R&D Portfolio Management case study – Microsoft Kin

15 Jul 2010 Sandeep Mehta

It is not very  often do we get a look inside R&D management processes and tools at giants like Microsoft and Toyota. So, it is good to learn as much as we can when information becomes available.  I am studying new public disclosures on Toyota’s R&D process and will post about it soon.  The topic of interest today is Microsoft and its killing of Kin product line with only 10k units sold.  This was a big failure – the acquisition of Danger alone is reported to have been around $500M, which does not include the cost of developing the product line and associated software. Lets start off with a quick background from a great article in Ars Technica:

Microsoft’s ambitions with the KIN were sound. As much as the iPhone and, lately, Android handsets garner all the press attention, smartphones represent only a minority of phone sales—a growing minority, but a minority all the same. There are many, many people who don’t have a smartphone, and don’t even particularly want one, and they easily outnumber smartphone users.

Redmond wanted to be a part of this broader market. The company was already a big player in the smartphone market with Windows Mobile; the KIN was a product of its ambitions beyond that space. So rather than starting from scratch, in 2008 Microsoft bought Danger, the company behind the T-Mobile Sidekick line.

To a certain extent Microsoft succeeded in this new device.  Clearly they had great start from Danger and their cloud computing platform.  The idea of social networking focused phone for tweens was also great.  As the AnandTech article points out the phone did have some very good features:

KIN included a notable number of features Microsoft and its Danger team executed better than anyone else in the smartphone market today.

Amongst the notable features are innovative form factor, good usability, great battery life and aforementioned social media integration and very innovative packaging.  So why did Kin fail?  I guess the problems are related to a broad failure of R&D management processes:

  1. Portfolio Management: Executive sponsorship critical to R&D project funding
  2. Acquisition Integration: Not invented here
  3. Product Management: Positioning product as alternate to smart phones but the same cost
  4. Project Management: Significant development delays
  5. Overall R&D management: Unclear strategy, ambiguous goals 

Lets look at each one of these factors in detail:

Several posts such a Engadget and Mini-Microsoft have pointed out that Executive sponsorship is a critical part of Microsoft’s R&D portfolio management.  The Project Pink (which later became Kin) was sponsored by J. Allard, while Andy Lees sponsored a somewhat competing project of Windows Phone 7.  It is a bit strange to prioritize product portfolios based on executive sponsorship and leads to significant problems.  From engadget:

To get anywhere, a project inside Microsoft needs an executive sponsor, and for Pink, Allard had been that guy from day one. It was his baby. Of course, Allard was a visionary, an idea man; Lees — like most Microsoft execs — is a no-nonsense numbers guy, and to put it bluntly, he didn’t like that Pink existed. To quote our sources, Lees was “jealous,” and he was likely concerned that Kin was pulling mindshare (and presumably resources) from Windows Mobile’s roadmap. With enough pressure, Lees ended up getting his way; Pink fell under his charge and Allard was forced into the background

Having two competing priorities is not uncommon in R&D portfolios.  However, alignment of priorities and project pipeline gets done well in advance of launch (at early stages and continuously during portfolio reviews) in most companies with effective portfolio management processes.  In case of Microsoft however, the two projects ended being misaligned strategically, along market niches and through release schedule.  Apparently, Lees, the executive in-charge of Windows Phone 7 ended up re-aligning scopes only partially – which hurt overall results:

Having Lees in control changed everything, if for no other reason than he didn’t care about the project at all. This was right around the time that Windows Phone 7 was rebooting, and Pink didn’t fit in his game plan; to him, it was little more than a contractual obligation to Verizon, a delivery deadline that needed to be met. Pink — Allard’s vision of it, anyhow — was re-scoped, retooled, and forced onto a more standardized core that better fit in with the Windows Phone roadmap, which in turn pushed back the release date. Ironically, because they had to branch off so early, Kin would ultimately end up with an operating system that shares very little with the release version of Windows Phone 7 anyway.

Having acquired technology integrated into new products is not uncommon either.  However, there did not seem to be adequate integration of Danger into Microsoft.  The rejection of acquired technology from Danger and the move to enforce Windows Phone 7 structure on to a completely different OS ended up delaying the project by more than 18 months:

This move allegedly set the release of the devices back 18 months, during which time Redmond’s carrier partner became increasingly frustrated with the delays.

Since Windows Phone 7 is a smart phone OS and requires associated expensive hardware, this added to costs of the phone. Such a big delay in launch of the device soured relationship with the launch partner Verizon and reduced their appetite to subsidize the phone and service.

Apparently when it came time to actually bring the Kins to market, Big Red had soured on the deal altogether and was no longer planning to offer the bargain-basement pricing deals it first had tendered. The rest, as they say, is history — though we don’t think even great prices could have accounted for what was fundamentally a flawed product. Our source says that the fallout from this troubled partnership is that Microsoft has backed away from Verizon as a Windows Phone 7 launch partner, claiming that the first handsets you see won’t be offered on the CDMA carrier — rather that we should expect GSM partners to get first crack.

Product management processes ensure that product is aligned with the target market – in terms of price, functionality and usability.  Due to portfolio management failures, product management failed as well:

Some suggest that the KIN really failed because teenagers all want iPhones. There’s certainly some truth in that—iPhones are certainly aspirational goods—but iPhones are expensive. The comparison is made because the KIN was fundamentally priced like an iPhone—but it was never meant to be. Had it been priced like a Sidekick, as it should have been, and as Verizon initially set out to do, it would have substantially undercut the iPhone and been a better fit for the Facebook generation to boot. It wouldn’t do everything the iPhone could do, but it wouldn’t be operating in the same market anyway.

Furthermore, the schedule slips led to a very incomplete feature set that did not include a calender, instant messaging etc.:

That brings me to what else was lacking that was rather glaring – a calendar. With the right execution, the KIN could have perfectly integrated the Facebook event calendar, invitations, and exchange or Google calendars. Instead, the KIN has absolutely no planning tools or event notifications.

Nor was the data plan priced for the target market:

For starters, the devices lacked a realistic pricing structure – despite not quite being a smartphone, Verizon priced the data plans for the KIN as if they were, at $29.99 per month. There’s since been discussion that Verizon originally intended heavily reduced pricing for the KINs, but soured on the deal when Microsoft delayed release. At the right price, the KINs could have been a compelling alternative to the dying breed of featurephones. It’s hard to argue that there isn’t a niche that the KIN could have filled at the bottom, yet above boring featurephones. At $10 per month or less for data, the KIN would’ve been a much more successful sell.

Add to this mix strategic direction problems: First Microsoft could not get itself to support competitive social networking sites such as Flickr – which actually reduced the value of the product

The giants of the social networking space include Facebook and Twitter, for which Kin offered at least fair support. But rather than support Flickr for images and (Google-owned) YouTube for video, Microsoft plugged in its Windows Live services for these media. Kin also lacked established functionality such as a calendar and instant messaging as well as support for fast-growing services embraced by social networkers such as Foursquare.

Also attempting multiple very conflicting goals (compete with iPhone and be cheap like sidekick) led to muddled execution:

The heart of both Microsoft’s and Google’s mobile operating system strategy is to have diverse handsets running its software. Still, both companies look at the level of integration Apple can achieve with the iPhone and are drawn to have a heavier hand in the design of handsets. This sort of licensor regret is part of what drove Google to create the Nexus One and likely also contributed to Microsoft’s decision to create the Kin handsets. 

It appears that in absence of clear portfolio goals and metrics, there is a lot of politics – which further reduces efficiency and efficacy, drives morale down and leads to rumors of layoff:

But wait, there’s more — the Kin team is being refocused onto the WP7 project, but that’s not the only shakeup going on. Our source said there had been rumblings that Steven Sinofsky — president of the Windows and Windows Live groups — is making a play for the entire mobile division as well in an attempt to bring a unified, Windows-centric product line to market.

I hope you are with me: portfolio management problems along with acquisition challenges problems led to project management problems and resulted in very large schedule slips. Those schedule slips along with feature creep and problems with product management.  Unclear strategic direction and management in-infighting tied everything together and ensured that the project failed.

Many lessons to be learned here!  What do you think?

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