27,600 9,120 500 8,620 8,620 3,017 5,603 $ $ $ $ $ $ $ $ $ $ $ Year 3 $2.0 30% 144 288,000 199,872 88,128 66,240 21,888 1,100 20,788 20,788 7,276 13,512 $ $ $ $ $ $ $ $ $ $ $ Year 4 $1.5 40% 192 288,000 199,872 88,128 66,240 21,888 1,820 20,068 20,068 7,024 13,044 $ $ $ $ $ $ $ $ $ $ $ Year 5 $1.0 100% 480 480,000 333,120 146,880 110,400 36,480 2,684 33,796 33,796 11,829 21,967 $ $ $ $ $ $ $ $ $ $ $ Tornado Year 6 $0.3 500% 2,400 720,000 499,680 220,320 165,600 54,720 3,721 50,999 50,999 17,850 33,149 $ $ $ $ $ $ $ $ $ $ $ Year 7 $0.3 5000% 24,000 7,200,000 4,996,800 2,203,200 1,656,000 547,200 4,965 542,235 542,235 189,782 352,453 14,930 342,488 128,754

5,000 $ (3,577) $ (3,111) $ $2,984,401

6,000 $ 103 $ 78 $

7,200 $ 7,412 $ 4,874 $

8,640 $ 6,224 $ 3,559 $

10,368 $ 14,283 $ 7,101 $

12,442 $ 24,429 $ 10,561 $

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Sensitivity Analysis - Expected Valuation

Preliminary valuation = $2.98 billion

Probability of Viability 12.10% 46.50% 3.06% 16.27% 6.67% 16.58% 8.20% Expected Valuation ($M) $ 361 $ 1,387 $ 91 $ 485 $ 199 $ 494 $ 245

Scenario Base case Hi Market Demand Lo Market Demand Adequate Ability to Supply Inadequate Ability to Supply Weak Competition Strong Competition

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Strategic Implications and Recommendations

Prioritize regulatory approval efforts

Municipal approval is key Beta testing with government services

Consider international consumer market first

Less automobile oriented urban infrastructure, but less Segway friendly infrastructure More receptive to cheaper transportation technology (higher customer value)

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Strategic Implications and Recommendations

Continue expanding production capacity

Hypergrowth demands rapid scalability

Continue conservative patent protection policy

Barrier to entry in a new market Alternative electric transportation threat

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The Future?

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