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a. Executive Summary - Tell the story of the venture on a single page, using topic headers and short, to-the-point sentences, as you would in an “elevator pitch.” Make copies of this summary for each of your classmates. Nowadays time and information seem to be more important and valuable than ever. Knowing things before others rule on the outcome of almost all our actions. In the same time the technological evolution of the last decades found its way into almost all parts of our daily life. Providing devices that are dedicated to help people to save time and gain information at the same moment will therefore be appreciated and can generate a huge revenue for its provider. However, gathering and providing information is a costy task. Newspapers for example do not come for free, still they manage to be sold at a low price thanks to advertisement. TomAd is a new venture that allows TomTom, the world leading personal navigation soluton provider, to combine the service of up-to-date information together with a low cost mobile device. It provides users with additional information about his surrounding area and makes it possible to gain and distribute almost real time feeds about traffic, weather conditions and other information. This all by holding the cost for users at the lowest possible level. The main idea behind this venture is to finance the additional services with customized, location dependend advertisement. Advertisers will get the chance to solicite for their goods or services directly on the screen of TomTom devices as long as the device is geographically close to the advertisers location. Compared with regular billboards, TomAd opens new dimensions for advertisement. TomAd does not have the physical limitation of billboards which may be placed closed to the advertiser's location but still far enough that passing person will not find the advertiser's company. TomAd can simply indicate where the advertiser's company is exactly located. The advertisement is in the car. Additionally TomAd advertisments are cheaper and more easy to change compared to traditional billboards, therefore TomAd addresses a much broader customer base willing to advertise. The advertisers have further the advantage that it is possible to chose time, place and target user of TomTom devices for displaying its ad. Similar to Googles AdSense system where advertisers pay by the number of clicks, advertisers on TomAd pay only the number of ads that have actually been shown. We belive that nowadays people are used to customized advertisement and that it is widely accepted as a way to offer aditional services for low cost. Modest ads are not percepted as s disturbing object but more as a source of further information which would not be noticed otherwise. Additionally the venture does not involve major technical research or development and can therefore be regarded as easily feasible and implementable in a short time. b. Background - [This is the same as an "Introduction" - no need for both]. Describe your organization and its internal and external context, i.e. its people, mission, structure, culture, type of market environment, size, etc. [use appropriate venture terminology, and don’t make it too long] TomTom is the worlds largest personal navigation solution provider. It is a relatively young enterprise that started to produce software for personal digital assistants (PDAs) in the early nineties. In 1991 they produced applications ranging from dictionaries and personal finance products to games and route planers. The steady evolution of PDAs and cell phones allowed TomTom to developp more and more sophisticated applications which resulted in the first navigation software for PDAs in 1996. Thenceforward TomTom can be considered as the leader in personal navigation. They introduced several innovations in this market, most of them as a result of continuous development of their own products and the integration of already existing services from other technology sectors. By combining mobile phones and their personal navigation products they opened a market for delivering real-time information to their devices. This approach allowed them to inform its users about road accidents, tailbacks and heavy congestion earlier than any other source. Beeing a fast growing company that unlocks regularly new sectors for its products makes TomTom a hotbed for innovation and continuous development. TomTom's mission is "to provide all drivers the best navigation and mobility experience by redefining routing. It is their believe that complex mobility technologies should be made to work for all." As company, TomTom produces navigation technologies for 16 countries mainly in Europe and North America but it is expanding to more countries such as to Brazil in December 2007. Their worldwide headquarter is located in Amsterdam, the Netherlands, and the North American headquarter in Concord, Massachusetts USA. Additional offices are suited in various locations in Europa, North and South America, Asia and Australia. In the year 2006, TomTom shipped 4.7 million PNDs which represents an increase of 178% compared to 2005. Their revenues grew by 89% to €1'364 million and the net profit by 55% to €222 million. The growth of TomTom is also reflected in the number of employees. In 2005 316 people were employed and TomTom hired 309 new people in 2006. That are 627 employees by the end of 2006 or a growth of the number of employees of 98%. c. Venture Opportunity - Describe what you see as the opportunity, niche, or market need. Describe how it came to be, and why it is significant and worthy of a venture within your organization. The development of sales in car navigation systems shows that in the near future almost every car will be equiped with an on-board navigation system. It will be essential to have strong complementary assets as it will be hard or even impossible to distinguish navigation system providers by the quality of maps or suggested routes. One of the assets is real time information about traffic, weather conditions, new maps and other services. On the other hand the prices for personal navigation devices dropped in the last few years like they do for almost all electronic devices. Producers of car navigation systems are therefore forced to find new ways to generate revenue in order to be able to provide these services. TomTom as the leader of navigation systems will have the possibility to exploit its presence in cars and continue to broaden its services to the customers and assure low prices at the same time. One opportunity to make this possible is to surf the wave of customized comercials. As Google shows, the acceptance of well directed advertisement is remarkably high and the pricing model of 'cost-by-cause' can generate a drive in revenues that is highly favored. TomTom already has the knowledge to combine its devices with modern telecomunication networks as the 3G network and already demonstrated the capability of approaching real-time data processing with its traffic informations and the map-share service. To include advertisement marks just the next step in the evolution to a full information provider and corresponds to the evolution path of newspapers and radio broadcasting. We belive that a majority of customers will categorize the advertisement as extra information additionally to the services a TomTom device already provides and appreciate the benefits that arise. d. Business Model - Based on your recognition of the opportunity, build a case for what kind of internal business venture would best respond to that opportunity. Describe the profit model that best explains your venture. Having PNDs equipped with a 3G mobile network connection sitting in almost every car, makes it possible to address the users with dynamic and up-to-date information and gather feedback from and about the users. These are all the ingredients that are necessary to do user specific advertisement like it is seen nowadays in internet services like Google-Search. What TomAd additionally has, is that it knows the exact location of the user, which differentiates it from radio broadcast advertisement. Compared to billboard ads, TomAd has the advantage of advertising in the car, for a longer time and very user specific. TomAd will address the market of in-car and drive-by advertisement while having the above mentioned advantages over the existing techniques. Tomtom will provide an easy to use internet portal for the advertisers, where they can control location, duration, frequency, content and target customer of their ads. The advertisers will be charged on how many times their ad has been showed on PNDs. On the PND side TomTom can due to the additional revenues sell its devices for a lower price than its competitors. Threrefore they can grow their user base and make the TomAd service even more attractive for advertisers. There are several ways how the ads can be addressed to the PND user. First a company can place a image directly into the map allowing to indicate where they are located. Second there can be a short text displayed e.g. above the map, where the user can click on it to get further information. And third, it is possible to play audio jingles and voice content. Additionally for convenience and security reasons there will be a ad-history available on the PND so that a user can later on review the ads and obtain further information about a product or firm. Revenues will be generated by selling ads and by gaining market share on the PDA market because of less expensive devices. e. Organizational Support Requirements - Describe the types and sources of support - facilities, equipment, people, etc. - that you will need for the venture, and how you expect to acquire them.
Most of the resources needed for the project are already inside the company. The engineering team will be asked to upgrade the old system to make it compatible with the new technology. Before being sent to the user, the real time information has to be process so investment will be needed to acquire computer power. Since this new venture should be an important and critical change for the company, the first priority of the internal resources will be this project. The second external resources the venture needs are sales people, sales managers and some designers. The existing sales team does not have the know-how to successfully approach and sell the idea of the venture to important firms. There are several ways to acquire this support. Because Tomtom is a relatively small firm and becuase advertising is not even close to their core business we propose to either buy the know-how and create a seperate BU for it, or to outsource this part of the venture. Acquiring a small advertisement firm is the more difficult option. This firm would have to be young, innovative, small and global, which will be quite difficult to find. However, if there opens up such a possibility this is definitely the way to go because this way Tomtom has more flexibility and potential to introduce further advertisement based services. Outsourcing the advertisement part of the venture, on the other hand, is less difficult. A possible company to work with is ClearChannel. We propose to go with ClearChannel because it is less expensive, faster to accomplish, they have a lot of experience and are a global company. f. Start-Up and Market Entry - Describe how you expect to launch the venture and create an “entry wedge” into the marketplace. Explain why the entry wedge you choose is strategically desirable over other alternatives. The venture will be integrate gradually. At the beginning, only the new products will be compatible with the new technology. If it shows to be a success, the old products will be put up to date and the future ones will all be compatible with the technology. This strategy will allows TomTom to judge the success of the venture before being totally involved. If it shows to be a failure from the start, the damages will be limited. g. Constraints and Contingencies - Describe how the venture fits within the context of the company’s strategy and operations. Identify the nature and sources of risk that the venture poses for the company. Define the criteria that will help determine the feasibility of this venture. Identify any go/no-go assumptions along with the basis for them. Describe how you would address risks to the venture through contingency planning. Define the criteria for failure of the venture (i.e., when to “pull the plug”). The venture is in complete accordance with the core competency of the company which is the development of navigation systems. The strategy of TomTom is to stay ahead of its competitors. In order to keep their leading position in this active and profitable market, they must be precursor of the future development. In response to the consumer desire, the producers keeps improving their product and rationalizing their price. The important accorded by the consumer to the speed of the device and its autonomy is always increasing. The venture proposed will allow the company to bring the services to a new level of speed and autonomy with the real time updates. It will also provide more information to the client than ever. More than that, this crucial development will also enhance the exploitation’s benefice of TomTom. The principal risks of this venture are the reaction of the markets. First of all, we need to find an important number of interested advertisers. A first study will have to be done here. If it shows it will be impossible to fill 40% of the possible advertisement. The price of connexion to the 3G wireless network will also have to be verified. This cost has to be lower than CHF 4 per month. Even if an interesting advertiser’s market is found, the consumers also need to be interested to this kind of product. A second study of the market will be needed here. If the venture is launched but appears to be a source of lost by 2011, it will be considered as a failure. The year 2011 will be the point of no return for the project. h. Organization and Staffing - Outline the strategic relationship between the venture and the parent and/or partner firm. Describe where in the overall organization the venture will be located and how it will be structured. Identify the venture manager and key supporting staff. Since Tomtom has no business units the venture will be executed on a project basis. The project combines technology aspects with advertisement and has a well defined interface with ClearChannel and even people form ClearChannel working at Tomtom locations. The R&D has to provide a software so that ClearChannel and/or the advertising clients can decide theirselfs on the content and localization of the ads. Tomtom's R&D and ClearChannel do work seperately on the same project leaded and coordinated by the project team. This is necssary to not reveal internal know-how. Since Tomtom has absolutely no competencies in advertising it is necessary to employ a manager which has extensive experiences in this sector. This manager will together with the R&D project leader build the head of the overall venture project. i. Schedule - Outline the timetable for rollout of the venture, from start-up through launch, including key decision points and milestones of accomplishment. The development and setup of the technical infrastructure needs up to one year to be ready, so the complete year 2008. This includes planning, infrastructure setup, software development, prototyping and testing. Since this is the most time consuming task, research and development (R&D) will start as soon as possible. Since R&D of software is related to TomTom's core business, a early start of R&D will be doable without much effort. The same the negotiations with the 3G service providers which can also be initiated at the very beginning of 2008. Human resources (HR) should immediately start looking for a experienced manager in the field of advertisement. The goal is being able to approach ClearChannel in June 2008 with a well working prototype and a well prepared project team including R&D and Advertisement management. We have defined four milestones for the further development of the project: Milestone 1, April 2008: The project team contains members of R&D as well one experienced advertisement manager. R&D has finished the work of the first internal, working prototype of the TomAd system. Milestone 2, June 2008: The heads of the company and the project team will approach ClearChannel to outsource the advertisement part of the project. The R&D is ready to present a first official working prototype, especially of the web-portal where advertisers can register and upload their ads. The management of TomTom will show the working system to ClearChannel. The marketing starts planning the press informations and advertisements of TomAd itself. Milestone 3, August 2008: Prepare launch-to-market. The marketing campaign begins at this point. ClearChannel can start to sell ads. The first beta release of the technical infrastructure is up and running. Milestone 4, January 2009: Launch-to-market! j. Financials - Provide a basic profit and loss statement based on quarterly projections over the first three years of the venture’s life. Portray the venture’s “break-even” point based on those projections. Identify what would be venture success and failure in terms of financial performance. *Costs The venture doesn't need a huge technical investment. It can be seen as a natural extension of existing technologies. The venture will need three main parts. A interface where the advertisements can be registered, a database to store all the advertisements and the statistics of its usages and a process to communicate with the TomAd devices. On the other hand, the commercial launch will need quite a big marketing campaign. Its purpose is to convince the customers of the profit they will gain by buying TomAd. Additionally we will have maintenance costs for dedicated hard and software. A precise calculation can found in the appendix. The internal investments that are needed can be divided into several parts. For the technical infrastructure an investment of CHF 2'000'000.- will be needed in the first year, to develop the software and buy hardware. In the second year an amount of CHF 500'000.- will be needed for the same points. The Installation and maintenance cost will be about CHF 1'000'000.- in the first year and CHF 500'000.- in the following years each. The operational costs of Clear Channel will be satisfied by TomTom with CHF 1'000'000.-in the first year and CHF 500'000.- in the second. After this time, Clear Channel will only earn money from advertisement sold for TomAd. Advertisement for TomAd itself will be the biggest investment. A total investment of CHF 8'000'000.- in the first three years will help to boost TomAd in the personal navigation market. TomTom will need to invest about CHF 14'150'00.- in the first three years before the break-even is reached. *Revenues The average usage of a car is about 40 minutes a day. We estimate that TomAd can display at most 0.5 advertisements a minute (resulting in a maximal advertisement duration of 2 minutes). Such an advertisement will cost CHF 0.02 for the advertiser, whereas CHF 0.01 will be retained by Clear Channel. With this estimation each device generates a revenue of CHF 72.- a year and a cost of CHF 24.- of annual fees for accessing the 3G network. Together with the expected evolution of the PND market and the total change-over of TomTom's PNDs to TomAd within the next four years, the break-even will be reached around the beginning of 2011. This calculations represent worst-case values. k. Compensation Arrangements - Describe any incentives designed to motivate the venture manager and team members. Identify how equity in the venture would ultimately be distributed if it were a success. The technological development of the venture can be seen as a normal progress. The compensation in this sector therefore will be the normal salary. The management team will be very well paid. The total budget allowed to their salary will be of CHF 500 000. If they produce results that are better than the expectations, a fixed percentage of these extra will be give to them in bonus for good work. Since the venture is inline with the core business and they are the only one involved in it, the entity of the equity will stay the property of TomTom. |
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