Why good tech goes bust

Why does innovative tech often fail to change the world? Tobias Pearce investigates why start-ups and tech giants alike often struggle to market their products

A mothballed Concorde on display in Paris

Consider the demise of supersonic travel. When Concorde began commercial flights in 1976, the world was connected like never before. London and New York were now less than four hours apart and the service operated with an unparalleled zero-fatality safety record for 24 years. It seemed the technology would revolutionise travel forever – but it didn’t. Citing mounting operational costs and reduced passenger numbers, in 2003 British Airways and Air France decommissioned their fleets. The world has been without commercial supersonic travel ever since. Though the reasons for Concorde’s failure are complex, much can be explained by the way technology’s real-world limitations forced it to operate in a highly niche market. Concorde routinely exceeded aviation noise limits, which restricted its flight network to sparsely populated areas and ocean routes.

Fuel economy was also a problem. A flight from London to New York with 100 passengers consumed 200 tonnes of fuel compared to 44 tonnes burned by a Boeing 787 carrying up to 400 passengers. Operations faced oil price surges, caused environmental concern and often flew at half capacity. Combined with a complex maintenance regime, these factors generated colossal operational costs that inevitably could only be passed on to a small, elite group of passengers. Despite its glamorous appeal, and even with an £8,000 return trip price tag, Concorde was never entirely profitable. In 1994 the Washington-London route was scrapped. Supersonic flight’s Achilles heel was a business model built on prestige rather than practicality. As technology specialist at Anglia Ruskin University, Professor Chris Ivory, remarked in 2015, Concorde was “a technologists’ dream, not really a customer’s dream”. Over reliant on its timesaving USP, the service was vulnerable to economic turbulence. When a crash killed 113 at Charles de Gaulle airport in 2000 and 9/11 rocked the aviation industry barely a year later, Concorde was unable to weather the storm.

If technology is only as successful as the product it is marketed as, understanding its true value to customers is vital to success. For companies of all sizes, but especially start-ups, this can be the hardest lesson to learn of all. When trawling through 101 start-up post-mortem essays on popular Silicon Valley publishing site Medium, start-up community platform CB Insights reported that 42% of failed companies cited a lack of market need for their product. Nearly half took a bright idea to market but couldn’t convince sufficient numbers to adopt. A prime example is wearable technology, which has long struggled to pique market interest. From Nintendo’s disastrous ‘Virtual Boy’ headset in 1995 to the recent death of 3D TV, products that seek to contrive new consumer niches often fall flat. Take 2016’s LogBar Ring. Despite convincing Kickstarter users to part with more than $1m, the finger-based augmented reality (AR) device was described by one reviewer as “the most inconvenient, useless piece of hardware and software I have ever seen”. If 20 years of wearable technology failure has taught anything, it’s that if you want consumers to clamp gadgets to their bodies, you’d better be solving a real problem. This difficulty isn’t limited to start-ups. They may have ingratiated themselves into every orifice of our digital lives, but even Google couldn’t convince consumers to don a pair of their sci-fi specs. Google Glass was the source of much hype and intrigue, but as ‘Explorer’ kits rolled out to developers, the product encountered increasing derision. Users were irritated by Android’s running commentary on their waking lives, worried about privacy issues, and perhaps most importantly – uncomfortable donning a strange headset in public. By the time bloggers had coined the unfortunate moniker ‘glasshole’, its credibility was shot and Glass was quietly withdrawn in 2015. But the demise of Glass as a consumer product has not spelled the end of AR as a useful technology – far from it. Re-launched as ‘Enterprise Edition’, Google's headset technology is finding new success as an assembly and logistics tool. Agricultural manufacturer, Agco, reported a 25% reduction in production time for complex assemblies using Glass. General Electric claims its wiring technicians are 34% more productive. DHL has also praised the tech for aiding a 15% improvement in operational efficiency. AR has huge potential for all kinds of application, and with worldwide revenues expected to reach $162bn in 2020 the market is fertile ground for start-ups. UK-based Wave Optics recently raised $16m to develop the next phase of its optics technology to be used in AR hardware, demonstrating that smaller players have a lot to gain by watching bigger fish crash-test hardware in different markets. Johnnie Ball is Chief Data Scientist at a London-based fintech start-up specialising in intelligent cash flow management for SME clients. He agrees that finding the right market is essential when trying to implement even the smartest technology. “Without product market fit, you’re start-up is going to be in trouble”, he says. Ball, a former trader, has first-hand experience of the difficulty in turning big data into a marketable product. His first venture was EMA, a start-up that provided a lens on emerging market trends. By accessing EMA’s portal, investors and NGOs would no longer have to rely on national banks for data. The problem with the product was twofold; “there are some very serious competitors in the alternative data space”, Ball explains, citing Quandl as an example. “But the reason we stopped with our model was that we couldn’t get adequate data within the investor timeframe to prove that the concept was possible.” To make the service work, deals would have had to be struck with mobile phone providers and corporations across the developing world, all of which could have taken years. EMA found operating in its target market too complex to be profitable. Ball explains that obtaining data is relatively easy – turning it into a profitable product is the hard part. Providing data to SMEs so that they can better plan their finances, he says, is a far more fruitful application of the same technology. New PSD2 legislation also means that financial data from consumers and businesses can now be accessed without banks. This has further increased the disruptive possibilities for start-ups in the financial services market. Ball’s experience demonstrates that even when market fit has correctly been identified, the costs associated with operating within that market can still be too high to succeed. Take the case of much lauded ‘green battery’ start-up, Aquion Energy. Founded in 2009 by former NASA engineer, Jay Whiteacre, the company appeared to have cornered several areas of the burgeoning renewable energy storage market. Aquion had developed an environmentally friendly electrochemical battery – purporting to be the safest and greenest in the world – using a saltwater electrolyte with a manganese oxide cathode and a carbon-based anode. Renewable energy grid operators would now be able to store energy without the need for fossil fuel back up. Crucially, Aquion expected to manufacture batteries for less than $300/kWh of capacity. This far surpassed the then benchmark of ~$1,000/kWh. You’d have thought this game-changing battery would be poised to supply major grid storage demand – and many high-profile investors certainly did. The company initially raised around $190m from big-name investors including Bill Gates, Kleiner Perkins and Shell. So how did a company ranked 5th in MIT Technology Review’s ‘50 Smartest Companies’ fail to secure new capital and spiral to bankruptcy in 2016? Aquion initially found success supplying batteries to small ‘micro energy’ grids in remote locations across the US. However, the complex logistics of operating in these areas cost them resources building infrastructure larger players already had access to. Aquion’s ‘burn rate’ was too high and they haemorrhaged capital. The erosion of Aquion’s competitive edge was also a major factor. In 2016 lithium ion batteries reached $273/kWh capacity for the first time, surpassing Aquion’s unchanged offering of $300/kWh. In 2009 no one predicted the dramatic decline in lithium-ion battery costs, which are projected to be as low as $109/kWH by 2025. It didn’t help that huge players like Tesla were also throwing huge resources behind the development of lithium batteries. Despite concerns about the safety and suitability of lithium for grid storage, Aquion’s technology was simply too immature to keep pace. “Why am I investing in a company that’s not fully scaled, when these other companies – that are – are also selling at a similar price point?” said Whiteacre, describing cooled investor mood to MIT Review in August. Despite having a great product, Aquion’s market competition shifted around them faster and more unpredictably than anyone at the time could foresee. Other alternative battery start-ups have been hit by the lithium surge too. Despite big-name investment, LightSail Energy’s innovative compressed air energy storage has also faltered. Struggling with a series of lay-offs, the company is now focused on selling its storage tanks to the gas industry. Meanwhile, the world is still waiting for a truly environmentally friendly grid storage solution. But there is light at the end of the tunnel for Aquion. In July the company was bought by a joint venture closely affiliated with China Titans Energy Technology Group. With the world’s largest renewable energy market at its fingertips, Aquion’s environmentally friendly, non-combustible batteries might just have found their niche after all. Innovative or disruptive technology often struggles to challenge entrenched consumer habits or industry norms. It fails when marketed as products that cannot generate sufficient demand, meet expectations or adapt to shifting market trends. Good ideas have a habit of sticking around, but without the vast resources that tech behemoths like Google or Tesla have for trial and error, start-ups will struggle to reinvent themselves if investor appetite wanes. It just goes to show that knowing your market, harnessing demand and keeping pace of development is essential to profitability. It’s no mean feat, but if you manage these correctly then your great tech idea, might, just have a bright future.  

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