Hello and welcome you are listening to Patrick Boyle on
Finance, a podcast exploring ideas from quantitative finance,
examining events occurring in markets right now and financial
history to see what lessons can be taken away, including
interviews with some of the most interesting people in the world
of finance. To learn more about the podcast,
visit on finance.org. It's always good to learn from
your own mistakes, but it's possibly better to learn from
other people's mistakes. So in today's video, let's look
at some of the most expensive mistakes made by some of the
biggest and best known companies out there, some of which are
quite funny. And if nothing else, you can
feel good that whatever mistakes you've made at work, they're
probably not as big as any of these.
Now, one of the biggest missed opportunities in business
history happened back in 1999 when Excite was a distant #2 to
Yahoo in terms of search traffic on the Internet.
Excite was seen at the time as the technology play of the two
companies as it was a true search engine, while Yahoo was
more of a web directory. There were dozens of search
engines competing at the time, and most were busy transforming
themselves into what was known as Internet portals, a sort of
front page of the Internet, as this was the business model
favored by investors at the time.
Larry Page and Search brand had a research project initially
named Backrub because the system checked back links to estimate
the importance of a website to rank it in search.
This was later renamed Google and even later Alphabet, a term
that we all use today. Back in 1999, Larry Page
approached the management of Excite, offering to sell his
search engine for $750,000 plus some shares and Excite.
The total deal would have been worth around $1.6 million.
At the time, Page wanted to get back to his doctoral studies at
Stanford and figured that his search algorithm would increase
excites revenues by about $130,000 every day.
So if he implemented his technology and work that excite
for just a few months, he figured he should be compensated
for his time. And thus he came up with the
$1.6 million price for what he figured was a one off gig before
he went on to bigger and better things.
Excite turned down the deal after comparing the two search
engines because the new search algorithm was way too fast the
way the management saw it. If a search engine instantly
took people to the page they were looking for, the users
would spend hardly any time on the Internet portal website that
they had built. And since advertising revenue
came from people staying on the portal, management felt the new
search engine would destroy the value of excite Google.
I mean, Alphabet went on to be one of the biggest businesses in
the world. While Excite limped along for a
while, merged with a broadband provider at Home Network, which
together went bankrupt in 2001, our next corporate blunder on
the list is Lululemon. In 2013, high end yoga apparel
brand Lululemon had a PR disaster after a batch of its
signature black yoga pans were found to be too sheer.
Customers complained that they became transparent when the
wearer bent over at yoga classes, and bending over is a
big part of yoga classes. The recall that followed
affected 17% of yoga pants sold in Lululemon stores that year
and cost the company between 12 and $17 million.
Now, we all say the wrong thing from time to time, but few have
done so as prominently as Chip Wilson, the company's founder.
He may have been too transparent in his opinions on Bloomberg
Television. He addressed the recall by
saying, frankly, some women's bodies just don't actually work
for the pants. It's about the rubbing through
the ties and how much pressure there is.
This set off a firestorm of controversy, and his seemingly
halfhearted apology on the company's Facebook page did
nothing to calm the outraged customers.
He eventually stepped down as chairman of the company's board,
and sales have since rebounded because of Chip.
I've learned to never comment on the appearance of my viewers.
Okay. So next on our list is Frito
Lay. In 1998, Frito Lay introduced
Wow Chips, fat free versions of its Lays, Ruffles, Doritos and
Tostitos brands which were made with Alestra, a fat substitute
which unfortunately acted as a laxative.
When people ate too much of it, sales initially exploded, making
these snacks the best selling new product in the United States
the year of their introduction. But given the problems they
caused and the media storm around the unpleasant side
effects, sales quickly began to decline.
An FDA mandated health warning label was added to products
containing Alestra, which read Alestra may cause abdominal
cramping and loose stools. Alestra inhibits the absorption
of some vitamins and other nutrients.
Vitamins ADE&K have been added. Now I know Don Draper, but from
an advertising perspective that just doesn't work.
No amount of added vitamins makes up for the first sentence
in that statement. No long term damage was done to
Frito Lay as a brand. They possibly did miss the
opportunity of introducing their own brand of toilet paper, but
no one thought of that at the time.
At #4 on our list is Kodak. Kodak have a long history of
developing and introducing innovative products.
They built some of the most popular camera models of the
20th century, including the Brownie, the Autographic, and
the Instamatic. The company's Kodak moment catch
phrase entered the popular lexicon to describe an event
that deserved to be recorded for posterity.
George Eastman, the company's founder, pivoted the company's
core business from dry plates to film and from black and white to
color, despite these new product introductions hitting the sales
of profitable existing product lines when they were brought to
market. Decades later, Kodak blew its
chance to lead the digital photography revolution, despite
the fact that a Kodak engineer, Steve Sasson, actually invented
the digital camera in the company's R&D labs in the 1970s.
This technological leap was a product of Kodak's willingness
to invest in R&D. But having the space in capital
for innovation is not necessarily enough.
Company management also needs to be willing and agile enough to
make the most of the innovations that the engineering department
develops. Kodak's leadership rejected the
idea of the digital camera, fearing it would cannibalize
their existing business of selling photographic film.
As the engineer, Sasson told the New York Times it was filmless
photography. So management's reaction was
that's cute, but don't tell anyone about it.
Kodak's management instead focused on the flaws of early
digital cameras when their competitors brought them to
market, highlighting the early digital cameras, slow processing
times and low resolutions, management didn't have the
vision to see the utility to millions of potential customers
of good enough digital camera technology.
Kodak's rivals, of course, leapt at the opportunity, leaving
Kodak to settle for pursuing patent royalties on a technology
that they developed and then squandered.
Kodak's digital camera patent expired in 2007, and they filed
for Chapter 11 bankruptcy in 2012.
The company emerged from bankruptcy in 2013 and continues
to provide commercial digital printing products and services.
Motion picture film and still camera film.
They licensed the Kodak brand to several products produced by
other companies. Next up we have one of the most
famous botched product introductions in history, New
Coke. after World War 2, Coca-Cola had a 60% market share
for cola soft drinks. By 1983, their share had
declined to under 24%. Largely due to competition from
Pepsi, Pepsi was outselling Coke in supermarkets, and Coke only
maintained its lead through its network of soda vending machines
and sales to fast food restaurants, in particular
McDonald's. Older consumers had become more
health and weight conscious and had moved to diet drinks, and
younger drinkers had started favoring the sweeter Pepsi in
increasing numbers. When a new CEO took over in
1980, he told employees that there would be no sacred cows in
how the company did business, including how it formulated its
drinks. Cocacola tested out a new
sweeter formulation, which overwhelmingly beat regular Coke
and Pepsi and taste tests, surveys and focus groups.
One bottling company even threatened to sue Cocacola if it
didn't put the new formulation on the market as a precursor of
what was to come. Some customers involved in the
focus groups, around 10 to 12% of them, said that they would
stop drinking cocacola altogether if the new recipe
replaced the old one. They suggested that the new
recipe should be released alongside the existing product,
rather than replacing it. This was a warning of what was
to come. New Coke was introduced in 1985
to coincide with the drinks 100 year anniversary.
The launch didn't go very well, as journalists pointed out that
the marketing emphasis on the new formula, Sweeter Taste,
clashed with previous Coke advertising, which touted Coke's
less sweet taste as a reason to prefer it over Pepsi.
Don't knew Coke was accepted by many Cocacola drinkers, in
particular in the Northeast, where it was first introduced.
Others, particularly in the southern U.S. states, resented
the change. Comedians and talk show hosts
made regular jokes mocking the switch.
The company received over 40,000 calls and letters expressing
anger or disappointment. A few months later, Coke bowed
to the pressure introducing Cocacola Classic with the drinks
original formula. Many people to this day believe
that the introduction of New Coke, which only happened in the
United States, was a ploy to hide the switch from cane sugar
to the much cheaper high fructose corn syrup.
This change had, however, already occurred five years
before the switch to New Coke. In reality, New Coke was nothing
but a massive marketing error. While Coke had focused group
information showing that people preferred the new taste, the
company failed to take into account the bond its most loyal
customers had with the brand. Next on our list we have Xerox,
who in 1970 founded the Palo Alto research company Park,
staffing it with the smartest, most creative men and women in
the tech industry, who were charged with coming up with new
ideas that Xerox could eventually monetize.
Park researchers developed numerous innovations like the
computer mouse, the graphic user interface, what you see is what
you get word processing software and Ethernet technology to
network computers together. Steve Jobs and a group of Apple
employees managed to negotiate 2 tours of Xerox Park in 1979.
Xerox showed them around as Xerox planned on investing in
Apple before its IPO, which would happen a year later in
1980. Larry Tesler, one of the park
researchers, remembers the Apple cofounders barely restrained
enthusiasm when he saw what had been developed at Xerox Park.
The visit convinced Jobs that his new Lisa computer needed to
incorporate many of the ideas he saw on his visit, including the
computer mouse. Jobs replicated many of the
innovations he saw at Xerox, and in 1994 even sued Microsoft,
claiming that Windows had copied the look and feel of the
Macintosh operating system, which he had copied from Xerox.
Midway through that lawsuit, Xerox filed a lawsuit against
Apple, claiming Apple had infringed copyright Xerox held
on its graphical user interface. The District Court at the time
dismissed Xerox's claims without addressing whether Apple's
interface infringed Xerox's rights or not, saying that this
decision needed to be made by the Copyright Office.
Apple lost all claims in the Microsoft suit, except for the
ruling that the trash can icon and folder icons from
Hewlettpackard's New Wave Windows application were
infringing on their copyright. The Xerox Alto computer that
Jobs had seen in 1979 was way ahead of its time.
It featured the keyboard and mouse interface that we still
use today. It was networked, had cutting
edge word processing software and other modern ideas like
event reminders. Xerox senior management in
upstate New York didn't care about what had been developed in
Palo Alto. They looked at the Alto computer
and just saw a complicated workstation that would cost
$40,000 apiece. They figured there was no market
for that. Xerox funded the production of
only 2000 machines and never went ahead with its commercial
release. The only thing Xerox managers
were interested in at the time were printer and copier
innovations. Xerox, much like Kodak, had
developed cutting edge technology that they were
squandering due to a lack of vision.
A copyright lawyer told the New York Times in 1990 during the
Microsoft lawsuit that Xerox had waited too long to file a
copyright infringement case and had to resort to a weaker charge
of unfair competition. He said.
I think it's unfortunate because Apple is running around
persecuting Microsoft and Hewlettpackard over things that
they borrowed from Xerox Okay. So last on our list is
BlackBerry. It's not that long ago that the
best smartphone you could buy was a BlackBerry.
All bankers and lawyers and business professionals had one
of these iconic smartphones with a keyboard and the little wheel
on the side. It was nicknamed the Crackberry,
hinting at how dependent people were on them.
Obama famously refused to give his up when he entered the White
House in 2009. Even when the first iPhones came
out, they weren't very good. I bought an iPhone 3, which I
still have today, and it was so useless as a phone that I went
right back to using my BlackBerry and used the iPhone
as an MP3 player. When the iPhone 4 came out, it
had such bad cellular reception that it would only work if you
held it a certain way. Apple fixed this by selling a
rubber band that covered the antenna for $29.00, improving
cellular reception. The original iPhone came out in
2007, but it didn't really function as a phone until the
iPhone 5, which came out in 2012.
BlackBerry had a huge lead and lots of time to build a better
product, but they didn't until it was too late.
When the iPhone and the similar Android phones first came out,
the computer industry was moving towards bigger touchscreen
displays, a trend that Apple jumped on with perfect timing.
While all of this change was happening, BlackBerry was more
concerned with protecting what it already had instead of
developing new products. It's somewhat understandable
too. The majority of big businesses
and government organizations relied on Blackberries, which
had much better security, reliable e-mail, replaceable
batteries so you could bring a few of them with you on a
business trip and you could drop the phone and it would keep on
working. I had one that accidentally went
through a laundry cycle and when it dried out it still worked.
BlackBerry Messenger even managed to make a business
device popular among young users as well.
The mobile phone industry went through a period of rapid
evolution at a time when BlackBerry felt it made sense to
focus on its existing high end business customers by making
small, iterative improvements. Being conservative and failing
to see how the average phone customer might start to buy
higher end phones that did more was only half of the problem.
BlackBerry showed hubris in believing that its customers
would put up with a lack of innovation and still stick with
them. They insisted, along with Adobe,
that Flash would be the future of rich mobile content and
delayed the release of a more modern smartphone until they had
a chip powerful enough to handle the requirements of Flash.
BlackBerry believed people would wait for its superior product or
would put up with limitations because, well, it's BlackBerry
business and government customers did hold on for quite
a while. Mainly because Blackberries were
significantly more secure than the competition.
But when BlackBerry finally came out with the Z1, which was
actually quite a good phone, it was simply too late.
App developers were no longer interested in developing
software for an operating system that no one was really using.
As good as the Z1 was, if you bought one, there were no apps
for it. BlackBerry phones are now
officially defunct and can no longer function.
In January 2022, the company's CEO confirmed that the
infrastructure, operating system, software and services,
which had been around for 20 years, were being
decommissioned. The company is still around
today and is focused on cybersecurity and encryption
based services for the medical and automotive industries.
The story of BlackBerry shows you that no matter how much of A
lead you have, you can still lose out if you don't change
with the times. Thanks for tuning into today's
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