What Segway Learned About the Value of Feasibility Analysis the Hard Way

Web: www.segway.com Twitter: Segwayinc Facebook: Segway

Bruce R. Barringer, Oklahoma State University R. Duane Ireland, Texas A&M University

Introduction

The Segway PT is a two-wheeled, self-balancing transportation device that consists primarily of a set
of tall handlebars on top of two disc-like wheels. There are no chains or visible mechanical workings.
Riders lean forward to move forward and back to move backward. Turning is done mechanically via
hand controls. The device is driven by a quiet, nonpolluting electric motor and can travel up to 10
miles per hour. The name “Segway PT” stands for “Segway Personal Transporter.”

The Segway was built in secrecy and was unveiled on December 3, 2001, on the ABC program Good
Morning America. The Segway PT was known as Ginger and IT before it was unveiled. The invention,
development, and financing of the Segway were the subject of a book, Code Name Ginger, which
was slated to be published after the Segway was introduced. The leak of information from the book
led to rampant speculation about what the Segway was. Some people speculated it was an
antigravity machine while others thought it might be a helicopter backpack. The initial reaction to
the Segway PT was enthusiastic. Venture capitalist John Doerr predicted that it would be as
important as the Internet. Apple’s Steve Jobs predicted that cities would be built around it. To cope
with the expected demand for the product, Segway’s factory in Bedford, New Hampshire, was
designed to build up to 40,000 units per month. Initial sales were targeted at between 10,000 and
50,000 units during the first 12 months. But, after 21 months, only 6,000 units had sold. What went
wrong?

Feasibility Analysis

While the Segway was a technological marvel, in retrospect there were fundamental flaws in both
its product/service feasibility analysis and its market/industry feasibility analysis. These issues are
discussed next. When reviewing Segway’s prelaunch and postlaunch behavior, one has to wonder
how so many critical issues seemingly weren’t analyzed or were missed. It provides lessons for
future entrepreneurs to be more rigorous in their thinking regarding the feasibility of a new product
or service, regardless of how much of a technological marvel it is.

Product/Service Feasibility

The Segway itself was extensively tested and it performed well both prelaunch and postlaunch. It
was tested and retested during development, and was subjected to all the conditions it might
experience in the field: extreme heat, extreme cold, rain, snow, high humidity, salt, dust, and so
forth. It came through with flying colors. Its durability was also rigorously tested. In fact, when it was
introduced, the company said that tens of thousands of hours had been dedicated to riding the
Segway to see how it stood up under repeated use.

The testing was apparently successful. Despite all the knocks the Segway has taken over the years,
there have been few reports of mechanical problems. Yet, curiously, although the company put
substantial effort into the Segway itself, people immediately questioned its price and how it could be
used. First, it was priced at $4,950, which put it out of reach for many consumers. Second, while
there were a few Segway dealers initially, there weren’t many so it was unclear to people that if they
bought a Segway, where they’d get it serviced. Finally, while most people admired what the Segway
could do, they just couldn’t see it fitting into their environments and lives. Imagine you owned a
Segway. Try to answer the following questions: • How do you take it with you in your car? • How do
you park it? • How and where can you ride it? Sidewalks or roads? • How do you get it up or down
stairs? • Can you take it on a bus or train? • What kind of insurance do you need? • Where and how
do you charge it? • If you park it outside a building, how do you keep it safe? Is it something you
park like a motorcycle or a car, or do you chain it to a bike rack, as if it were a bike? • Is it safe to
drive on the street if it can only go 10 mph? • Can you let your friends drive it, or does it take some
getting used to for the driver to be safe? • What if the battery runs out before you get it home?
There are even more penetrating questions. The Segway is best suited for densely populated areas
where people could ride their Segway to work. But how would that work in a place like Manhattan,
in New York City, where both the sidewalks and the streets are packed? It takes both hands to
operate a Segway safely. So, how would a businessperson carry a briefcase or a student carry books?
The U.S. Postal Service, a large potential market for Segway, tested the device for use by mail
carriers, who still deliver mail by foot. The postal service abandoned the idea after mail carriers
complained that they couldn’t sort mail or hold an umbrella while operating a Segway. Segway’s
failure to address its potential users’ questions in these areas provides an important reminder.
When conducting product/service analysis, it’s important to evaluate how the product or service will
fit into the existing way that its potential customers live and behave. A company may have a product
that on a stand-alone basis is fantastic. But people don’t use products or services in isolation. They
must fit into the existing framework of their environments and lives to be beneficial. Segway
scrambled to try to fix some of the usability issues, with mixed success. For example, the company
hired lobbyists to try to persuade large city governments to make using the Segway on public
sidewalks legal. Ironically, San Francisco, usually thought of as a progressive city, passed an
ordinance specifically making the Segway illegal on its sidewalks as a result of safety concerns. The
San Francisco Board of Supervisors was convinced that the Segway posed a risk to pedestrians.

Market/Industry Feasibility Analysis

In regard to markets, from the outset Segway positioned itself for a large rollout. It assumed
success. A large amount of its capital, for instance, was dedicated toward production capacity and
regulatory issues, rather than proving its concept. In most cases a more measured approach is
pursued. A company rolls out incrementally and invests capital in production capacity once it
validates that there is a market for its product. Segway also went national from day one. Rather than
identifying niche markets to penetrate and build from, the company saw its product as a solution in
all markets. Many observers who have commented on Segway’s missteps have singled out this issue,
and feel that Segway should have gained traction in one market or a small number of markets before
expanding. For example, what if Segway would have picked one city—say Boston—where in the
downtown area a large number of people live near their jobs. They could have given Segways to
1,000 people to use for three months, free of charge, based on the condition that they use their
Segways to travel back and forth to work each day. Had that test gone well, it would have generated
tremendous positive publicity, and provided an example for people in other urban areas that the
Segway could be used effectively. A similar approach would have been to ask a cross-section of
bicycle clubs, for example, across the country to start using Segways when they weren’t biking. If the
test went well, Segway could have started using bike shops to sell and service Segways. It could have
then developed a more powerful version of the Segway PT and added motorcycle shops. This is how
a company integrates itself into existing distribution channels rather than trying to create a new
channel just for itself, which is costly and difficult. Instead of pursuing these types of approaches,
Segway went for the home run and never found a large market. As the company has downsized its
expectations, it has had some success in niche markets. These include police departments, military
bases, warehouses, corporate campuses, industrial sites, and theme parks. The Segway still,
however, suffers from a usability stigma. At Walt Disney World in Orlando, Florida, for example, the
Segway can be rented at the Disney Boardwalk and driven in specified areas, but can’t be used in
other parts of Disney World. It’s more of a theme park attraction than a practical device. Segway’s
decision to go for broad markets may also have been an artifact of its funding. It reportedly raised
$80 million prior to launch. Its investors were most likely attracted by the “big opportunity” that it
envisioned, and may not have settled for a slow-build approach.

Segway Pivots with No Significant Changes in Its Long-Term Prospects Reeling from criticism and
poor sales, in March 2003, Segway started a dealership expansion program. In October 2003, it
launched the Segway HT p-series model, which was lighter and more portable than the original
model, and was priced at $3,995. Around the same time, it dropped the price of the original Segway
HT from $4,950 to $4,495. In March 2005, Segway introduced its 2005 product line-up, which
featured three new models: the Segway HT i180 with enhanced range; the Segway XT, a cross terrain
transporter; and the Segway GT, a golf transporter. It also launched an improved line of batteries.
While Segway experienced moderate success with each of its new offerings, none of them materially
changed the long-range outlook for the company. Perceptions of the company also remain generally
unchanged. For example, in 2008 Professor Karl Ulrich used the Segway in his undergraduate
product-design class at the Wharton School of Business to demonstrate that creativity alone doesn’t
insure market acceptance, much less profits. He pointed out that although the Segway is potentially
handy for a host of users, ranging from security guards to golfers, it’s not ideal for any of them. It’s
not much faster than walking. And if you’re going farther than a mile, a bike works much better.
Plus, compare the cost of a Segway to a bike. Which value proposition do you find more attractive?

Segway Today Segway was sold in early 2010 to a group led by British millionaire Jimi Heselden,
chairman of Hesco Bastion. Sadly, he died in an accident involving a Segway on September 27, 2010.
Segway continues to operate and serve several niche markets. According to the company’s Web site,
over 1,000 police and security agencies are using Segway PTs in their patrolling operations.

Discussion Questions

1. Why do you think Dean Kamen and his team didn’t do a better job of anticipating the problems
that beset the Segway?

2. Describe what you believe would have been an appropriate product/service feasibility analysis
and an appropriate market/industry feasibility analysis for Segway during its development stage?

3. It what ways did Segway fail to build an ecosystem around its product? What could Segway have
done, if anything, to ensure that its product would do a better job of fitting into its users’
environments and lives?

4. What niche market or markets do you think Segway should have targeted initially and been
successful in?