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Prepared By
Brian Coate
coate.b@husky.neu.edu
John Coogan
coogan.j@husky.neu.edu
Francis Piccirillo
piccirillo.f@husky.neu.edu
Matthew Wallace
wallace.mat@husky.neu.edu
E Ink Case Study Concessions of a Disruptive Technology
BY BRIAN COATE, JOHN COOGAN, FRANCIS PICCIRILLO AND MATTHEW WALLACE
I
In the Beginning:
n 1997, Joe Jacobson founded the E Ink Corporation in Cambridge, Massachusetts. Although the business
was years away from profitability and success, it attracted significant media attention and financial backing
because of its potentially revolutionary idea, “a hardcover book that had hundreds of paper-thin pages in it.
You could take it off the shelf, open it, and read King Lear, for instance. You could close it, press a button,
open it up again, and you’d be reading quantum physics.” 1 Only electrophoretic display technology, which
forms visible images by rearranging charged pigment particles using an applied electric field, would make this
seemingly impossible device a possibility. Many obstacles stood in the path of E Ink and as a result, the
executive team made several concessions to mitigate uncertainty and stabilize their financial situation.
Innovation Classification:
With the ultimate goal of “killing paper”, E Ink was clearly attempting to enter the display market as a dis-
ruptive technology. This statement can be retroactively reassessed using recent history, but as the Harvard
Business School case, E Ink shows, in 1999, the company’s goal was to disrupt the traditional market for
books by introducing a revolutionary method of obtaining and consuming written text. “Radio Paper,” as it
was called by the early E Ink creators, would “replace all forms of paper-based communication.” 2
Nearly all forms of innovation fall under two broad categories, sustaining and disruptive. One can further
classify sustaining innovations either as discontinuous or evolutionary. An apt analogy, which helps explain
the different types of innovation, revolves around the automobile industry. A minor, or evolutionary, innovation
would be that of fuel injection, which replaced carburetors as the predominant method used to meter fuel on
gasoline engines. A much bigger innovation, while still sustaining, was that of the automobile. The automo-
bile created a new market by allowing customers to solve a problem (transportation) in a radically new way
(using a mechanical engine as opposed to animals). Although the automobile was a transformational innova-
1
(Archambault, 2000, p. 1)
2
(Archambault, 2000, p. 4)
E Ink Case Study
tion, it was not a disruptive innovation, because early automobiles were expensive luxury items that did not
disrupt the market for horse-drawn vehicles. However, they did transform the transportation industry along an
important technological vector. The market for transportation essentially remained intact until the debut of the
lower priced Ford Model T in 1908 by making higher speed, motorized transportation available to the
masses. 3 Just as the Model T was a disruptive technology that revolutionized transportation, radio paper si-
milarly targeted revolutionizing paper-based communication.
When developing the business plan, Russ Wilcox, the vice president and general manager worked with Jim
Iuliano, the president and CEO to ensure that E Ink would satisfy three main criteria. These were “(1) the
market focus must keep the company on its technical path toward radio paper, (2) it must bring revenue in
1999, and (3) the company must be able to grow that business to $20 million in 3 years.” 6 Despite aspira-
tions of creating a thin, flexible display capable of receiving radio signals, Wilcox saw the retail signage busi-
ness as an important interim market. E Ink would be able to generate revenue and release solid proof-of-
concept products while still working to scale down the electrophoretic technology to smaller and smaller sizes.
Demonstrating the ability to generate revenue was critical to E Ink’s success. It was clear that functional
radio paper need years of dedication and securing financing for such an advanced, but untested, technology
was far from simple. E Ink’s play into the retail signage market served as a short-term goal and shifted
3
(Christensen, 2003, p. 49)
4
(Pirmohamed, 2002, p. 1)
5
(Archambault, 2000, p. 10)
6
(Archambault, 2000, p. 5)
their planned revenue source from a single stream (radio paper) to a multiple stream system. E Ink em-
ployed a unit-based revenue model, selling each sign at a price determined by the cost of production. Ulti-
mately, recouping the fixed costs incurred by research and development would be necessary, but in the short-
run E Ink would merely use the revenue generated by retail signage sales to lower their burn rate and offset
the variable costs of production.
The cost drivers at E Ink closely resembled most technology start-ups, major fixed costs to develop the first
versions of E Ink displays and minimal variable costs until the displays went into production. By the end of
the case, E Ink had yet to mature past the first stage of development and the majority of their total costs
consisted of fixed costs.
The three critical success factors Mr. Iuliano had outlined to Mr. Wilcox focused primarily on revenue drivers,
but in the long-run, E Ink would need to focus on different points. First, although E Ink would offer a
product with superior features, they would still need the ability to command a price premium for their displays
without a commensurate increase in costs. Secondly, developing economies of scale to lower costs as sales
volume increased would ensure long-term profitability and the ability to meet market demand.
Licensing the newly developed electrophoretic display technology to larger, established display companies would
allow E Ink to generate revenue by charging the display manufacturer a fee to produce displays using E
Ink’s technology. Major display manufacturers benefit from having already offset major capital expenditures
and dissolved their fixed costs over many years of profitable production. Using the manufacturing facilities
already in place at traditional, liquid-crystal display factories would allow E Ink to tap into significant econo-
mies of scale and begin generating revenue sooner and without the need for major investment in production
facilities. This would reduce their long-term profit and ultimately prevent them from ever cornering the display
7
(Pirmohamed, 2002, p. 4)
market. Ultimately, keeping manufacturing within the company allowed E Ink to ensure the highest quality
production as well as create a tight knit culture, even between the more distant aspects of the business.
8
(Archambault, 2000, p. 5)
9
(Tjan, 2010, p. 1)
In order to achieve initial sales, the new management team decided that retail stores were good candidates
as “early adopters”. Market research showed that electronic ink signs would provide good value to the cus-
tomer, and provided significant profit potential for E Ink ($600 million projected market size). This type of tac-
tic, called a “penetration strategy”, allows a company to introduce its product or technology by focusing on a
single niche market. This would not only facilitate initial sales, but also help E Ink refine its technology and
manufacturing. It was easier to develop the technology and manufacturing for larger scale, lower resolution
displays than it would be to develop the technology and manufacturing for their end goal (and much larger
market) of “radio paper”.
The management team had confidence in electronic ink technology’s marketability, specifically in the retail sig-
nage market. Success in the (relatively small) retail signs market would constitute as a group of early adop-
ters and help E Ink refine its technology and manufacturing methods, but the issue of “crossing the chasm”
still wasn’t addressed. Geoffrey A. Moore states “the notion that part of what defines a high-tech market is
the tendency of its members to reference each other when making buying decisions-- is absolutely key to
successful high-tech marketing.”10 E Ink’s “Technical Path to Radio Paper” diagram shows their plan of captur-
ing the retail signs market, then the portable displays market, and finally the paper market. The problem with
this strategy is that portable electronics consumers or manufacturers will not look to retailers like J.C. Penny
when making buying decisions. It may make more sense for E Ink to find a niche within the consumer elec-
tronics market that would be more cohesive with their targeted “early majority” market of portable displays.
The primary obstacle slowing the adoption of E Ink’s products is uncertainty. Consumers naturally feel fear,
uncertainty and doubt when considering which new technologies to adopt and this is a major roadblock to
many disruptive technologies. Fortunately, the value of E Ink’s displays does not come from network exter-
nalities. The displays work as stated, regardless of whether or not a large number of other users adopt
10
(Moore, 1991, p. 57)
them. Upon its incorporation, E Ink operated under a primarily business-to-business revenue model, selling
first to large retailers and then eventually consumer electronics manufacturers. E Ink’s leadership focused
intensely on proving that electrophoretic displays were technologically viable to ease potential customers’ fear
of technological uncertainty and demonstrate E Ink’s applications. As with any disruptive technology, illustrat-
ing a need to consumers can be difficult. Consequently, developing strong relationships with consumer elec-
tronics manufacturers is critical for E Ink’s successful transition from its second stage (consumer electronics)
to its planned third stage (radio paper).
Alternative Opportunities:
Many different manufacturers have used E Ink technology to enhance their products and reduce costs, but
there appear to be several other applications for electrophoretic displays E Ink has yet to explore. Nautical
navigation displays must be clearly visible in all conditions to ensure safety and usefulness. E Ink displays
are visible in direct sunlight and unaffected when traveling during the day unshielded. Additionally, their low
power requirements make them prime choices for use on sailboats without substantial power sources. Every
football game uses first-down markers to show how many remaining plays the offense has before turning the
ball over. The National Football League is constantly finding new ways to employ the most recent technolo-
gical advances. Viewership consists of one of the most highly targeted markets for consumer electronics and
including E Ink in the field equipment would provide a high-tech alternative to traditional first-down markers
while raising awareness of E Ink’s versatility. Lastly, a major breakthrough in E Ink’s technology could allow
for flexible backplanes. One possible application for flexible electronic ink displays lies in military camouflage,
which would benefit from the ability to change textures based on the surroundings. A soldier with the ability
to appear covered in leaves while walking through a forest, and then instantly change to a solid desert pat-
tern upon changing locales could have a major advantage in combat. Funding for Armed Forces research
products is traditionally ample and the government has been integral in the development of many technolo-
gies. All of these could prove to be beneficial interim markets to boost profitability, increase adoption and
further progress E Ink towards the ultimate goal of radio paper.
Works Cited
Archambault, S. (2000). E Ink. (T. Amabile, Ed.) Boston: Harvard Business School Publishing.
Christensen, C. M. (2003). The innovator's solution : creating and sustaining successful growth. Harvard
Business Press.
Eaton, K. (2009, June 1). E-Ink's Sale Clears Path for Color Kindle in 2010. Fast Company .
Levie, A. (2010, July 24). Always Keep a Few Tricks Up Your Sleeve. (A. Bryant, Interviewer)
Moore, G. A. (1991). Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream
Customers. New York: HarperBusiness.
Pirmohamed, T. (2002). Note on Business Model Analysis for the Entrepreneur. (R. Hamermesh, Ed.) Boston:
Harvard Business School Publishing.
Robbins, S. (2010, July 28). Advanced Entrepreneurship: Your Every Move, Your Culture. Harvard Business
Review .
Tjan, A. (2010, July 14). Four Lessons on Culture and Customer Service from Zappos CEO, Tony Hseih.
Harvard Business Review .