Several of the best-funded and most-publicized tech launches of the last ten years have ended in failure. Many large technology companies which had significant market share and product advantages in large industries lost those advantages.
I looked at both start-ups and products introduced by companies that did not survive to create a list of the most colossal tech failures of the last decade. To make the list, a product had to be widely recognized and widely available to customers. It had to be aimed at a large global market. It had to be technologically equal to or superior to its competition. It had to be a product or new company that had the possibility of bringing in billions of dollars in revenue based on the sales of similar or competing products. Finally, it had to clearly miss the mark of living up to the potential that its creators expected, and that the public and press were lead to believe was possible.
1) Microsoft (MSFT) Vista was released worldwide on January 30, 2007. It was the most recent generation of the flagship product of the world’s largest software company. Vista was created to improve the security of the most widely used PC operating system in the world. The securities features were not much better than the previous versions of Windows based on most reviews of the software. Vista was also not compatible with a number of older PCs which limited the number of users who were likely to upgrade from the earlier version of Windows, known as XP. Many analysts claim that Vista also ran more slowly on PCs than XP. All of these factors prevented Vista from being viewed as clearly better than its predecessors. According to research site Net Applications, as of last month Vista’s global share of PC operating systems was less than 24%. Windows XP had 62% of the market and Apple’s (AAPL) OS X product had over 9%. When Vista was launched, PC Magazine said, “Call it a nice-to-have product rather than a must-have.” Microsoft recently announced its first quarterly revenue drop in 23 years. The day of the earnings release CNNMoney observed, “Microsoft’s Vista operating system, which was released in early 2007, never took off like the company had hoped. Sales in the division that produces Vista fell 16% in the previous quarter. User satisfaction has been underwhelming, and IT departments have largely opted to stick with Vista’s predecessor, Windows XP.” The company is rushing Vista’s replacement, Windows 7, to market and hopes to have it out by the end of the year.
2) Gateway was founded in 1985 and was one of the most successful PC companies in the US. Its sales quadrupled in 1990. By 2004, it was No. 3 in US market share behind Hewlett-Packard (HPQ) and Dell (DELL) and had 25% of the retail PC business. But, by 2007 Gateway was in such poor shape that Acer was able to buy it for $710 million. Gateway’s failure has been blamed on several things, primarily its reluctance to enter the laptop business. Its share of the desktop business was strong through the early part of the decade, but it did not shift to portable computers as fast as its major competitors did. Gateway was also slow in entering the business of selling PCs to enterprises, a formula which drove most of the growth at Dell for many years. Gateway tried to diversify by moving into consumer electronics, but the profits were poor and this decision only hurt the firm’s margins. GigaOm wrote when Gateway was sold, “The $710 million price tag is quite a comedown from the mid-1990s, when Gateway and Dell (DELL) were spoken of in the same breath and commanded mega-billion dollars in market capitalization.”
3) HD DVD was one of two formats for high definition DVDs. The other format was Blu-ray. HD DVD specifications were put in place in 2002. Negotiations among consumer electronics companies to have only one product for playing high definition discs ended when there was no consensus about royalties. HD DVD was primarily funded and marketed by Toshiba and NEC and was first released as a consumer product in 2006. When HD DVD was first launched, it had a sales lead over Blu-ray. Industry analysts say that Toshiba lost almost $1 billion supporting the format before abandoning it in 2008. There are a number of reasons that the HD-DVD format lost out to Blu-ray, which was championed by Sony (SNE). The most commonly cited explanation is that Sony did a better job convincing major film studios to release high definition editions of movies for Blu-ray. Sony may have had an advantage because it owns one of the largest studios. Analysts believe that when Sony got Warner Brothers to adopt Blu-ray exclusively, it won the battle against HD DVD. Toshiba had several explanations for the failure of its product. One of those that it mentioned most often was that the digital video download business hurt sales of physical DVD players. That argument does not carry much weight because downloads should have hurt Blu-ray just as much. The final blow to HD DVD was probably when Wal-Mart (WMT) decided to stop offering the format in favor of Blu-ray. There has been no compelling analysis as to why Blu-ray survived and HD DVD did not. One thing is certain. Sony was willing to continue to spend money even though the future of high definition disks was not assured, and that risk is not over. Blu-ray is still not a staple in most consumer entertainment systems.
4) Vonage (VG) was the grandfather of voice-over-IP (VoIP). It is now hardly a footnote in the growth of the industry which is currently dominated by products from cable companies and free services, primarily from Skype, which had 405 million registered users at the end of 2008 and produced $551 million in revenue. eBay (EBAY), Skype’s parent, plans to take the VoIP company public next year. In the first quarter of this year, Vonage did little better than breakeven on revenue of $224 million, which was flat compared with the same period a year earlier. The predecessor company to Vonage began operating in 2000. The company faced early legal challenges, but cleared a hurdle when a federal judge ruled that it could not be regulated as a traditional telecom company. Using venture capital, Vonage aggressively marketed its services as an inexpensive alternative to standard dial up phones. The firm was successful enough that it raised $531 million through an IPO in May 2006. The offering price was $17. By December, it was trading at $1 a share due to pressure from cable competitors and poor earnings. Vonage also faced lawsuits over some of its intellectual property. Settlements cost the company tens of millions of dollars. Vonage is no longer growing. In contrast, cable giant Comcast (CMCSA) now has 6.8 million VoIP customers and added almost 300,000 in the last quarter.