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Innovation in the Digital Age - Lecture 3 | Case Summary
Summary of the required case material for Lecture 3 of Innovation in the Digital Age: HBS "HTC and Virtual Reality" case.
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Innovation in the Digital AgeLecture 3 | Case Summary: HTC and Virtual Reality
- Introduction:
• September 2017: C. Wang (founder/CEO of HTC) announced that Google would buy part of
HTC's smartphone business for $1.1bn, allowing HTC to continue to produce phones as well as
invest aggressively in its new business: virtual reality (VR) - as it was flush with cash.
• April 2016: First HTC VIVE virtual reality headsets shipped. Some, particularly gamers,
perceived it as a powerful and advanced system, especially as it solved a long-standing VR issue:
users could engage in a virtual world for an extended time, without experiencing motion
sickness.
• Summer 2017: HTC announced the development of VIVE standalone (a wireless VR headset
for the Chinese market). Wang believed the new/lower-priced VIVE would attract new customers
to VR, such as the casual user focused on entertainment, education, and social experience. HTC
also partnered with Google to develop a similar product for the US market using Google's VR
platform, Daydream.
• Wang's objective → Build an ecosystem around VIVE. How? Partnerships with Valve (a gaming
powerhouse), many initiatives to support VR developer community, invest in VR startups,
locations where consumers could sample VR, a platform for content discovery/consumption, and
produce in-house content. Why? He wanted to make VIVE the leading VR platform.
• Wang's challenges → increasing competition and low VR sales.
• Competition: Every big high-tech company was joining the VR business (e.g. Facebook and
Samsung introduced their own standalone VR headset with expected sales in late 2017). This
wasn't new to Wang: HTC was a pioneer in smartphones and the first mover with Android. But as
the market matured, smartphones became a tough business. In VR, Wang wanted to one of the
first movers, but HTC did not have enough cash to win a war with Facebook, Sony, and others.
• HTC's Vice President, M. Metis, recommended Wang to focus on being a winner, not the first
mover. This left Wang wondering: how to best grow the category and fend off competition in
the short run, while developing the right business model for the long run? Emphasise the
hardware side of the business and continue to create a spectrum of hardware products for
different segments of the VR market? Focus more on the software/platform? Or both? Or, should
HTC explore new, alternative business model?
- HTC History:
• 1997: Founded by Wang in Taiwan as High Tech Computer Corporation. Driven by Wang's
desire to develop a Windows-powered handheld device.
• 1998: First Microsoft pocket-sized PC.
• 2000: HTC designed the iPAQ PDA for Compaq Computer, which gained immense popularity,
allowing HTC to become profitable.
• 2002: HTC went public and listed on Taiwan stock exchange. Despite PDAs representing 80%
of HTC's revenue, product development shifted to the growing mobile market. Partnerships were
pursued with chip suppliers and Microsoft - B. Gates, CEO of Microsoft, praised HTC as best
hardware maker. In 2002, their joint efforts led to the first Windows-based smartphone, named
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, Innovation in the Digital Age
XDA.
• 2000s: HTC did contract manufacturing for (1) original design manufacturing (ODM) for
branded handset companies and (2) produced phones for wireless network operators.
• mid-2000s: HTC boomed with one of the highest profit margins in the industry.
- The Road to Brand:
• 2006: HTC in critical juncture due to high competition catching up with ODM market. Two of
HTC's biggest non-operator customers (i.e. Palm and HP) were seeking more cost-effective
partners. Another wind driving change was that P. Chou had become CEO of HTC. He was
passionate about innovation and aimed to nimble a Silicon Valley-like culture within HTC. A
Google executive said Chou was someone that could move very quickly.
• Chou's objective → sell handsets branded under HTC's name. He argued without a brand,
HTC's growth would be limited.
• Chou's challenges → Wang agreed, but several directors were worried about operators
viewing HTC as competition (thus, creating a conflict of interest). Another concern was marketing
as HTC lacked the scale/budget to launch aggressive ad campaigns like those of Samsung/LG.
• 2007: Despite challenges encountered, Chou and Wang convinced the board and HTC-
branded phones started sales throughout Europe and Asia.
• Chou and Wang's beliefs → key to a powerful brand was to produce cutting-edge technology.
How? By recruiting new product designers, having an internal research center (named Magic
Labs) to identify cutting-edge technologies.
• Magic Lab discovered a new technology: a touchscreen interface for a Microsoft operating
system, which was to be featured in the HTC Touch smartphone planned to launch in mid-2007.
• Jan 2007: Apple unveiled the iPhone with a more compelling touchscreen technology.
• While some HTC staff was shocked, others saw this as HTC creating legitimacy for the new
technology. So, three weeks before the iPhone was released, the first HTC touch was shipped.
• Many of HTC's operators saw the Touch as an opportunity to offer an alternative to the iPhone,
which Apple provided exclusively to one carrier in each country in 2007.
• HTC's following model, the Touch Diamond, delivered improved processing speed and a 3D
interface. Positive market responses to the Touch motivated HTC to exit contract manufacturing
and pursue the brand strategy.
- Google Android and HTC Sense:
• Despite praise for the Touch Diamond, some were concerned with the Windows platform.
• HTC sought an alternative operating system and ended partnering up with Google to make
the first Android handset.
• Android was appealing: free/open-source platform with potential to run on any network.
• Licensing payments to Microsoft, however, represented the second-biggest expense for HTC.
• 2008: HTC Dream (or G1) was launched as the first Android handset, which sold over a million
units within the first quarter of sales (similar to the first iPhone's early sales). Along with the
release of the G1, HTC developed customised features/apps called HTC sense.
• 2009: HTC launched six new HTC Sense-powered Android phones.
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