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1. Innovation in Tech Firms:
Google, Apple & Pixar
Kartik Hosanagar

2. Wharton’s First Free/Open Livecast
• History
• Acknowledgements
– Yujin Chung
– Dale McCook
– Corey Pierson
– Allan Yang

3. Instructor Bio
• Professor at The Wharton School at Penn
– Research focus on Internet Commerce
– Teach undergraduate, MBA and PhD courses
on technology strategy, entrepreneurship and
data-driven decision-making
– Cofounder of Yodle Inc, a venture-backed firm
with 250+ employees
– Consulting/training work with firms from a
variety of sectors: e.g. Yahoo, Amex, etc
– Actively work with several Internet startups

4. Learning Objectives
• Examine some of the most innovative firms of
the past decade
• Develop a common understanding of the factors
that led to their innovativeness and success

5. Being Innovative/Visionary is Hard
• “There is no reason anyone would want a
computer at home”
– Founder and CEO of Digital Equipment Corporation

6. Outline
• Google
– Discussion
• Apple
– Discussion
• Pixar
• Summary & Discussion

7. Google
• Founded by CS PhD students
• Incorporated in Sep 1998 at a friend‟s garage
• Introduced to Bessemer Venture Partners: “How
can I get out of this house without going
anywhere near your garage?”
• IPO in Aug 2004

9. Revenue: 23.65B
EBITDA : 9.84B
Mkt. Cap: 171.18B

10. : More than Just Search
Developed in-house Acquired
What has helped drive this growth?

11. Key Factors
Strategy
Managing
Innovation
People
Culture
Decision Product
Process Development
Consumer
Psychology

12. Strategy: Business Model
Google generates most of its revenues from ads
Sponsored
ads

13. Business model (contd)
Google runs auctions to sell ad space
1 Select 2 Submit Ads and 3 Attract
Keyword bids on Google Customers

15. Empower Your Employees
The “20% time” policy
• Employees spend 20% of time on projects they
choose
• Not a new concept
– 3M‟s 15% employee time rule
– Every division should generate 25% revenues from
new products developed in past 5 years.
• Follows traditional entrepreneurship: no budget
and need to convince others
• Strong signal: Google trusts employees and
expects innovation

16. Empower Your Employees
• 50% of features released in second
half of 2005 came from “20% time”
efforts
Google News (news aggregator)
Started by AI expert, news junkie googler
Orkut (~Facebook) and Lively (~Second Life)
Started by the same employee (named Orkut)

17. Iterative Product Development
“Get Early Feedback from the Market”
“…a few of our favorite ideas that aren't quite ready for prime time”
Let the market decide:
What products should we offer? How much to invest in a product?
What features take top priority?
Users are forgiving and Google can gather relevant data

18. Consumer Psychology
“The Halo of Invitations”
• Some products are released “by invitation
only”
– It helps balance the server load in the first stages
– Problems are detected prior to release to general
public
– It creates a „halo‟ of exclusivity and privilege

19. Consumer Psychology
• Pricing
– Acquired Where2 Technologies and gave
Google Maps away from free
• Bottin Cartographes lawsuit for unfair competition
– Google Docs and Spreadsheet priced at zero
• Microsoft charges $149.95-$679.95 for MS Office
– Should Google charge a small price to
monetize these other products?

20. A Pricing Experiment
Hershey’s Ferrero Nothing
A (1,26)
B (0,25)

21. A Pricing Experiment
Source:
Shampaner & Ariely

22. Accounting for Transaction Cost
Source:
Shampaner & Ariely
Implications: Loss leader like Maps/ Docs might draw enough people to
Google. Traffic can then be monetized through Google search

23. Decision Process
“Data are apolitical”
• „Open books‟ culture as a managing style
– Decisions are based on actual data,
eliminates politicking and lobbying
– Empower through shared and common
information
– Allows flat organization and horizontal teams

24. Outline
• Google
• Apple
• Pixar
• Discussion

25. Apple Inc
• Founded in 1976 by Steve Jobs & S. Wozniak
– Jobs resigned in 1985 due to differences with CEO
– Brought back in as CEO in1997
• Product launches: iMac (1998), iPod (2001),
iTunes store (2003), iPhone (2007), MacBook
Air (2009)

26. Steve Jobs’ Shareholder Returns
• $10K invested in 1997 would now be worth $450K

27. Apple: Collaboration
“Real artists ship”
No Concept Products
– GM, Microsoft, others often make
concept products
– Last concept model: Knowledge
Navigator (1987)

28. Managing an Ecosystem
• iMac, iPod, iPhone part of same ecosystem
– Success of 1 product aids success of others
• MacBook Air leverages interface design and the
miniaturization of the iPod, iMac and iPhone.

29. Apple: Collaboration and Control
Control believed to be centralized: Steve Jobs
– iMac: “And they [engineers] said, 'Well, why?' And I said,
'Because I'm the CEO, and I think it can be done.'”
– Ultimate source of Apple‟s vision, drives innovation
• Risks associated with strategy

30. Outline
• Google
• Apple
• Pixar
• Discussion

31. • Movie industry background
– Predicting what will be a hit is really hard!
• “Raiders of Lost Ark” rejected by ~all studios (not Paramount)
• Universal rejected “Star Wars”
– “Nobody knows anything …Not one person in the
entire motion picture field knows for a certainty
what‟s going to work. Every time out it‟s a guess” –
William Goldman (Adventures in Screen Trade)
– Studios deal with uncertainty through a portfolio
• Assumption: several movies will fail

32. Box Office Success
Worldwide
Release Date Movie Name Budget
Gross
11/22/1995 Toy Story $361,996,233 $30,000,000
11/20/1998 A Bug's Life $363,398,565 $45,000,000
11/19/1999 Toy Story 2 $485,752,179 $90,000,000
11/2/2001 Monsters, Inc. $528,970,172 $115,000,000
5/30/2003 Finding Nemo $866,592,978 $94,000,000
11/5/2004 The Incredibles $635,564,642 $92,000,000
6/9/2006 Cars $461,982,881 $70,000,000
6/29/2007 Ratatouille $624,445,654 $150,000,000
6/27/2008 WALL-E $532,936,655 $180,000,000
5/29/2009 Up $472,690,456 $175,000,000
Totals $5,334,330,415 $1,041,000,000
Averages $533,433,042 $104,100,000

33. Pixar’s Success
• All projects have become blockbusters
– Never bought scripts
• Success more impressive than Google or
Apple
• Two main ingredients for Pixar‟s success:
– Processes
– People and Culture

34. Processes
Brain trust
– Consultative body with senior directors, if
needed
Dailies
– Show work to whole crew & gather comments
– Tool for project communication
Postmortems
– Reviewing what went right/wrong at the end

35. People and Culture
• Free communication
– Person from any department can approach
anyone without going through “proper
channels”
• Safe to provide new ideas
– People encouraged to share work and
feedback
– Ideas grow

36. Outline
• Google
• Apple
• Pixar
• Discussion

37. Key Takeaways
• An organization is defined by its
employees, customers, products, partners
and processes.
– Employees: How do we empower them?
– Customers: Get early feedback from them
and foster communication among customers
– Products: Explore synergies and develop
ecosystems
– Partners: Align their incentives with yours
– Processes: that make problem-solving easy