From the Knowledge@Wharton today blog.

Skyrocketing sales of tablets and mobile devices have hinted at the notion that desktop and laptop PCs — once the staple for home computing — are beginning to collect dust in many households. And now, the numbers are starting to show that: Last week, Microsoft, a company whose business depends heavily on sales of PCs and related software, announced that its first-quarter net income dropped by 22%, with revenue down 8% from a year before. That followed an earlier report by research firm IDC that global PC shipments fell by 8.6% in the last quarter.

For many observers, such data suggest that the “death of the PC” is imminent. To get some perspective on that grim outlook, KnowledgeToday asked three Wharton faculty members if they envisioned a time when the humble personal computer as we know it will no longer exist.

Peter Fader, professor of Marketing:

Declining earnings at Microsoft are one thing — they are now facing viable competitors when it comes to operating systems and office tools, so that’s all part of the natural ebb and flow of competing firms. But I don’t see any signs of a declining market for PCs. Okay, maybe the forms are changing, but I view a tablet plus optional keyboard as a PC. Maybe a smartphone is different, but anything with a screen that is frequently operated with a two-handed keyboard is a PC in my book, and that seems to be a very healthy growing market.

I predict that the forms will continue to evolve — we ain’t seen nothing yet — but for the foreseeable future, I see strong demand for a device that does the kinds of things that a PC currently does. Microsoft may continue to fade away, and even the mighty Apple will fall, but that kind of device has a very healthy future.

Eric K. Clemons, professor of operations and information management:

“Death of the PC” is like death of the mainframe: Neither is likely to occur, and, indeed, the move to the cloud has made “big iron” [mainframes and servers] more important as a share of global computing, rather than less important. The PC serves a function. Sometimes I do not want to rely on the Internet, as when I am at 37,000 feet. Sometimes I do not want to rely on the cloud, as when I am working on a first draft of a legal opinion. Where we do our computing has for a decade or more been determined by telecom speed, local PC processor speed, need for storage and local PC storage capacity, software costs, and the need for privacy and security. The balance will keep changing. [The young] “digerati” will continue to mock old guys who write coherent emails on laptops instead of sending short tweets from an iPhone. Both smartphones and tablets will have a place, but so will laptops and desktop PCs.

Daniel A. Levinthal, professor of management:

Technologies, even ones that suffer an enormous degree of substitution, tend to survive in particular niche applications. Indeed, while the volumes will shrink, so will competition, and modest margins over modest volumes can be earned.

Also, the definition of the distinct category of “PC” may be (or is getting) a bit blurred. In what ways are the new Microsoft devices PCs or not PCs? Is the definition a function of the nature of the operating system? What fraction of processing is done on the machine versus (via an app) on a server? Is it a super narrow definition which implies a microprocessor made by Intel and operating system by Microsoft?

This post was previously posted in Knowledge@Wharton today blog: Has the ‘Death of the PC’ Been Greatly Exaggerated?

From the Knowledge@Wharton today blog.

Frugal engineering, or the process of trying to reduce the complexity and cost of a particular product, has been fashionable in India for some time now. Today, even as Apple’s iPad, Samsung’s Galaxy and Microsoft’s Surface battle it out at the pricey end of the spectrum, the tablet wars in India are being fought at the bottom of the pyramid.

Prices are falling to very low levels. Canadian company Datawind has launched a $40 tablet, with schools in India being its target market. However, this isn’t Datawind’s first foray in the country. The Indian government ordered close to 2 million tablets, branded Aakash (sky), from Datawind as part of the National Mission on Education. These tablets were priced even lower — with subsidies, they cost $35 for students and teachers. But delivery delays, failure to provide customer support and other problems resulted in the government ending its association with Datawind. The company is now offering its tablets — branded Ubislate — on its own.

Unfulfilled promises might have toned down the hype around Aakash, but Union HRD Minister Kapil Sibal has announced that a new version — the Aakash 2 — will be available for students soon. “Hopefully, on November 11, you will see the President of India talking to 20,000 students from across the nation, who will have their hands on [an] Aakash,” Sibal said at the Economic Editors’ Conference held in New Delhi in early October. “At the moment, we are actually formulating a Cabinet note for the manufacture of five million Aakash tablets without any financial burden on the Ministry of Finance,” he added. Sibal hopes to price the tablet at $35 by setting up manufacturing facilities in India.

The tablet market, traditionally dominated by global leaders Apple and Samsung, is already beginning to feel the heat from local players. According to a Cyber Media Research (CMR) report released in mid-October, Indian company Micromax enjoys the lead in the country with an 18.4% market share. Second is South Korea-based Samsung with 13.3% and Apple with 12.3%. (Market share has been measured in unit shipments between April and June of this year.) Rounding out the top five are local players HCL and Karbonn. All the Indian companies have “affordable” (nobody uses the word “cheap”) devices. The Micromax range starts at slightly more than $100. Apple and Samsung tablets cost at least five times as much.

Other manufacturers have also recently entered tablet territory. The CMR report states that until the second quarter of this calendar year, around 90 vendors had launched tablets in India. The report also says the ASV (Average Sale Value) of the tablets in the second quarter of 2012 dropped to around $240 from $480 in the first quarter of 2012; most vendors have launched their products in the $90 to $180 price range. For example, startup WishTel priced its tablet — IRA Thing 2 — at $120. Noida-based Zync Global has a range that starts at $75. The government-owned Bharat Sanchar Nigam is selling the basic model of the Penta T Pad (manufactured by Delhi-based Pantel) for $75.

According to the report, “Landscape of Tablet PC market in India” released in mid-October by MAIT, the representative body for the Indian information technology and hardware sector, the market for tablet PCs in India is set to grow at 40% every year for the next five years. Last year, tablet sales stood at 1 million units. India is the “new blue-eyed growth opportunity”, says MAIT president Alok Bhardwaj. “[The tablet] is fast becoming one of the drivers of rapid growth in the IT content consumption and hardware sector in India.”

But does frugal engineering work for technology products? The “affordable” car — the Nano — is selling below expectations. The Simputer, a hand-held computer developed in 2002 for India as a low-cost alternative to PCs, was a disaster. Priced at $230, it was too expensive for the rural consumer. There were technological glitches, too. But frugal engineering seems to have worked for sectors including cell phones and printer cartridges, however.

Faisal Kawoosa, lead analyst for telecom at CMR notes that low-cost tablet vendors “have tried to put in everything in terms of features and functionality — even those not present in Apple. For instance, [the tablets] have USB slots. But whether that is working well performance-wise is a question mark. It is too early for us to judge.”

This post was previously posted in Knowledge@Wharton today blog: Tablets in India Take to Frugal Engineering

From the Knowledge@Wharton today blog.

A decade after a Knowledge@Wharton article analysed an outpouring of corporate apologies, the word “sorry” is back in the headlines. Apple’s apology for errors in its maps app sounds truly remorseful, but the company needs to watch out for less forgiving technology users, says Wharton professor of operations and information management Kartik Hosanagar.

“While it is true that consumers are often forgiving of [problems] with technology products because of the usual trial and error issues, this is less so for a product that charges a premium like the iPhone,” Hosanagar notes. “Apple will need to be careful about these kinds of mistakes more so than a typical tech player.”

This isn’t Apple’s first mea culpa over the iPhone. The company was prompted to offer $100 rebates to some consumers after it slashed prices for the first iteration of the iPhone from US$599 to US$399 just two months after the product launched. Apple was made to apologise again in 2010, when iPhone 4 users complained about poor signals and dropped calls due to a design problem with the device’s antenna.

Apple under Jobs had been seen as generally reluctant to acknowledge errors. But current CEO Tim Cook was more candid in his statement about the maps flap. “We fell short on our commitment,” he said, as he apologised for the company’s decision to remove Google Maps from the list of default apps in the newest version of the iOS operating system and to replace it with an in-house program that has proven to be riddled with errors. Cook even directed customers to maps apps of rivals including Google and MapQuest while Apple fixes its mapping utility.

Comparing Jobs to Cook on apologies may not be entirely fair. “Tim Cook is an unfortunate position in which everything he does will get compared to Steve Jobs,” Hosanagar notes. “These kinds of things happen often and good CEOs often take responsibility for such missteps. That his style is different from that of Jobs will keep getting attention. But analysts must recognise that Cook has his own style.”

Others like ousted Barclay’s Bank CEO Bob Diamond have also not minced words when their firms were caught making an error. In July, he apologised to a British parliamentary panel for “reprehensible behavior” on the part of his bank’s traders indulging in manipulating interbank lending rates. It didn’t help much, though. By then, U.S. and U.K. regulators had already slapped a fine of $453 million on the bank.

On Thursday, appliance maker KitchenAid of St. Joseph, Mich., apologized for “an irresponsible tweet” about President Barack Obama’s late grandmother. “Another company learns the pitfalls of social media,” said a USA Today report on that episode.

Companies must use their apologies carefully, Wharton marketing professor Stephen Hoch cautioned in the 2002 Knowledge@Wharton article referenced earlier. When a company is apologising for a mistake to a group of people, such as customers, who know about the mistake, then the “right way to do it is to spill your guts, lay the negatives on the table and then try to refute those negatives,” he noted. It’s a kind of “boomerang approach, turning the negative into a positive …” Yet, he advised against firms apologising to all and sundry, since they tend to deal with heterogeneous sets of customers. “In fact, a massive apology can be risky.”

Even the world of apologies has its heroes, however. James Burke, the former Johnson & Johnson CEO who died last week, will be most remembered for the 1982 Tylenol recall, according to a Knowledge@Wharton Today blog post from last week. Burke ordered a nationwide recall after seven people died in Chicago from taking cyanide-laced Tylenol capsules. In a 2004 Wharton School Publishing Book titled, Lasting Leadership: What You Can Learn from the Top 25 Business People of Our Times, Burke explained that Johnson & Johnson’s celebrated credo that places customers above all had emboldened him: “It gave me the ammunition I needed to persuade shareholders and others to spend the $100 million on the recall.”

This post was previously posted in Knowledge@Wharton today blog: The Ifs and Buts of Corporate Apologies

From the Knowledge@Wharton today blog.

Bruce McColl isn’t an engineer, and his responsibilities have a lot more to do with building brands than building bridges. But the much-celebrated global chief marketing officer for Mars nonetheless believes that the spectacular failure in 1940 of the original Tacoma Narrows Bridge – a suspension bridge in Washington state –offers valuable lessons for brand managers as they attempt to navigate the fractured, difficult, fast-shifting marketing landscape of the 21st century. 

“The real insight [from the collapse] is that the engineers on that project jumped in too eagerly with new technologies and new methods,” said McColl, who spoke during Wharton’s recent Future of Advertising Conference. “There were new variables and new techniques, and they weren’t yet tried and tested. They used them on a scale that they weren’t ready for.”

As McColl noted, while other, apparently more daring designs had preceded the Tacoma span — the groundbreaking Brooklyn Bridge in 1883, the even more enormous George Washington Bridge in 1931 and the stunning Golden Gate Bridge in 1938 — and while the Tacoma bridge basically followed the same blueprint as those spans, it failed anyway. It failed not necessarily because of its basic layout, or because of the inadequacy of its designer (indeed, the Tacoma project was headed up by Leon Moisseiff, who also designed the Golden Gate Bridge), but rather because the technologies and innovations used there — specifically, its elegant but narrow girders — simply pushed the envelope too far, too soon. Moisseiff’s design may have been a good fit elsewhere, but it wasn’t a good fit for blustery Puget Sound.

Construction workers became familiar with the bridge’s flaws early on, so that when the bridge collapsed into Puget Sound just four months after its opening (no injuries were reported), hardly anyone was surprised.

The lesson — not just for engineers, but for marketers — is clear, McColl said: Technology and innovation in and of themselves are not necessarily the answer to any single problem or challenge. Employ new technologies incorrectly, or put too much faith in innovations that aren’t yet fully understood, and failure — even catastrophic failure — is possible.

“In my job, I’m concerned with big, valuable brands,” McColl said. “I don’t want to see them destroyed because I jumped in too quickly with technologies that weren’t proven…. You look at the things that have been built, from the great pyramids to the wonderful Sydney Opera House, and there’s a massive difference in technology. But the laws of physics have not changed. Engineers and architects still contend with the same laws of nature, and we as marketers need to understand [this] as we apply technology to the laws of marketing.”

Of course, there’s a catch in that statement, McColl says: In marketing, there are no hard-and-fast laws of physics, especially now, as social media opens up vast new possibilities and poses enormously difficult new challenges. There is only the bottom line, which is what marketers must constantly keep in mind as they work to craft smart, modern marketing campaigns that may or may not rely heavily on social media or other new technologies to meet their sales targets.

While McColl joked that he has not always enjoyed success during his long and accomplished career — “It’s unlikely that any marketer can destroy a brand like those engineers destroyed that bridge, but Lord knows I’ve tried” – recently his Mars team hit a marketing home run. The successful campaign they launched in conjunction with the 2010 Super Bowl was a smart mix of new-age social media savvy and tried-and-true marketing methods, all powered by the company’s risky decision to use an elderly actress, long out of the public eye, to form the center of their campaign.

In the Super Bowl ad that kick-started what would prove to be a long-running profitable campaign, actress Betty White was shown playing football with a bunch of young men. White goes out for a pass, drops the ball and gets knocked flat. She returns to the huddle and is told by her teammate that she was playing like, well, Betty White.

Then White eats a Snickers bar, transforms back into who she actually is — a young man who just happened to be suffering form a lack of energy — and returns to the field, rejuvenated. The ad was funny, smart and modern. By the time the Super Bowl ad reviews were in the next morning, the Snickers ad was seen by many as the single most popular of the evening. Viewers loved the concept, the offbeat approach and, perhaps above all, White’s willingness to play along with the joke.

But McColl and his team never intended the Super Bowl ad to be a standalone piece, but rather the first step of a three-month campaign — one that would help them reach the 270 million people worldwide who have eaten a Snickers bar at least once in their life, as well as the 70 million who do so regularly, in order to keep their brand prominent and “top of mind.”

While the initial buzz about the ad kept Snickers in the news for a few days, the full impact of the campaign would be revealed in the months to come. A few weeks after Super Bowl Sunday, White ended up on Saturday Night Live, followed by appearances on Larry King Live and Oprah. Because of a 30-second ad and a good sense of humor, White was back. But Snickers — and Mars — may have been the bigger winner.

In total, McColl said, the White campaign generated a stunning 350 million media impressions. More importantly, those hits actually translated into sales: Revenues in the wake of the campaign shot up by double digits. “We found a way to do a campaign that could get amplified by the mass media,” McColl said. “It was a very interesting year.”

Even in the wake of that success, however, and even though he and his Mars colleagues know that social media did play a massive role in the campaign’s meteoric rise, McColl admits that it’s been difficult to figure out exactly how Facebook and Twitter influenced the sales jump, and why this campaign, unlike others, lit such a fire under social media users.

It’s easy enough to stand back and say that social media helped, McColl concluded. It’s not so easy, however, to figure out why it helped — and what lessons can be gleaned from a campaign that seemed to surprise even McColl with its results.

In other words, the laws of physics in social media marketing remain unknown, and likely will for some time to come.

“When you try to connect social media to all of this, unfortunately it’s like lightning in a bottle,” he said. “And these are just some of the factors we have to run through when we look at these new technologies. As mass marketers, we need to go out there and reach hundreds of millions of people, but we need to understand how these new technologies can help us achieve that. That’s the core that we’re talking about as we transform our growth agenda.”

This blog was previously posted in Knowledge@Wharton today blog: Social Media and Snickers

From the Knowledge@Wharton today blog.

Yahoo’s board is on borrowed time to fix its woes — a situation that was no doubt aggravated by the board’s decision not to name a new CEO at its annual meeting on Thursday. Wharton professors Kartik Hosanagar, Eric T. Bradlow and Waheed Hussain have advice for the board on how to ensure stable leadership and reposition the struggling company for growth.

Hosanagar, Wharton professor of operations and information management, states that time is running out for the company’s board. “They need to elect someone … who can bring back some of the entrepreneurial spark in Yahoo,” he says. “Traditional, seasoned management veterans are not the right candidates for Yahoo given all that it’s going through.”

Many expected Yahoo’s board to name interim CEO Ross Levinsohn to the top job, but now speculation is growing that the board is considering other candidates, too. Levinsohn, 48, took over as interim CEO in May from Scott Thompson, who quit after being accused of making false claims on his CV. Since then, Levinsohn has scored several victories, including making peace with Facebook last week by settling patent disputes. Also, Yahoo and Facebook agreed to form advertising and content-sharing partnerships. Finally, Levinsohn in May guided Yahoo’s decision to sell half its 40% stake in Chinese e-commerce firm Alibaba for $7.1 billion, ending tensions over how much value Yahoo can extract from that investment.

What should guide the Yahoo board as it picks the firm’s next CEO? “The last two Yahoo CEOs were outsiders, and it seems that Levinsohn is also essentially an outsider, having been at Yahoo for only two years,” says Hussain, Wharton professor of legal studies and business ethics, whose research areas include corporate governance issues. “You never know an outsider the way that you know one of your own executives, and you naturally have to take much more on trust.”

Hussain’s advice for corporate boards in general, including Yahoo, is to build better structures and processes for grooming leaders from within the corporation. “There is no hard and fast law that says internal leaders have less viable and transformational ideas than outsiders,” he says. “And in general, the devil you know is better than the devil you don’t know.”

Wharton marketing professor Bradlow says the new CEO must develop “a core niche strategy” to restore Yahoo’s fortunes. “[That person] should rebuild from the ground up by owning a segment of customers and branching [out] big from there.”

Bradlow has a specific to-do list: “Be willing to experiment,” he says, such as offering value-added services like web page layouts. His other suggestions: “Track much more than visits/sales to understand performance. Make sure you understand repeat visitation behavior, page depth and [other] things at the individual customer level.” Any company, including Yahoo, that tracks only aggregate behavior will miss out on important diagnostics showing whether a strategy is or is not working, he adds.

Hussain cautions against placing too much emphasis on just the CEO’s actions. “In the long run, the choice of a CEO is only one moderate factor among many that figure into making a company successful,” he says. “These decisions get an enormous amount of attention in the media, so boards tend to feel enormous pressure to do something dramatic. But it’s important to be realistic. You can only do so much to move an ocean liner in a short amount of time. Where it ends up depends a great deal on the seas and the winds.”

Shaky at the Top

Yahoo has had more than its share of instability at the top. Thompson, who quit after less than six months as CEO, had replaced Tim Morse, who had been at the helm for four months. Morse was named interim CEO last September after Yahoo’s chairman fired then-CEO Carol Bartz for what was widely seen as a failure in her efforts to boost the company’s fortunes.

Bartz, who had been CEO since 2009, had a little more than a year left on her contract when she was fired. Bartz had replaced Yahoo’s co-founder Jerry Yang, who had taken on the CEO role in July 2007. Yang had replaced then-CEO Terry Semel, a six-year veteran at the company, amid worries that Yahoo’s ad revenues were shrinking as business opportunities on the Internet were expanding.

Concerns over revenues persist to this day. Yahoo’s revenue has fallen steadily from $6.46 billion in 2009 to about $5 billion by 2011, although net income has grown in that period from about $600 million to a little more than $1 billion. “The major issue is that [its] growth is lagging the industry, especially [that of] Google, Facebook, etc.,” Hosanagar had noted in a Knowledge@Wharton Today report after Bartz’s exit.

Meanwhile, Yahoo’s shareholders seem to be losing patience. “You are behind the ball and you have been behind the ball, regardless of which CEO has shown up,” a shareholder told Levinsohn and other Yahoo executives at a Q&A session on Thursday, according to The Associated Press. “You don’t execute…. As a consumer, I have given up on this company.” Many still rue Yahoo’s decision not to sell itself to Microsoft four years ago for $47.5 billion. Back then, Yahoo’s share price was $33; Last week, it closed at $15.69.

This blog was previously posted in Knowledge@Wharton today blog: How Yahoo Can Search for its Growth Engine

From the Knowledge@Wharton today blog.

With the introduction earlier this week of the Surface tablet, most observers seem to agree that Microsoft got a lot of things right, launching a well-designed product with features lacking in its chief competitor — Apple’s iPad — including a cover that functions as a keyboard and the ability to run desktop software programs.

But the presentation also left many unanswered questions, including the exact price, release date and battery life of the device. Perhaps more importantly, it is still unclear what the Surface offers beyond hardware — and if Microsoft can leverage successful offerings such as its Xbox gaming system and Office productivity suite to create a vibrant ecosystem to rival that of the iPad.

“At first glimpse, Microsoft appears to have gotten a lot right with the Surface tablet,” Wharton new media director Kendall Whitehouse says. “Including an integrated keyboard with the Surface is a great idea. More importantly, however, is that the Surface runs Windows 8. In this regard, Microsoft has leapt ahead of the competition. This is the eventual direction for tablet and mobile products: To close the gap between the mobile/tablet environment and the desktop/laptop environment.”

Whitehouse adds that making Windows 8 the operating system for the Surface is a “big bet” for Microsoft. “But I admire their courage in going ‘all in’ with their new OS. And, if they can pull this off by successfully implementing a consistent user experience across desktop, laptop, tablet and mobile phone devices, they could be back in the game in a big way.”

The move is also reflective of a growing trend in the tech sector, with companies focusing more on offering a full range of hardware and software similar to the Apple ecosystem, says Wharton marketing professor Eric Bradlow. “Every portal is trying to get into the device game,” he notes. “They are worried that someone else taking over the device market will create a friction cost so that the other portals are ‘harder’ to use. I treat Microsoft the same way. They are trying to develop a portal that will keep the Windows 8 platform and the Microsoft suite of products top of mind.”

According to Wharton operations and information management professor Eric Clemons, the iPad is “nearly perfect” as an entertainment device. But it is lacking in the area of productivity, which is where the Surface may be able to make inroads with consumers.

“Providing the Surface with twice the memory of an iPad was a nice move. Adding a USB port was even smarter. Providing Office was smarter still,” Clemons notes. “Until now, when I travel, I need three devices: I need an iPhone. I need a MacBook Pro. And I need an iPad for the plane ride itself. Now I can get away with only two devices, at least on shorter trips…. And a Surface would allow me to write real documents, send real e-mails and view my camera photographs — I mean from a real camera, a Nikon Digital SLR, not a camera phone picture.”

Clemons suggests that sales of the Macbook Air and the iPad could be threatened by the Surface “except that I expected this some time ago from a Microsoft platform, and I bet Apple did, too. So look for an iPad … that runs Office and has a USB port very soon.”

This post previously appeared in the Knowledge@Wharton today blog: Digging Below the Surface of Microsoft’s Tablet Strategy