Making aggressive innovation and execution a reality

Robbie Bach, recently retired President of Microsoft Entertainment and Devices Division, visited my Business Capstone class at Santa Clara University on February 11, 2011. Robbie’s experience spans an array of amazing accomplishments including his role as CMO of MS Office and leading the effort to bring Windows Mobile 7 to market this past Fall.

One of the most interesting discussions was related to the introduction of the Xbox. Robbie was tapped to bring Microsoft’s first gaming console to market at a time when Sony and Nintendo dominated that space. This may be hard to remember now that Microsoft is a dominant player with approximately 25% marketshare. Having no formal experience in console gaming, Microsoft recognized the prospective power of this space with respect to fulfilling the vision of “the connected home.” Microsoft knew they needed a seat at the table.

Robbie focused on two key principles for ensuring he had the right organization in place to enable innovation and commercialization of this new product. What struck me the most was his emphasis that “a more disciplined process might have killed the project” and so he really had to strike a balance that ensured they could think like entrepreneurs, while executing manufacturing and distribution on a global scale. The following are the principles he outlined in the discussion:

Separation from the core
Robbie and his leadership team made it clear that they would not join the effort to introduce the Xbox unless they had independence from corporate headquarters. They could not operate effectively under its structure and needed the flexibility to organize the way a game manufacturer operates, rather than the way a computer software company such as Microsoft historicaly operates.

Measuring the market and then setting internal goals
The first order of business for Robbie and his staff was to run game theory simulations to understand how the industry players might react when Microsoft made its debut. By knowing the potential outcomes, he was able tailor his go-to-market strategy. This effort followed with what he called the “3/30/300 documents.” First, he had a 3 page document outline the core principles of the initiative. Second, he had a 30 page document produced that outlined the execution strategy. Finally, the team produced a 300 page document that was the detailed specification for the Xbox console.

The rest is history. Robbie successfully introduced the Xbox in only 18 months from the time he received the assignment.  As a result, he was able to gain 25% market share and build the platform for subsequent console releases.

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Industry disruption needs a disruptive culture

For Q4 2010, ComScore reported that Hulu is watched twice as much as the 5 major TV Networks online combined. Just as this report was released, my class was fortunate to have Tom Fuelling, Hulu’s CFO, visit class to talk about the video rebroadcasting industry and Hulu’s market position.

Tom opened up with Hulu’s mission statement, “To help people find and enjoy the world’s premium content when, where and how they want it.“ A mission statement focused on the end consumer of their product was definitely expected; however, he went on to say: “as we pursue our mission, we aspire to create a service that users, advertisers and content owners unabashedly love.”

What a great statement for my class to hear. At the heart of competitive strategy is an understanding of the industry forces driving profitability and what, if any, resources and capabilities a firm can cultivate to establish a leading position. Born out of industry disruption caused by the ability to distribute video over the Internet, Hulu was somewhat formed as a defensive posture by Fox and NBC to protect themselves against YouTube and other sites illegally

Tom Fuelling, Hulu's CFO

distributing their content. That being said, Hulu understands no one wins if users, advertisers and content owners don’t all obtain value out of the venture.

Hulu, under the working title “NewCo.,” was laughed at when it started out due to the poor history of major media companies working together to deal with such type of attacks.  This was epitomized by its nickname “ClownCo.” From the time Jason Kilar, the CEO, started, the goal was to release a beta product in 10 weeks. To this end, he removed the cubes, modified the refrigerator to house a beer keg, moved out of the corner office and into a room adorned with whiteboards, and wrote a 1,100 word “culture manifesto” aimed at establishing a frugal meritocracy

The rest is history. They now have 30 million users and revenue of $260 million. And that is just 36 months after starting out in Fall of 2007. Ads on Hulu are 55% more effective than the same ads on traditional channels, making a compelling case for advertisers to pay attention to them. To sum it up, TechCrunch ate its words when it released an article, “Happy birthday Hulu. I’m Glad You Guys Didn’t Suck.”

Now Hulu has new challenges. The owners no longer fear YouTube the way they used to in 2007. Consequently, ABC has now created its own iPad App ton control its own distribution, and other networks are more hesitant to concede control of their most popular content to Hulu. And then there is the success of Netflix as a competitor.

Hulu is at a crossroads so to speak. It has already moved to a hybrid advertising and subscription model. Does it now move towards a cable operator model? How will international expansion work? Does it IPO and gain independence from the major networks? Time will tell, but it sure is great having the opportunity to listen to visionaries tell their story such as Tom Fuelling did in my class on February 9, 2011.

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