Why Segway Failed and Tesla Succeeds

Creating products that people love is hard.

Just ask Dean Kamen, the inventor of the Segway.

It’s the most successful, unsuccessful product.

It was brought to market in circa 2001 as the Segway PT–short for personal transporter. 

The launch had much fanfare, with the legendary Steve Jobs saying it could be as important as the PC.  

But it never really took off.

(Steve Jobs later rescinded that accolade and replaced it with, “it sucks.”)

These days you might see one rolling through the Dallas airport ridden by security or on the streets of a Scandinavian country, moving tourists through the city.

In 2015, the beleaguered company Segway Inc. was acquired by a Chinese startup called Ninebot to resolve a patent dispute between the two companies.

An article from Time magazine entitled, “Why This Chinese Startup Just Bought a Company Americans Love to Ridicule” put it best …

By itself, Segway is an exciting choice for acquisition. 

The New Hampshire-based company’s self-proclaimed “future of transportation” didn’t quite catch on in America, perhaps aside from sometimes being the ride of choice among mall cops. 

(TIME once named Segway one of the 50 Worst Inventions.) 

Faced with limited success, Segway was sold off twice to investors, once in 2009 and then again in 2013. 

The first, British investor Jimi Heselden, died in an ironic, tragic Segway crash in 2010, and the second, Summit Strategic Investments, intended to “refocus” Segway over several years, but that project was never completed.

So, why didn’t it work?

I am a lifelong learner. 

I love learning new things and keeping up with the latest technology, management, and leadership strategy.

In the spring of 2021, I decided to take advantage of the new wave of high-quality education now available online. One such company is Section4.

It was founded by Scott Galloway, the famous author of The Four, NYU Professor of Marketing, podcaster, and serial entrepreneur.  

I am an avid fan of his Prof-G podcast.

I took a product strategy class to help prepare for a breakthrough pivot we were working on at Soluna, the exciting computing company I lead as CEO.

The courses, called Sprints, are:

• High-quality self-taught lessons.
• Live lectures.
• A tremendous slack community with super TAs.

The course I took, entitled The Foundations of Product Strategy, is taught by Adam Alter, a professor of marketing at NYU Stern and an expert in the psychology of products.

What I learned changed my perspective on products and how exactly to find product-market-fit.

Here is a snapshot.

The Product Layer Cake

Every product has three levels of product: (1) The Actual Product, (2) The Augmented Product, and (3) The Core Product.

Understanding the difference between these different levels of a product is the key to unlocking why some products are successful, and others are not.

Here is what I learned…

A product is what you do, what you offer, and to some people, who you are.

At a basic level, a product is anything that you offer to a target market: attention, acquisition, use, or consumption. Some products are physical products like your phone, your sneakers, your jeans. Some are services like your Netflix subscription. Sometimes a person can be a product–like a presidential candidate. 

So products are both tangible and intangible.

But it can be broken down into three distinct categories or levels, each of which is super important to the success of a product.

The Actual Product

The actual product is the central product. 

For BMW, it’s the actual car. For Apple, it is the basic phone or computer, what have you. For Nike, it is sneakers or athletic apparel. And, for Netflix, it’s the streaming service.

As Adam Alter puts it…

When we think of products, we often think and focus on the actual product. This is the central product. If you think about a sports car, think about a Ferrari; for example, the actual product is the car itself, the engine, and the body. It’s the thing that gets you from A to B. So that’s the actual product. So the actual product is what you probably picture when you imagine it.

Next is…

The Augmented Product

Once, I flew Emirates Airlines to Dubai. It was by far the best experience I have had in business class. They gave me my own set of cloth pajamas, access to a shower, and a host of other amenities in addition to a seat from one country to another. When I arrived in Dubai, there was a limo waiting to shuttle me to my hotel at no additional charge.

That is the augmented product.  

It’s the set of additional features beyond a flight from New York to Dubai or additional services that make your product unique compared to your competitors.

For Apple, that is Apple Care. For Emirates, it’s the Business Class amenities. Peloton’s augmented product is Peloton Digital–all those extra classes you can take for free.

Professor Alter again…

This is all the extra stuff that often comes with a product and sweetens the deal. That’s things like service. If you get an extended warranty. If someone throws in an extra training session on how to drive a fast car. Anything like that will be considered the augmented product. The augmented product is often used to differentiate or distinguish a product, especially in crowded markets.

The Core Product

Volvo is considered one of the safest cars in the world.

That’s its core product.

When people are in the market for a car and choose Volvo, they don’t usually choose it for its comfort or its myriad of features on the dashboard. They choose it for its safety features.  

Volvo is one of the smallest car manufacturers in the world but has consistently posted double-digit revenue growth and profits.

If you have two small children and are looking to buy an SUV, chances are you’re buying a Volvo.

So, the actual product is a car. The augmented product is a host of extended warranties and safety features.

The company’s core product is safety, peace of mind, reliability, and control.

When it first started, this was an unmet need by the market.

Today, it continues to be a top concern for car buyers, and Volvo consistently focuses on being the best at meeting this core psychological need from consumers.

So, what is the core product?

Adam Alter says it best…

That’s the psychological reason for this thing existing and for it being sold and for people buying. 

So when you buy a Ferrari, you might buy it because you want to drive fast. And so then that would overlap a lot with the actual product, which is a fast car. Still, you might buy for status reasons, and that would distinguish it from another car that has the same actual product, such as a Toyota or a Hyundai. Having an actual functional product is key.

You wouldn’t buy a car that doesn’t start, but almost any purchase decision can also be traced back to a psychological need. 

As such, the most successful products in the world today have a clear, compelling core product that addresses a psychological need for their customers.

Apple’s core is about status (now it’s about privacy).  

Tesla’s core is about status, innovation, and environmental consciousness. It’s about making the world a better place.

Uber’s core is frictionless travel.

Those are psychological needs in the world.

Think about any product you love; what is the psychological need it is filling? 

(If it’s a successful product, there is always one.)

So, a successful product has to be a good actual product. It can’t be something that falls apart, something that fails. It can’t be dysfunctional, it has to function appropriately, and that’s the actual product level. 

It also has to absolutely succeed at the core level because if you have a terrific perfect product and it’s better designed than any product that’s ever existed before, but no one wants to use it. It doesn’t meet a core need. Then it’s going to fail. 

It’s never going to succeed. So that’s critical to think about the most valuable firms in the world today. Each offers more than just a great actual product. Their core product addresses a psychological need for their consumers, explains Adam.

So back to Segway…

Segway didn’t fail because the product didn’t work. 

It didn’t fail because it wasn’t innovative. 

It was a technological marvel.

Segway said to the world: you should replace walking with a Segway. It’s the future of mobility.

But, it failed.

Adam explains why…

Imagine some of the most famous examples of product failures; think Paul Blart on a Segway or Google Glasses; these actual products worked great. 

But the core product wasn’t there.

Even a fantastic actual product will fail when it doesn’t meet a core need.  

Segway was built to replace walking. 

The engineers who designed it released some videos and said, we think there is a better way to walk, and instead of walking around, you should hop on a segway because it will make you much more efficient. 

That’s true. And as an actual product that it did, effectively, make you a more efficient person who’s getting from point A to point B. 

The problem with the Segway was that it completely missed the fact that the core need wasn’t there. People weren’t looking to replace walking with some other product, so Segway ultimately failed when it was a mass-marketed product trying to reach pretty much everyone in the population, and that’s the way they conceived of it at first. 

So after 20 years of production and hoping we would all go full-on, Wally, Segway had only sold about 140,000 units and announced it was shutting down production in July 2020.

So, the next time you are looking to launch a new product or prepare a pivot.

Ask yourself this question: What unmet psychological need is this product filling?

It worked for me.

Btw, here is what to do when you have a perfect product.