Sun, Aug 10, 2003 page12

• More than just a cool idea, but less than a success

  The Segway Human Transporter still attracks the attention of the curious, but the company has not been able to instil confidence and thereby generate the stellar sales investors hoped for

  • NY TIMES NEWS SERVICE
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  Robb Woldman was driving his new electric vehicle on a Los Angeles sidewalk when a police officer tried to ticket him. But Woldman was acting in compliance with California law, and the law in 44 other states, which allows his vehicle, the Segway Human Transporter, to be driven on the sidewalk.

  "The officer had to make four phone calls before he found out that I wasn't doing anything wrong," Woldman said.

  "He had never seen a Segway before," Woldman said.

  

  New York Police Police Commissioner Raymond Kelly, center, discusses the use of Segway Human Transport devices by the NYPD, during a news conference in Central Park, on July 30. The NYPD is conducting a 60-day free trial of 10 of these US$5,000 motorized machines for possible use in the city.

  PHOTO: NY TIMES

  That's not surprising given how few Segways have been sold since it became available to consumers last November.

  When it was developed and financed during the heady technology boom, the Segway seemed like a sure thing with its ingenious technology. Since then many dot-com era ventures have failed. And Segway, though it survives, has to prove that it can last as a real business, and not just as a cool idea.

  With five gyroscopes, two tilt sensors, dual redundant motors and 10 microprocessors, the transporter, which can travel at up to 20kph, is a diminutive object of envy in an age of Hummers and Lincoln Navigators. Ride one, and neighbors gather to try it and drivers pull over to watch when people like Woldman take to the sidewalk.

  But despite its appeal, industry observers and Dean Kamen, Segway's inventor, agree that Segway LLC, which is privately held and does not release sales figures, is not anywhere near selling the 40,000 units that the company's factory in Bedford, New Hampshire, is capable of producing each month.

  The company began commercial production of the vehicle in April 2002 and started taking public orders late last year. By then, the economy was shrinking, unemployment was up, and technology spending of all sorts was down.

  In the last year, the company has sharply lowered its sales expectations, hoping the market will grow eventually.

  The US$5,000 price tag is a factor in modest demand. A somewhat cheaper, scaled-down model is due out shortly, but its currently undisclosed price is expected to remain high for most consumers.

  And it's not just price that is keeping sales low, critics argue. Rather, they say, while the machine is elegant and fun, it does not provide a real nonpolluting transportation alternative for the masses.

  "I think of the Segway like a Jeopardy question. What is the question to which Segway is the answer?" asked Herman B. Leonard, a professor of public management at Harvard's John F. Kennedy School. For the Segway to be a success, he said, riders needed room to maneuver and confidence that the battery will not die on the return trip.

  "Unless you are elderly or have limited mobility, why wouldn't you use a bike?" he asked.

  Yet the fact that bicycles have not flooded American cities is a good indication that a new technology is needed, argues Kamen.

  "People now use cars because they don't have viable options," he said.

  "The Segway gives people an alternative to contributing to a polluted environment cluttered with automobiles," he said.

  Investor optimism

  Early on, investors whose expectations were driven by boom-era optimism believed the transporter would become a huge seller almost instantly. John Doerr, a venture capitalist, said in 2000 the Segway was "as big as the Internet, as far as making a difference," recounts Steve Kemper in his book Code Name Ginger. Doerr predicted that the company could earn US$500 billion in profits three to five years after sales began, Kemper was told.

  Segway received US$88 million in private investment, with Doerr's company, Kleiner Perkins Caufield & Byers, and Credit Suisse First Boston Equity Partners, each investing US$38 million and other private investors putting in US$12 million, according to Kemper.

  But the company incorrectly positioned the product, said Karl Ulrich, associate professor at the University of Pennsylvania's Wharton School and author of a textbook on product design.

  A better stroll

  "By putting Segways on sidewalks, the company is saying their transporter is just like walking, but better. That implies the device is for 2.5km to 3.2km trips. That is not a great market niche," said Ulrich, who founded a now-defunct electric bicycle and scooter company.

  "To feel safe, people will travel half the stated range of a device, and users won't stand more than 10 or 15 minutes at a time," Ulrich said. "There could be a good market for the product if it cost US$1,000, but there is so much technology in the device that that could be impossible."

  Using redundant computing and sensing systems to independently drive and balance each wheel means that Segway's parts alone cost the company at least US$1,500, Ulrich believes.

  "I don't see how they can charge customers less than US$3,000 for this design," he said, noting that simpler alternatives like electric scooters could cost a third that price.

  While not confirming his costs, Kamen agrees that a substantial price drop is not imminent. The public should think of the cost of Segway technology akin to that of a car, rather than, say, that of personal computers.

  "Electronics prices drop, but cars do not get cheaper," he said. "Could we design and engineer a lower price point? Sure, but this could take years."

  Ulrich believes that considerable time will be needed for success. "With the exception of Viagra, there are zero instances of new technologies taking off in just three or four years," he said.

  Globalizing

  Even with the company's modest sales, it can continue to develop a less-expensive model for a worldwide market, said Michael Schmertzler, a Segway director and chairman of the Credit Suisse investment committee.

  "No one sees this generation of product as a solution for emerging markets," he said.

  "Can we wait for several years for Segway to be a financial success? Within reason, we can wait," he said.

  For now, early reports indicate that the Segway is well received in a number of government agencies. Seattle water meter readers have been testing 10 Segways since last September. Based on fuel prices and other factors, the cost-benefit ratio of using a Segway compared with a standard gasoline-powered vehicle is greater than 2 to 1, according to Matt Rathke, an engineer at the city's Fleets and Facilities Department.

  "We do see benefits to using a Segway, and we will buy five more," Rathke said.

  "But we won't just throw money to the wind by buying a fleet of them," he said.

  Since mid-July, the New York City Police Department has had 30 foot patrol officers using Segways to cover their regular beats in Coney Island, Central Park, Times Square and other locations. "When it's not raining, it's ideal for the park. The officers have been very positive about using them," said Inspector Michael Coan, a police department spokesperson.

  In Los Angeles, the Metropolitan Transportation Authority police has found the Segway useful.

  "It's good for officers. Standing on the Segway makes them look 8 inches taller, and they can cover two to three times the area they could otherwise," noted Robin Blair, a transportation planner with the transit authority.

  "This is the first generation Segway; like the first PC, it's a nice toy and it can solve some problems," Blair said.

  Later this year, the California Department of Transportation will sponsor a rental test in Pleasant Hill, a city in the Bay area. Commuters will be able to rent a Segway to ride to the BART train station in the morning.

  Kamen continues to believe that his device will eventually become a major part of the answer to transportation problems, even if it takes longer than he and others thought a few years back, when new technologies and ventures seemed to be blessed by the gods.

  "I'd like to think that the Segway will become a piece of our infrastructure. Every new technology starts out as a novelty, and then things usually turn out differently than expected," Kamen said.
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