Texas Instruments Graphing Calculators Maintaining Market Leadership

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1 Entrepreneurship & Innovation Strategy Mini Project Texas Instruments Graphing Calculators Maintaining Market Leadership Prepared by: Ajay Banerjee Hyeon Chang Chris Huston Pete Simms Vishal Soni Will TI Vincent

2 I. The Origins of Texas Instruments and the Handheld Calculator Texas Instruments is an American-based maker of semiconductor and computer technology. Originally founded in 1930 to provide services to the petroleum industry, it quickly transformed itself into a world leader in electronics for military and civilian customers. By the 1950s Texas Instruments had created the first workable silicon transistors and the first integrated circuits. 1 In 1967 it created the first hand-held calculator, which could add, multiply, subtract, and divide, and outputted to a paper tape. The device retailed for $2, The invention of the handheld calculator had broad implications. A wide variety of fields quickly adopted the calculator for daily use, including engineering, finance, real estate, and education. By the late 1970s Texas Instruments had invented programmable calculators, complete with advanced plug-ins for applications in math, statistics, and finance. For a brief period of time, Texas Instruments ruled the computing world. Although personal computers had already been invented, there was as yet no killer app that would compel a user to purchase a computer, as opposed to a Texas Instruments calculator, for computing needs. That all changed in 1983 with the introduction of VisiCorp. The first spreadsheet available for personal computers, VisiCorp was an instant success. Over 700,000 copies were sold in the first six years and dataheavy users in finance and engineering quickly switched over. 3 Soon other applications emerged to handle advanced computational needs in other fields, too. Texas Instruments faced a significant threat to its supremacy in the computing market. Faced with this external challenge, Texas Instruments did not enter the computer software market. Instead the company refocused its calculator efforts and concentrated on the educational sector. For the first time, Texas Instruments incorporated educators into the product development of their next line of calculators. The result, in 1987, was the TI-12 Math Explore, an immediate success that was quickly adopted by teachers 1 Texas Instruments, Wikipedia; 2 Texas Instruments Celebrates the 35th Anniversary of Its Invention of the Calculator, Press Release from TI; 3 Secrets of the Software Success: Management Insights from 100 Software Firms Around the World, ISBN (1999) Texas Instruments Graphing Calculators 1

3 across the country. Three years later Texas Instruments followed up with the TI-81, the first graphing calculator, designed specifically for use in algebra and calculus courses. II. TI80s Success - Erection of Barriers to Entry Since its introduction of the first graphing calculator in 1990, Texas Instruments has greatly expanded its product line. As programming for math/physics became popular among students, the TI-80 series of calculators was developed specifically for math education, adding a new visual dimension to mathematics instruction. This made it easier to explore mathematical concepts such as functions with large displays and pull-down menus. Today Texas Instruments calculators are far and away the leading choice for middle and high school students in the United States. With its strong patent protection and clear marketing focus on educators and school administrators, Texas Instruments has successfully built strong barriers to entry in the industry. It accounts for roughly 80% of the U.S. market for graphing calculators in terms of units, according to research firm NPD Group. For more than 15 years, Texas Instruments has worked closely with educators (middle/high school teachers) and administrators to develop student-focused curricular and supplemental classroom materials, and it supports professional development organizations for the appropriate use of educational technology. 4 Patents: It is clear that in the late 1990s Texas Instruments gained a strong grip on the market with its new graphical calculator range. Competitors could do little to match its advanced graphing calculators like the TI-81. The new series, which became popular among programming enthusiasts, had at its heart an advanced patented microchip that was produced by Texas Instruments. This made it very difficult for rivals like HP and Casio to adapt the technology. In response, these firms sped up their own R&D to come out with competing products which eventually came out in the market but years later. Although this barrier to entry though no longer exists, it gave Texas Instruments a sizeable head start. Texas Instruments successfully captured the education market by continuously developing new products and building strong loyalty amongst both students and educators. 4 How to Pick the Best Graphing Calculator, Quazen.com; Texas Instruments Graphing Calculators 2

4 Texas Instruments focus on teachers: Texas Instruments began marketing graphing calculators to high school teachers soon after introducing their TI-81 and TI-82 models, which each cost less than $100. As part of the marketing materials, teachers were given free calculators in exchange for turning in POPs (proofs-of-purchase) from their student s calculators as well as free teaching materials to train students how to use the Texas Instruments brand of calculator. Teachers also received free educator support materials from Texas Instruments when they recommend TI-80 series calculators on their syllabus or supply list. Thanks to Texas Instruments efforts in this realm, most teachers specifically request students purchase a Texas Instruments calculator for algebra, calculus, and statistics classes even the SAT. Texas Instruments focus on school administrators: The Purchase Program (currently reframed as Texas Instruments Technology Rewards Program) offered school administrators the opportunity to collect points from calculator purchases for their school. They could redeem these points for a wide variety of products and services including Texas Instruments graphing and scientific calculators, presentation tools for classes, and professional development for teachers. Texas Instruments also made an effort to introduce federal and private (national and multistate) grant opportunities to schools. For school administrators, grants were an important source of funds for supporting new programs or enhancing existing curriculum and instruction. 5 There are two major competitors in the high school calculator market: Hewlett-Packard and Casio. HP has a less than 5% stake in the graphing calculator market, according to NPD Market Research, and focuses primarily on college and professional users. Casio Computer Co., which is a distant No. 2 to Texas Instruments in calculators, said its lower-cost devices - one graphing calculator retails for $50 are appealing to the school calculator market. However, Texas Instruments many supplements for high-level math classes and strong marketing activities to teachers/administrators still direct students on how to solve problems using a Texas Instruments device. This has helped Texas Instruments maintain a steady stream of revenue from calculators for most of the past decade, despite strong competition. 6 5 Calculators and Education Technology by Texas Instruments, Texas Instruments website; 6 Numbers Don t Add Up for a TI Calculator, Wall Street Journal; SB html Texas Instruments Graphing Calculators 3

5 III. TI-Nspire: The Importance of Integration in the Ecosystem for Successful Adoption Texas Instruments dominant 80% market share of the graphing calculator market for its TI-83 and TI-84 models is the result of strong integration within the education market. Despite attractive product offerings from both HP and Casio, the competition has been largely ineffective in capturing market share due to the ecosystem that Texas Instruments has developed and nurtured around graphing calculators. This ecosystem consists of secondary-school teachers, standardized testing services, and calculator enthusiasts. Texas Instruments has effectively nurtured relationships with teachers even though sales to teachers make up only a tiny fraction of overall sales. This is because teachers play the most important role in the graphing calculator ecosystem: they are the key influencers on students. However a teacher s decision of which calculator to require students to use is insulated from other stakeholders, such as school administrators and TI Graphing Calculator Ecosystem product open source service Texas Instruments Calculator Enthusiasts Standardized Test Services High School Teachers Content Creators Students Parents parents. They are solitary gatekeepers to the pool of profit from students purchasing required calculators. Thus, teachers are the key drivers in the calculator ecosystem. Texas Instruments recognized the importance of teachers early on and has built relationships with them by sponsoring educational conferences and training workshops, giving teachers free or highly discounted Texas Instruments Graphing Calculators 4

6 calculators, involving teachers in the development of product offerings, and sponsoring contests and other events which reward teachers for their penultimate position in the ecosystem. Texas Instruments guiding principle has been to focus on powerful simplicity, making adoption and use of Texas Instruments calculators as painless as possible. However, Texas Instruments most recent calculator introduced in 2006, the Nspire, went against this philosophy. Its innovation focused on increasing functionality of the product and thereby sacrificed simplicity of use for teachers and also access to programming for enthusiasts. This forced teachers to spend extra time learning the new bells and whistles. The chart below illustrates this shift in focus away from relationships to product. So far, teachers have not responded well to the Nspire, perhaps because Texas Instruments violated their relationship by placing the goals of the project ahead of the needs of the teachers. One of the key reasons that teachers have resisted recommending substitute calculators made by Casio or HP is because they would have to re-train themselves. Given that the Nspire necessitates such re-training, the risk is that this will Focus for TI-83/84 Low High High Product Development Teachers Enthusiasts High Low Low Focus for TI-Nspire Texas Instruments Graphing Calculators 5

7 alienate teachers from Texas Instruments and thus free them up to be wooed by Casio, HP and other lower priced competitors. Standardized testing services are another important constituent of the graphing calculator ecosystem. It is critical to get approval to use the graphing calculator for as many standardized tests as possible, especially the SAT and ACT. In this respect, the Nspire has done well to get approval, though the Nspire-CAS, an advanced version of the Nspire, has not received ACT approval. Moreover, the TI-83 and TI-84 family of models are listed first on the SAT and ACT websites list of approved calculators. Texas Instruments has also worked with third-party developers to ensure that SAT and ACT study materials are available for the Nspire. However, if teachers fail to endorse the Nspire implicitly, third-party study materials will be slow to develop and hinder adoption of the Nspire. Calculator enthusiasts are also significant members of the graphing calculator ecosystem. Enthusiasts expand the functionality of these calculators by programs and games which serve as a bank of content that teachers can easily rely on without having to spend inordinate amounts of time developing these materials themselves. This free content helps both teachers and students. Teachers benefit from educational applications and students have access to a variety of games, making the calculator more attractive. However, the Nspire has limited openness to programming functionality and thus many of the enthusiasts see little reason to purchase and develop content for the Nspire. The effect is to reduce the appeal to teachers and students. The combination of all the above factors has reduced the adoption of the Nspire in Texas Instruments targeted marketplace. With the launch of the Nspire, Texas Instruments largely ignored the interests and needs of the ecosystem of teachers, testing services, and calculator enthusiasts which had made its prior products so successful. IV. Where to Next? While Texas Instruments Nspire may be the closest thing to a technological marvel left in the handheld calculator market, early indicators suggest that the device will be a colossal failure in the targeted education segment. The head of Texas Instruments Education Divisions, Melendy Lovett s, was recently quoted Texas Instruments Graphing Calculators 6

8 saying that, education is a market that doesn t change quickly. 7 Unfortunately, Texas Instruments seems to have forgotten this fact when they introduced the much advanced NSpire as a replacement to the ubiquitous TI-84 Plus. Admittedly, the potential integration risk posed by teacher s failure to readily adopt the Nspire was drastically underestimated. However, the question remains: Can the NSpire gain sufficient penetration with teachers to sustain the heady barriers to entry Texas Instruments has constructed in the education segment over the last 20 years. Or is a new strategy necessary to protect Texas Instruments dominant position in the market. We ll explore both possibilities. As demonstrated by the reaction to the introduction of the NSpire, at some point the level of technological sophistication and complexity of an educational calculator is a negative value proposition for educators. Because there is little need for capability beyond a certain finite level, addition functionality actually becomes a significant switching cost to educators in terms of time and effort. In the absence of an increased value proposition or lowered switching costs, educators will undoubtedly opt for the simpler and cheaper Casio offering. The Nspire is positioned as essentially a handheld computer. In order to increase the value proposition of the product, Texas Instruments must capitalize on this capability to make educators jobs easier. This might be accomplished by installing curriculum, textbook, or school district specific software on the device. If the increased complexity is outweighed by an educational benefit, some traction among educators might be found. In order to reduce this switching cost, Texas Instruments must leverage its significant educational marketing arm. The company s existing educational marketing and instructional capabilities should help reduce these costs. By providing summer educator instructional clinics and expanded sponsorship of educational activities, Texas Instruments might overcome the demonstrated reluctance of educators to adopt the product. 7 Numbers Don t Add Up for a TI Calculator, Wall Street Journal; SB html Texas Instruments Graphing Calculators 7

9 Although these strategies may reduce the integration risk now apparent with the introduction of the Nspire, their execution represents a significant additional investment to capture a lucrative but finite market. A better and cheaper solution may be a more modest upgrade to the TI-84 Plus while repositioning the Nspire for advanced or graduate degree programs. Texas Instruments Graphing Calculators 8