THE PERSONAL WATERCRAFT:
EXPANDING THE WATERSIDE VACATION CONCEPT
Lina Arbelaez
Nafsika Katsoglou
Nikolai Petchenikov
Stefan Tzvetkov
Innovation Strategy & Entrepreneurship
Professor Dr. Ron Adner
Fontainebleau, February 16, 2005
INSEAD BUSSINESS SCHOOL
TABLE OF CONTENTS
EXECUTIVE SUMMARY..........................................................................................................................2
INTRODUCTION..........................................................................................................................................3
PWC DEFINITION ......................................................................................................................................... 3
THE HISTORY OF PERSONAL W ATERCRAFT.............................................................................................. 3
INDUSTRY FACTS AND ANALYSIS ....................................................................................................6
KEY CHALLENGES FACED BY PWC........................................................................................................... 9
MARKET ANALYSIS ................................................................................................................................12
GROWING PERSPECTIVES........................................................................................................................... 13
THE VALUE PROPOSITION OF THE PWC................................................................................................. 13
VALUE CHAIN ANALYSIS ....................................................................................................................15
SEE-DOO VALUE CHAIN............................................................................................................................ 16
SEA-DOO: FIRST LAUNCH BY BOMBARDIER ..........................................................................17
INITIAL TARGET M ARKET ......................................................................................................................... 17
INTERNAL RISK ........................................................................................................................................... 19
INTERDEPENDENCE RISK ........................................................................................................................... 19
INTEGRATION RISK .................................................................................................................................... 19
EXPECTATIONS AND OUTCOME................................................................................................................ 20
JETSKI: KAWASAKI PERSISTING IN THE MARKET .............................................................22
THE SEA-DOO RETURN AND THE PWC CURRENT INDUSTRY.........................................27
CORE COMPETENCIES AND VALUES AS SUCCESS DRIVERS........................................... 30
FURTHER ANALYSIS AND KEY LEARNINGS .............................................................................32
EXHIBITS ......................................................................................................................................................32
1
EXECUTIVE SUMMARY
This paper will analyze the invention, design, and commercial realization of the personal
watercraft (“PWC”), commonly known as jet-ski. Bombardier introduced the Sea-Doo in
1968 only to shelve it in 1973 due to higher demand for its Snow -Doo product and lack of
financial and manufacturing resources to see through an uncertain early product
development stage. Kawasaki, picking up where Bombardier left off, put its considerable
size and financial strength behind its expertise in motors to successfully establish PWC as a
new and long term viable product in recreational boating. Once the product life cycle had
reached a more sophisticated technology stage and higher penetration rates, Bombardier
reentered the market and managed to successfully revitalize its Sea-Doo brand, 15 years in
hibernation. Nowadays, the PWC product is well established and sought after by many
different types of end-users ranging from super-active [semi-]professional PWC riders to
more passive adventure seekers and vacationers.
We view the development of the PWC as a great illustration of several aspects relevant to the
successful commercialization of new technologies. On the one hand, we would argue that
the ups and downs of the PWC’s introduction and market penetration, and the subsequent
swap in product development leadership from Bombardier to Kawasaki suggest that even
the best technological inventions face multiple and multi-faceted pitfalls on their path to
success. More importantly, that might imply that when dealing with new product concepts
there are many ways to tackle the same technological/product development problem ,
especially when approaching it with different package of resources. We will review the
approaches of Bombardier and Kawasaki in this context and draw conclusions. On the
other hand, we would argue that the initial commercial introduction of Jet-Ski by Kawasaki
(Jet-Ski has become the standard bearer name for PWC) and the subsequent, re-launch of
Sea-Doo by Bombardier (now the market leader) suggest that first mover advantage is not
always converted into long-term dominance and financial benefit.
The paper commences with a brief introduction of the PWC product and history. Then it
provides an industry overview with focus on tech/operational issues and value chain. Two
profiles of the companies driving the original innovation process, Bombardier and Kawasaki,
follow. The paper concludes with current state of the market analysis and key takeaways.
2
INTRODUCTION
This report analyzes the lifecycle of the Personal Watercraft (PWC) innovation from the time
of its original introduction to the US market in 1968 until today. The PWC, after a somewhat
rocky start and lengthy product adoption, has become a dominant product in a new
recreational boat category. As the PWC is a relatively new and less known product, the
introductory section of this report provides some basic information required for
comprehensive understanding of the development of the PWC market and the evolution of
the product in the design/manufacturing shops of the two principle players who created the
PWC market, Bombardier and Kawasaki.
PWC DEFINITION
“A personal watercraft is an inboard vessel less than 13 feet in length, that uses an internal combustion engine to power
a water jet as its primary source of propulsion. It has no open load carrying area that could retain water and is operated
with a person or persons positioned on, rather than within the confines of the hull.”i
Most personal watercrafts (PWC) are designed for two or three people, though fourpassenger models also exist. Because of their relatively low cost PWCs are widely used on
water bodies across the world. Personal watercrafts are often referred to by the name Jet-Ski,
which is in fact a brand name owned by Kawasaki.ii
THE HISTORY OF PERSONAL WATERCRAFT
In 1967 Bombardier was looking to leverage its knowledge of recreational products and
engine technology and diversify its Snow-Doo product line with a counter-seasonal product.
Laurent Beaudoin the CEO of Bombardier was committed to the idea of basically creating
the effect of snowmobiles on water and was researching the potential solutions. iii
At the same time Clayton Jacobsen, an aspiring inventor and ex-banker from Southern
California, had conceived the idea of the personal watercraft looking at motorcycles and
thinking how they could be made to ride on water. Jacobsen used a unique design, with a jet
pump driving the watercraft rather than an outboard motor. Instead of being water-cooled
like engines are now, the jet pump engine was air-cooled and Jacobsen had some trouble
designing the hull to accommodate the needed air.
3
So when Beaudoin approached him with the Sea-Doo idea in 1967 it made sense to work
with Bombardier. Once Jacobsen had completed a model, Bombardier bought the rights to
the design from him. Then Bombardier took over and rounded out the hood, and added the
Sea-Doo famous yellow and black paintjob. The See-Doo design combined the elements of
self-power, small size, and manoeuvrability. It gets credit for being the first sit-down style
PWC. An article iv from August 1968 showing the initial reactions to this first watercraft is
shown Exibit 1 and Exibit 2..
Of course the original PWCs did not have the same performance standards as current ones.
The earliest Sea-Doo 320 model estimated peak speed was 25 to 30 mph, depending upon
water conditions and the successor that model, the model 372 which was introduced the
following year had a water-cooled 368cc twin cylinder that reached up to 35mph. The new
372 engine allowed liquid rather than air cooling, which solved many reliability problems.
Even though the Sea-Doo concept looked promising Bombardier decided to end
production in 1970. There were issues with the initial engine, which didn't perform
well under the extreme conditions within the hull, and the 372 engines, which
introduced water-cooling, didn't resolve them. Salt water was also big problem and
there were incidents of corrosion. Additionally, with the snowmobile market
booming Bombardier faced capacity issues in keeping up with demand. Given that
Sea-Doo sales were not comparable to those of the snowmobile and the Bombardier
dealer network was too small in popular boating states where they also had no brand
recognition to help "create" a market, Bombardier stopped producing the Sea-Doo
and gave Jacobsen his patent back in 1971. He then went on to sell it to Kawasaki
who came up with the model shown in Figure 1.
In 1973, Kawasaki Motors Corp. U.S.A. introduced the JET SKI® watercraft, the first
commercially successful PWC.v The first model was called a WSAA and was 400cc. It was
followed by the JS400, the first of the still in production, stand-up personal watercraft.vi
These models allowed a person virtually to Water-Ski with no need for a boat. Staying
aboard the device was a challenge and for some years, despite improvements in control and
stability, PWCs only managed to establish a limited base of very loyal followers.vii
Nevertheless, Kawasaki showed commitment to the project and kept on producing and
pushing jet-skis into the market.
4
Figure 1. First Kawasaki Jet Ski
The second breakthrough in the PWC market came from Bombardier in 1987, with the
development and production of a sit-down watercraft. In fact it was Yamaha who with
Waverunner pioneered the sit-down PWC the same year, but it was actually Bombardier who
managed to commercialize the new design. This version was more suitable for wider
audiences being more stable and safe than the previous models and is the one who led to the
now widely recognized Sea-Doo. Kawasaki and their dealers had been selling PWCs for 14
years by then and consumers were aware of what a PWC was. The established general
interest in PWCs helped the Bombardier product in being more successfully than its
predecessor almost 20 years earlier.
By the early 90s, further improvements in technology, from cockpit and hull design to engine
and exhaust efficiency, had made sit-down personal watercraft quite easy to use. Its
popularity skyrocketed to the point that the Sea-Doo became the largest-selling boat in the
world. 1
Today, there are PWCs capable of carrying three people and reaching speeds of up to 60
miles per hour. The racing of PWCs is an organized sport with competitions happening
throughout the US. Being easily accessible through rental as well as purchase, PWCs have
managed to become very popular. The two-person crafts quickly took over from the single
person style, and today three- and four-person family models are show ing the strongest
growth. Multiple-person family craft currently make up more than 97 percent of personal
watercraft sales2. There are five major companies currently active in the personal watercraft
market namely Bombardier Recreational Products, Yamaha, Kawasaki, Honda (AquaTrax®)
and Polaris.
1
2
Source: http://web.mit.edu/invent/iow/watercraft.html
Source PWIA
5
INDUSTRY FACTS AND ANALYSIS
It should be obvious from the technical description and visual images of the personal
watercraft that it always had and still has little resemblance to a traditional boat even if a
recreational boat rather than a utility boat is taken as a reference. The PWC as described is
currently part of the recreational motorized consumer product industry, which develops
products such as snowmobiles, sport boats, all-terrain vehicles and scooters, Bombardier’s
new NEV or Neighbourhood Electric Vehicle; maybe even small airplanes.
In order to analyze the environment of the PWC as an innovation however it should be
more beneficial to examine mainly the recreational boating industry as when the PWC first
emerged it was perceived as a complement to the existing boating solutions. In fact the PWC
became not only complement but also a substitute in certain occasions as it facilitated waterskiing without the need for a boat to pull the skier. Furthermore, the PWC expanded the
entire scope of the recreational boating industry; through its lower price and maintenance
costs the sit-down version made boating possible for much wider audiences.
Recreational boating emerged as a sport in the 1930s in America (the US has always been
leading with interest in this industry, see Exhibit 3). Improvements in small, gasolinepowered engine technology let companies like Chris-Craft and Dodge mass-produce boats
that were affordable enough to be bought in considerable numbers. By the end of the decade
over three hundred thousand motorboats and four thousand sailing yachts with auxiliary
power were registered in the United States. viii
These were the first generations of powerboats of which there were two general types;
cruisers, vessels with cabins that have sleeping and eating facilities, and open sailing boats,
which were 20 to 50 feet in length. Sailing during that time was the most popular recreational
boating activity.
ix
Judging from statistical data on recreational boating historyx the main
types of boats that were competing on the recreational boating market in 1968 were
Outboard Boats, Inboard Boats, Runabouts, Inboard Cruisers, Sailboat and Canoes. The
distribution of those is shown in Figure2 and the data is provided also in the appendix in
Exhibit 5.
6
Briefly, runabouts are boats used for activities such as fishing, swimming, water sports, and
cruising. They are considered as family boats. Cruisers are larger than runabouts and have
more accommodation. Cruisers start at around 18 feet in length and go up to 60 feet or
more; there is also a wide variety in the levels of luxury they provide. Sailboats are usually
small and used for racing. As they increase in size so do their features and luxury of
accommodation they provide. Finally, canoes are light pleasure boats propelled by a paddle,
or by a small sail attached to a temporary mast. As shown by the data the most popular type
however has consistently been the “utility” recreational boats (outboard or inboard
depending on the location of their engines).
700,000
Recreational
Outboard
Boats
600,000
Boating
Inboard
Boats
Runabouts
500,000
Inboard
Cruisers
400,000
Unit Boats
300,000
Sailboats
200,000
Canoes
100,000
0
1965
1970
1975
1980
1985
1990
1995
2000
Figure 2. Distribution of typical recreational boat types for the period 1965 to 2000
The Recreational Boating Industry has grown a lot since the early 1970's. Boat registrations
have increased threefold as shown in Exhibit 6 The number of boats owned, and the
recreational boating expenditure, has also increased accordingly (see Figure 3).
7
Figure 3. Recreational Boating total expenditures and boats owned
Part of this growth has been due to PWC which introduced the boating experience to a new
market segment. As PWCs were not introduced by traditional boating manufacturers Porter’s
analysis of the recreational boating industry shown in
Figure 4 should help explain the competitive situation in this industry at the time of the
PWC introduction and raise questions on why it was not in fact marketed by traditional boat
manufacturers.
PWCs became very popular while the boating industry was reaching maturity and growth
was difficult to achieve. Some boat manufacturers see PWC manufacturers as stealing their
customers. PWC manufacturers argue that additional people are being brought to the water
that may later "move up" to boats (in fact now Bombardier and Kawasaki are also producing
boats). However, many existing boaters have been purcha sing PWCs instead of upgrading to
a bigger or better boat.xi Of the overall recreational boating market PWCs seem to amount
today to a 4% share while power-boating accounts for about 9% as shown in Exhibit 4.
Furthermore, if only certain types of boats were to be considered, PWC has held 6%-8.5% of
the recreational boating market since 1997 (see Exhibit 5 and 7). All numbers listed for
PWCs however should be viewed critically as not all of them are necessarily registered.
8
Figure 4. “5-forces” analysis of the Recreational Boating industry before/at
introduction of PWC
KEY CHALLENGES FACED BY PWC
When the first PWC from Bombardier was withdrawn from the market one of the key
reasons was the various technological issues related to the PWC engine. A technical drawing
of the first Sea-Doo is shown in Exhibit 8. Additional technical drawings for PWCs are
provided in Exhibit 9 and Exhibit 10.xii According to those the basic PWC components are
the hull the engine and the drive system.
Technically, the innovation with the PWC was the engine; to understand the breakthrough it
is useful to examine Figure 5.
9
Figure 5. Engines for powerboats and PWC
Jet drives are used as part of the engine to direct a vessel by a jet of water, which is forced
out of the back of the vessel. Such jet drives are used commonly for vessels designed for
shallow water conditions. PWCs are the most common “boat” type using an inboard jet
drive but larger powerboats can also be directed in this manner.
For the evolution of the PWC the materials used for the construction of the hull have also
been important. Most PWCs today are made from plastic (fiberglass). Other issues that have
required attention during the development of the PWC are its electrical components, the
instrumentation, its dimensions and seating capacity as well as the fuel and lubrication inputs.
The latter (fuel and engine oil) are related to some of the most difficult challenges faced by
the PWC, which have significantly impeded its popularity and market penetration; namely
the various environmental issues. PWCs have been heavily criticized for the water and air
pollution that they have caused.xiii In the last years there has been a 75% reduction in
hydrocarbon exhaust emissions from PWCs. The manufacturers have had to devote
significant effort into environmentally friendly engine developments and highlight
environmental issues in their annual reports. The new direct-injection two-stroke and fourstroke engines are now recognized as some of the cleanest and most efficient. In addition to
the emissions control, manufacturers have had to deal with sound issues and today’s models
are considered to be 70% quieter then the 1998 models. Destroying wildlife in shallow waters
ahs also been discussed as one of the negative side effects of PWC use.
10
Finally, PWC manufacturers and users continuously have to deal with regulatory issues such
as the ones of safety and user education, minimum age limits for operating a PWC,
compulsory PWC registration, use of PWCs during daylight only, minimum distance from
the shore limits or even complete PWC bans in certain areas. All of these have required a
considerable amount of effort to deal with, in co-ordination with the U.S. Coast Guard and
other relevant authorities. Looking at the data on the number of PWC related accidents
however, it has to be said that these requirements are not always that unreasonable xiv.
Table 1. PWC accident statistics
11
MARKET ANALYSIS
One of the things we do a lot is study demographics.
Pierre Beaudoin, President, 1997
Motorized Consumer Products Group, Bombardier INC.
PWC were considered initially to be merely a complement of the traditional boats, but lately
they evolved to be sometimes a substitute of small engine boats. Most importantly, PWCs
have increased the market size by addressing the needs of “sporting” niches and offering a
new and different alternative for the water recreation.
Statistical information implies that jet skiing does not cause cannibalization or substitution of
other boating activities but rather it develops its own markets. See Exhibit 11 and Exhibit 12
for statistics on how jet skiers tend to practice boating in a greater proportion (76%) than
boaters to practice jet ski (20%). Exhibit 13 shows participation of hunters, fishers, shooters
and anglers in boating activities including motor boating and jet skiing.
Two important factors which need to be considered for understanding the Personal
Watercraft market and setting the market expectations are the following:
•
Water-related recreation and boating are closely connected; most recreational
boaters engage in several different activities such as swimming, water skiing, jet
skiing, diving, snorkelling and hunting over the course of a year.
•
Typically, boaters are introduced to the sport by a parent or a friend at the early
teens and tend to stay involved with boating for long periods and to incorporate
the sport into familial culture. A similar initiation practice applies to the PWC
and at even younger agexv.
Given the relative low percentage of PWC users among the boating population, boaters in
general found that PWC is interfering with their activities and have reported some
dissatisfaction due to conflicts with jet skiers. Boat owners, former owners and potential
buyers all report that the purchase of a new motorboat would be their primary choice if
given the opportunity.
Less than 10% report an interest in purchasing a PWC,
(NMMAxvi1996), this fact additionally suggests that the cost of acquiring a boat is not a
major barrier to the boating market.
12
Income of boating households is higher than that of non boating households.
Motor
boaters, canoes and kayakers’ income is greater than $39.000. PWCers’ income ranges from
$60.000 to $99.000 and sail boaters income is greater of $100.000. Income appears to be a
strong determinant in choosing the preferred type of recreational boating activity. The
median income of those who owned runabout boats, fibreglass boats and personal
watercrafts were between $64.000 and $68.000, while the median income for owners of
aluminium boats was $53.000.
GROWING PERSPECTIVES
Currently, PWC participation in the total recreational boating activity is about 5% to 7%.
Taken as a percentage of the population engaged in outdoor recreation, many boating and
rowing activities show slight increase in participation during the 90’s, and according to
Responsive Management, a large market of non-boaters appears to be interested in boating.
The types of boating they would be interested in, is shown the following statistics: 53%
stated motor boating, 24% personal watercraft, 23% sailing, 16% canoeing, 7% kayaking and
5% row boating.
Personal watercrafts (as well as canoes and kayaks) are more likely to be rented or borrowed,
than motorboats which are mainly likely to be owned. This behaviour generates a niche for
hotels, resorts and other recreational areas that now want to offer the PWC experience to
their guests.
Women and older people are important for the PWC market growth. Women are more
likely than males to rent most types of boats; 24% compared with 11% of males rented
PWC, additionally there is a higher proportion of females (11%) than males (9%) PWC
owners in the population. About the mass of people who have reached their 50s Pierre
Beadouin says: “We used to think of this group as old people; not any more. They are active
adults—a very different type of market. They are affluent and they still want to consume; we
know that because they buy Sea-Doos”.
THE VALUE PROPOSITION OF THE PWC
A comparison of the main characteristics of the PWC versus other market offers in the small
boating industry (the fishing boat and the 10 feet luxury boat) allows understanding the value
proposition of the PWC relative to the consumer perception. The characteristics analyzed
are the following:
13
• Spirit of freedom: mix of speed and dare that offers the boat activity.
• Versatility: measure of accessibility to difficult to reach places (ie. shallow water, caves )
• Portability: easy to transport on the ground or on the water (by car or sailing boat)
• Status: offers a luxurious way of socializing by giving status.
• Low price: the lower the price, the higher the score is plotted in the graph.
• Functionality: usefulness to carry things, as a working tool or transportation.
• Low sustaining costs: docking, maintenance etc. The lower the cost, the higher it is plot.
6
5
4
3
2
1
small-boat
power-boat
Functional
Low Price
Status
Low Costs
Versatility
Spirit of
Freedom
Portability
0
PWC
Figure 6. Value perception comparison between: small boat (i.e. fishing boat), power boat
(i.e. luxury 6 feet boat) and PWC
As shown in the Figure 6, the PWC offered a different value proposition with respect to
what the market was used to. Much more portability, versatility and free spirit, versus either
an elite product (luxury yachting) or a mainly utility one (fishing) with restrictions the users
were used to and not willing to challenge in early stages.
14
VALUE CHAIN ANALYSIS
Bombardier is vertically integrated as a result of their strategy of acquiring those companies
which they consider strategic for their success. That was the case with Rotax, the company
that built the engines for the snow mobiles, which they acquired in 1969 in order to control
the production of the “heart” of their machines. It was also the case of the aircraft division;
after the acquisition of Canadair they pursued a series of strategic acquisitions to reinforce
their position in the industry.
A rough approach of the Bombardier value chain and main competencies is the following:
Design &
Developmt
Manufact &
operations
Market
demand
Assembly
Marketing
Customer
support
Figure 7. Bombardier Generic Value chain
•
Design & Development:
the engineering process has strong capabilities and
experience in the transportation, aerospace sectors.
•
Manufacturing and Operations: as a result of the vertical integration, Bombardier
produces parts from different materials, which give them the advantage to control
technologies and intermediary processes. On the other hand, it increases their asset
base and the operational complexity.
•
Marketing: strong experience in dealing with one customer market; infrastructure
and some airplanes are constructed on demand and under particular technical
specifications.
•
Assembly: once the market needs are captured the company assemblies the product.
Together with design and marketing, this is the most important activity of the value
chain.
•
Customer support: the 99% expected dispatch reliability of customer service and
support for a commercial aircraft is an order of magnitude that shows the strategic
importance of this step in the value chain.
15
SEE-DOO VALUE CHAIN
Bombardier used the value chain they already had in place in order to make processes more
efficient, profitable and easy to control. They are vertically semi-integrated; Bombardier do
not own the supply and distribution pieces of the value chain, they have partnership
agreements both with suppliers and distributors that facilitate control of activities, interaction
of processes and alignment of incentives for the efficiency of the value chain as a whole.
Supply
(partners)
Assembly
Distribution
(partners)
Figure 8. Bombardier Recreational Division Value Chain
The value chain in the words of Pierre Beaudoin, Motorized Consumer Products President
can be described as followsxvii: “In those early days, we built the Sea-Doo factory, hired a few
salespeople, and started to sign up dealers. We hadn't appreciated how difficult it would be
to set up a sales network big enough to beat the competition. It took a while to get the
number of dealers we wanted, so we launched a rush program. Once we had three, four, five
hundred dealers, we realized how fast the business was growing. We were starting a new
business: we wanted to move fast, and we couldn't be experts at everything, so we signed up
60 supplier partners. Basically, all we have is an assembly plant. It spends only about four
hours in the factory. It is not that we don't do any engineering; on most of the parts, we
work closely with our suppliers' engineers. In fact, our engineering network is much better
because our partners push us to innovate. They see our five-year plans and the forecasts
from our dealers' meetings, and they understand where we want to go”.
In 2001 Bombardier Recreational Products entered into a new alliance with Overton, one of
the recreational industry's leaders in direct marketing for an e-Commerce Program, designed
to bring dealers and consumers closer together in the United States. This can be interpreted
as a firm belief of the company towards its innovative partnership approach in the value
chain in order to stretch their vertical integration.
"This initiative is a fundamental element of our global marketing strategy. This alliance is an
important step to get closer to our existing and potential customers by multiplying the entry
16
points to our products while facilitating transactions", declared Michel Baril, President and
Chief Operating Officer of Bombardier Recreational Products.
SEA-DOO: FIRST LAUNCH BY BOMBARDIER
Bombardier was founded in 1942 by J.A. Bombardier to manufacture tracked vehicles for
transportation on snow-covered terrain. At the time of Bombardier’s push of the PWC
concept at the end of the 1960s, the firm was the leading producer of snowmobiles with
around $200 million in sales.
Bombardier’s initial push in the 1960s to create a new recreational motorized consumer
product market with Sea-Doo can be analyzed with the help of INSEAD Professor Ron
Adner’s 4i framework.
INITIAL TARGET MARKET
Laurent Beaudoin’s entrepreneurial drive was to put Bombardier in a leadership market
position in what he thought would be a mirror of the snowmobile market on water.
We asked Christopher Dawson, VP of Sales and Marketing at BRP, the recreational products
division which Bombardier Inc. divested to a group led by Baine Capital in 2003, , whether
Bombardier had a concrete target market for the Sea-Doo project. “At the time, the
company was attempting to expand from its first highly successful innovation with a
counter-seasonal product that could leverage its engine technology and its recreational
products knowledge. At its core, it was a very entrepreneurial, and therefore I would assume
that there was more instinct that went into sizing the market and framing the target segments
than science.“
Laurent Beaudoin was trying to utilize his company’s core competency of designing and
manufacturing snow motorized consumer products in an unexplored and unproven category.
Bombardier was targeting the consumers who enjoy fast-paced recreation on open water,
similar to the snowmobile consumers they had been dealing with for years. It is interesting to
analyze one of Bombardier’s first picture advertisements for the 1960’s launch of Sea-Doo
below.
17
The key theme seems to be fun. The same active, fast-paced minded consumer who is using
Bombardier’s Ski-Doo is envisaged to spend the money to acquire a Sea-Doo. Bombardier
was looking to expand the waterside vacation concept and free the enjoyment of fast-paced
recreational activities on the open water from the encumbrance or expense of a full-sized
boat. In this reference we asked Christopher Dawson whether the initial target market for
Sea-Doo was overlapping with the recreational boating market or whether Bombardier
envisioned the Sea-Doo as a compliment to the boat. “When it first entered in the 60's, I
cannot be sure. When Bombardier re-entered in the 80's, the business case was almost
certainly built on the basis of being complementary to the boat market - existing boat owners
would want to buy have an entirely different boating experience. What emerged, however,
was a much larger substitute market (especially through the mid-90's) as well as a new
market. It became a substitute in that many consumers (especially young consumers) bought
a PWC instead of a boat given the fun factor and much lower acquisition and ownership
costs. Additionally, many people who would never otherwise have purchased a boat,
purchased a Sea-Doo. In this way, we say that the Sea-Doo 'democratized' boating, making
it available to a much broader audience due to its ease-of-use, ease of transportation/storage,
and low price point.”
Whatever the exact initial target market considerations of
Bombardier in the 1960s were, one thing is for sure: the Sea-Doo
was targeted at fun-loving sports enthusiasts. In the 1960s
advertisement below, Bombardier dubs the Sea-Doo “As Playful
As A Dolphin”.
In retrospect, knowing that today’s PWC market is dominated
by three-passenger, sit-down PWCs, we realize that Bombardier’s
18
initial target market, with the initial stand-up design, was much more niche oriented.
INTERNAL RISK
Bombardier had years of market leading experience in designing, manufacturing and
marketing a snow motorized consumer product. However, it had no experience with marine
technology, which is obviously crucial for successful execution of the Sea-Doo project.
At the corporate level, J.A. Bombardier had just died in 1964 and Laurent Beaudoin was still
in the learning experience stage of his career at the helm of Bombardier after his brother-inlaw left the company in 1966 for health reasons. Laurent already had enough on his plate
with the exploding snowmobile market. It seems that probably the biggest internal risk was
the competition for resources in the company between Sea-Doo and Ski-Doo. At the time
Bombardier was still a relatively small private company and was not planning on going public
until 1969.
In other words, the company’s resources were limited and the management was preoccupied
with the snowmobile market. This was in contrast to the risk tolerance and persistence
required to revolutionize the waterside vacation concept like the Sea-Doo was supposed to
do.
INTERDEPENDENCE RISK
One of the crucial technological issues with the Sea-Doo was the engine. It is important to
note that as recently as 1963 Bombardier had switched the Ski-Doo engine supplier to the
Austrian Rotax. It was not until 1969 that Bombardier acquired Rotax. The crucial issue of
optimizing the marine technology for the required jet-pump engine was therefore very highrisk since Rotax as well as Bombardier had no marine manufacturing experience.
INTEGRATION RISK
Thee key issue in terms of interdependence risk is the dealership network organization.
Denys LaPointe, the current head of design for Sea-Doo and the son of Anselme LaPointe,
who worked on the original 1960s Sea-Doo project for Bombardier comments on the
lessons Bombardier learnt from its initial venture into the market in the 1960s: “I think we all
realized it would take pretty determined dealers to make a go of this, people who believed in
the product and who could see what the market could be. That's why we established a
19
separate sales department within the company - people whose focus was completely on
watercraft - and had they find the right dealers for Sea-Doo".
EXPECTATIONS AND OUTCOME
Bombardier’s expectations for the Sea-Doo were set by its success with the Snow-Doo.
This inevitably put the hurdle very high. The Ski-Doo snowmobile was launched in 1959.
Bombardier was the first to mass produce snowmobiles. The snowmobile market was just
huge, with Bombardier not being able to keep up with demand. Bombardier’s sales reached
$200 million by 1970. The snowmobile industry sold 500,000 units in 1972.
However, although the original Sea-Doo attracted a lot of attention, a number of factors
conspired to sink the project. First and foremost were design problems. The air-cooled
engines on the original model didn't perform well under the extreme conditions under the
deck, and the belt-drive system required frequent adjustments. The new liquid-cooled 372
engine helped some, but other problems didn't go away - namely the lack of sophisticated
marine technology. Most of the units were sold in coastal areas, and salt water tended to eat
away at the engines, pumps and controls, causing all sorts of problems.
"On the technical side, that was the biggest problem," LaPointe said. "The technology just
wasn't up to par. What was required was real marine technology and it wasn't available at the
time." Clayton Jacobson, the inventor whom Bombardier commissioned to create the SeaDoo prototype in 1967, had some ideas that would have helped - things like rubber motor
mounts, a rubber dampener for the driveshaft coupler, and ways to waterproof the
electronics - but that no one would listen to him once he delivered the original prototype.
The main reason for that was because Bombardier was so distracted by the booming
snowmobile market.
"The original Sea-Doo was so original and so new that it really needed to be pushed onto the
market," LaPointe says. "You contrast that with what was happening in the snowmobile
market, where we were having a hard time keeping up with demand. To make the watercraft
project work, it would have needed a great deal of attention and investment in engineering two things the company couldn't provide because the snowmobile market was demanding so
much time and engineering. The original watercraft was definitely a workable product, even
the right product to create a market, but maybe just a little ahead of its time."
20
So, with great reluctance, Bombardier shelved its watercraft project in 1970, before its new
models could be released. Within a little more than a year, Jacobson sold the rights to his
patents (which reverted back to him in 1971) to Kawasaki - a deal which eventually led to the
creation of the Jet Ski.
21
JETSKI: KAWASAKI PERSISTING IN THE MARKET
Kawasaki entered the personal watercraft sector only after Bombardier’s decision to shelve
its Jet-Ski product line and focus on the established snow-mobiles. Having reached no
satisfactory agreement with Bombardier, the PWC entrepreneur Jacobson took his invention
to Kawasaki, a global leader in engine design and distribution for consumer needs.
Kawasaki is a Japanese industrial conglomerate engaged in several business lines (see
tablexviii).
Company
Line of Business
Kawasaki Geological Engineering
Environmental and ocean-related engineering and geological works and surveys
Kawasaki Kasei Chemicals
Chemicals used for dyes, pigments, and pesticides
Kawasaki Kisen Kaisha
Marine cargo and passenger transportation around the world
Kawasaki Setsubi Kogyo
Air-conditioning and sanitation facilities in commercial, industrial, and institutional buildings
Kawasaki Heavy Industries
Transport equipment and industrial heavy machinery for military and commercial use
Kawasaki Kinkai Kisen Kaisha
Coastal freight transportation between Japan, east Russia, China, and East Asia
Kawasaki Safety Service Industries
Respirators and gas masks for industrial use
Kawasaki Thermal Engineering
Manufactures a diverse line of air conditioning equipment and industrial boilers and freezers
Table 2. Kawasaky Business Lines
Kawasaki was founded in 1878 and has grown over the years to become a leading multinational corporation with more than fifty holdings (manufacturing plants, distributions
centres, and marketing and sales headquarters) in most major cities around the world. The
manufacturer of Jet-Ski (“Jet-Ski”), the Company’s PWC product, is Kawasaki Motors, a part
of Kawasaki Heavy Industries. Kawasaki Motors’ consumer product lines are summarized in
the table xix below.
Consumer Products
# of Products
All-Terrain Vehicles (ATVs)
Motorcycles
Utility Vehicles
Watercraft
4 Basic
3 Basic
1 Basic
3 Classes
Leading Model
Brute Force
Ninja/Vulcan
Mule
Jet-Ski
Table 3. Kawasaky consumer product lines
22
Kawasaki introduced the Jet-Ski, its first PWC product, in 1973, five years after the original
invention was commercialized by Jacobson and three years after Bombardier had shelved its
Sea-Doo PWC model. Jet-Ski was an instant success, leading to explosive popularity for this
new way to enjoy water sports and leisure time.
Kawasaki’s Jet-Ski initial sales grew
exponentially as the new product established its viability and carved out a niche PWC
market. By example, over the first three years, Jet-Ski’s sales cumulative annualized growth
rate (CAGR) reached nearly 40% xx. The immediate success of the product in the early days
of PWCs can be traced back to several unique factors, which Kawasaki capitalized on (see
table below for value capture summary).
$ from
End-Users
Factors
WTP
Low maintenance and ease of transportation
Value Chain
Improved safety due to enclosed impeller pump
Access to extremely shallow waters
Ability to ride in land-locked ponds, rivers, etc. as well as sea
Ride standing or sitting (a-la motorcycle)
Greater maneuverability than any boat
New and exciting water sport product concept
SOC
Figure 9. Jet Ski Value Creation
In this new recreational boating product category, Kawasaki was able to augment the
willingness to pay by inducing the customer to enjoy the new product quality and
specifications relative to other products in the same category. First, Kawasaki introduced a
brand new product concept offering an exciting new way to enjoy water sports – a common
favourite past time.
Compared to similar boating products, PWCs offered greater
manoeuvrability and opportunity to experiment with riding for fun on water. Jet-Ski was not
only easily transportable to any water basin (sea, river or land-locked natural or artificial
ponds) but was capable of navigating with ease even the shallowest waters, a significant
departure from the common boat standards. On the engine side, PWCs had pioneered the
impeller pump engine which significantly improved safety and eventually reduced the engine
noise compared to boats. Last but not least, PWC proved to be very low maintenance vs.
other boats which only strengthened the manufacturers’ handle on the market.
23
The initial product adoption period, however, was not smooth. By year five, the sales CAGR
had been reduced to 16% on approximately 20 thousand cumulative PWCs sold.xxi. The
chart below illustrates the trend in sales growth.
Historic Sales
18,000
70,000
60,000
14,000
50,000
12,000
10,000
40,000
8,000
30,000
6,000
20,000
4,000
Cumulative Unit Sales
Annual Unit Sales
16,000
10,000
2,000
0
0
1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85
Annual
Cumulative
Figure 10. Historic Sales
This slowdown in the sales was due to technical as well as marketing issues impeding the
product penetration beyond the initial fast-adopter layer of end-customers. Further,
Kawasaki’s sales were affected negatively by the oil shocks in the 70s. It was only past year
five that Kawasaki started to benefit from accelerated increase in demand triggered by greater
adoption rates, mass-market appeal and favourable consumer demographics driven by the
boomers’ generation.
As an entrepreneurial new concept type of innovation, the PWC was not developed with
some specific target market parameters in mind. Hence the entry of the product to the
recreational boat market was not based on in-depth research and timing. That applied to the
original Bombardier push as well as the subsequent Kawasaki effort. Kawasaki, benefiting
from its company size/financial strength, was able to withstand the financial losses from the
early years of PWC adoption and market creation. Further, Jet-Ski was a great opportunity
for Kawasaki to expand its consumer product range while leveraging its expertise in motors
and its global distribution network.
The stretch and leverage type of matrix below
summarizes the introduction of the PWC as a new line of business for Kawasaki and
Bombardier.
24
Bombardier
Snow-doo
Sea-doo
Expertise
"Snow" Technology
Engine Design
Manufacturing
Distribution
Marketing
Size
Financial Strength
Brand
v
v
v
v
v
−
−
v
⇒
⇒
⇒
⇒
⇒
v
v
v
v
v
⇒
v
"Marine" Technology
New Market Know-How
Kawasaki
Motors
Jet-Ski
−
v
v
v
v
v
v
v
WIP
WIP
⇒
⇒
⇒
⇒
⇒
⇒
⇒
v
v
v
v
v
v
v
WIP
WIP
Table 4. Capabilities leverage comparison Bombardier - Kawasaki
Bombardier’s push into PWCs was driven by its desire to diversify its portfolio into a
product category which would be counter-seasonal to its core snow-mobile product.
Bombardier ultimately decided to shelve the Sea-Doo because its stretched resources were
not sufficient to weather the product development stage of Sea-Doo when the demand for
Snow-Doo, an accomplished and established product was sky-high.
Kawasaki on the other hand embraced the new technology and put its financial resources
behind its proven competency in engines and manufacturing of consumer motor vehicles.
Further, Kawasaki benefited from its strong brand and expertise in distribution and
marketing. Thus, the Company was able to stretch its substantial existing resources and
support new “marine” technology development and new market know -how absorption
(illustrated as Work-in-Progress or WIP in the chart above).
While continuously improving the Jet-Ski technology and working on marketing the product
to a wider customer segment, Kawasaki was able to capture the first mover advantage in
generating a standard-bearer brand-name. Jet-Ski, similar to Band-Aid and Xerox, has
become synonymous with the PWC product, regardless of whether it is manufactured by
Kawasaki or not. On the flip side of that, Kawasaki had to nurse Jet-Ski through its
financially unprofitable infancy stage in the 70s, exacerbated further by the global oil shocks.
Bombardier, despite being the true pioneer of PWCs, missed the opportunity to establish
Sea-Doo as the household reference name for PWCs.
25
Bombardier on the other hand, benefited from the temporary (15 years) shelving of Sea-Doo
by avoiding the financial downside of the initial adoption stage of the product. Bombardier
also benefited from a timely return to the market boosted by favorable demographic
(boomers on the rise) and much more advanced and safe PWC technology.
Kawasaki pioneered the PWC and has not only helped develop an exciting new segment in
the recreational boat market but has also turned the product a profitable commercial
enterprise. The success of Jet-Ski is based on several factors. First, the PWC offers an
exciting new way to enjoy recreational water leisure time. Consumers find the product
attractive because of its “cool” design, fun experience and relative low price and maintenance
requirements vs. other boating options. Second, Kawasaki managed to put its substantial
consumer and specifically motor product experience behind this new project and successfully
develop it to the point of mass market adoption. Last but not least, Kawasaki had the
organizational size, financial strength and execution expertise to back the successful growth
of a whole new market.
26
THE SEA -DOO RETURN AND THE PWC CURRENT
INDUSTRY
The Sea-Doo story did not end with Bombardier’s shelving of the project in 1970. In fact,
Bombardier watched Kawasaki's Jet Ski project develop over the years with a mixture of
wonder and regret.
Unfortunately the energy crisis struck in 1973. The snowmobile industry, Bombardier’s
bread and butter at the time, sold 500,000 units in 1972; by 1974, industry sales were down
to 250,000. After all the years spent building up Bombardier's workforce, resources, and
manufacturing capacity, it was confronted by a shrinking market. The energy crisis pulled the
rug from under Bombardier’s feet. It was forced to look for something else to do. There
were many industries it could have entered, but it resolved to diversify only into a business
where we could put the skills we had developed to good use.
The energy crisis and the search for a counter cyclical diversification was another factor why
Bombardier re-entered the PWC market only in 1988. Bombardier expanded into the
countercyclical electric transit systems. Fortuitously, the Rotax acquisition in 1969 gave it a
foothold in the tram business. This allowed them to bid for the Montreal subway system in
1974 and the New York one in 1982. Again, this was why Sea-Doo was left aside for quite a
while.
"The company paid pretty close attention to what Kawasaki was doing with the Jet Ski.
There was mild interest in the '70s, when Kawasaki sold a couple hundred units and then a
couple thousand, but then the market boomed in the '80s and we began to think that if
Kawasaki could sell that many stand-ups - a craft that required quite a bit of athleticism just
to ride - then imagine what you could sell of a craft that anybody could ride." This
observation was enhanced when Yamaha introduced the sit-down Waverunner and the
stand-up WaveJammer in 1987.
Fortunately for Bombardier, there were still a few key people in the company who believed
in the sit-down watercraft concept, and one of them, Beaudoin, had the power to bring to it
27
life. "I don't think Mr. Beaudoin ever stopped believing in the potential for the market,"
LaPointe says. "It was in his mind all along to come back to the market."
Bombardier also had another man associated with the original project who never gave up
hope. "Giles Houde had worked on the original project and later worked as a consultant to
the company on a number of different projects," LaPointe says. "One day in 1985, Mr.
Beaudoin stopped by Houde's house to see what he was working on, and Houde showed
him an early version of the second-generation watercraft."
Laurent Beaudoin knew immediately that Houde had a viable product and talked his son,
Pierre, into coming to work for the company to determine whether a re-launch of the SeaDoo was viable. The younger Beaudoin worked closely with Houde and Gary Robison to
design a new product that would fit the emerging market, and the result was the 5801 model
that debuted in 1987 and eventually reached the market in 1988.
It was a model that would change the market forever.
"I think that model was a true paradigm-shifter," LaPointe says. "At the time, the market was
dominated by stand-up Jet Skis, but I think this was the model that got so many people to
switch to sit-downs."
Indeed, the design was extremely influential, particularly the hull and deck configuration,
which allowed for terrific handling and a comfortable ride. The craft was easy to ride, but
still challenging enough to create true enthusiasm.
Its dimensions were quite a bit different than the original. At 41.5 inches wide, it was almost
a foot and a half narrower than the original model, and its 20-degree, semi-V hull provided a
much softer ride in the water. In addition to an updated look throughout, the seat extended
all the way back to allow for two passengers, and the handlebars were padded and included
updated grips. Still, there were similarities to the original, including the wide footwells and
the positive curve on the bow.
However, the biggest difference between the 5801 and the original models was the
technology inside the hull. Instead of an air-cooled, single-cylinder two-stroke, the 5801 was
powered by a water-cooled 581cc Rotax in-line twin connected directly to the pump by a
driveshaft and designed specifically for the marine environment. That engine pumped out
three times the horsepower of the original, and the horsepower was transferred to the water
28
through an updated axial-flow pump. There were still bugs to be worked out - those first
models were notorious for a lack of reliability - but the problems weren't unsolvable.
Sea-Doo also marketed the craft differently, using the lessons it had learned from its original
venture into the market.
"I think we all realized it would take pretty determined dealers to make a go of this, people
who believed in the product and who could see what the market could be. That's why we
established a separate sales department within the company - people whose focus was
completely on watercraft - and had them find the right dealers for Sea-Doo," LaPointe said.
This time, the company didn't have to wait long for results. Demand far outstripped supply
from the get-go, and within four years Sea-Doo had eclipsed both Yamaha and Kawasaki in
market share (Exhibit 14). Today, nearly half the personal watercrafts sold in the United
States are Sea-Doos.
250000
200000
150000
Series1
100000
50000
19
75
-7
19 6
77
-7
19 8
79
-8
19 0
81
-8
19 2
83
-8
19 4
85
-8
19 6
87
-8
19 8
89
-9
19 0
91
-9
19 2
93
-9
19 4
95
-96
19
97
-9
19 8
99
-0
0
0
Figure 11
We asked Christopher Dawson how Bombardier achieved success on the second try. “As
mentioned above, the 70's product was not optimized, and the consumer market was not
ready (i.e. not in large enough numbers). In the late 80's, much had changed. There were
increasing signs that Baby Boomers were ready to start spending on leisure sports/activities.
Bombardier was convinced its technology was solid. Finally, and most importantly, there
was an innovative approach that Bombardier could take to capture a significant share of the
market (the sit-down watercraft). Interestingly, the consumer research that Bombardier had
commissioned to determine the size and potential of the market came out against a sit-down,
3-passenger watercraft. Despite the research, there were a few determined entrepreneurs
29
within the company that were convinced of the concept, and they pushed for the company
to proceed. Today, the vast majority of the market is sit-down, 3-passenger watercraft.”
% Market
Share
Company
Bombardier (Sea-Doo)
Yamaha
Kawasaki (Jet-Ski)
Honda
Polaris (out of business)
Other
46.9%
30.4%
12.3%
2.3%
8.1%
Table 5. Latest 2004 market share rankings
PWC buyers have changed in the past five to 10 years, according to manufacturers. Stand-up
PWC account for less than one percent of sales, the rest are sold to families which can't
afford a traditional boat or choose not to make the investment. PWC make sense for many
families, she says: They're easy to store and maintain, they cost less than boats, get better gas
mileage and can do all the things a small boat can do, such as tow water-skiers.
Manufacturers agree the shift is helping change the negative stigma surrounding personal
watercraft. As mentioned in the industry description section.
"Ten or twelve years ago, a person rode a craft by himself, making sharp corners," Speaks
said. "Today's rider is about 42 years of age, married and has a couple of kids."
CORE COMPETENCIES AND VALUES AS SUCCESS DRIVERS
Bombardier’s history evidences the key drivers behind its success. Following are some
examples to that demonstrate Bombardier competencies which are evident throughout the
whole document.
•
Patience and persistence: Bombardier invested in snow grooming for almost 20 years
before they were close to being the industry leader. Furthermore, the Sea-Doo is the
living example of its patience and persistence; first being launched in the 60’s, then
30
shelved for 20 years without giving up the ideals and finally being re-launched with great
success in the 80’s.
•
Ability to adapt strategies: the “should we make or should we buy” decision is a
continuous process of evaluation for Bombardier. Its success remains in the fact that
the answer has shifted over the years. In the 1960s, the snowmobile operation was
vertically integrated. The business was growing so fast that Bombardier couldn't secure
supplies of many of the components; the only way was to make them themselves. That
is how they ended up in the rubber, plastic, fiberglass, and steel business. They
manufactured all the parts. Today Bombardier is following a completely different
strategy as presented in the Sea-Doo value chain, which evidences its ability to reaccommodate according to the industry, competitors, suppliers and market forces.
•
Innovative and progressive approach to face challenges: Bombardier take measured
risks and dares to try breakthrough ideas that have been successful in solving big
challenges. Two examples are the Capital Group created to support the snowmobile
dealers when the financial market did not believe in the product, and the fractional
ownership program in partnership with American Airlines, to facilitate private
acquisition of airplanes and encourage demand
•
Governance and Transfer of expertise: Bombardier has well established systems to
transfer best practices across groups (i.e. two or three working sessions throughout the
year) in a manner that does not interfere with the daily activities but that allows them to
focus and take the most advantage of such activities.
•
Corporate staff + CEO team spirit: the CEO has been for 30 years with the company
and has grown faster than the company itself which together with the corporate staff
commitment to support him on making the right decisions, is the right combination for
the strategy assertiveness that the company shows.
•
Feel the passion for their product: Bombardier employees like to try, enjoy and feel
passion for their own products. It demonstrates the importance the company gives to
demographics because such attitude moves them closer to the customers and to be able
to transmit the same attitude to the dealers which are key in the success and with whom
are partners.
31
FURTHER ANALYSIS AND KEY LEARNINGS
(CONCLUSIONS)
We find the PWC story fascinating from several different angles. On the one hand, it
provides a unique example of a brand new product concept based on new type of technology
(engine + design) which ultimately carved a niche segment in the recreational boating
market. On the other hand, the development of the flagship Jet-Ski and Sea-Doo products
by Kawasaki and Bombardier, respectively illustrates how two companies with different
portfolios and resources approach the same product and manage to achieve commercial
success by using totally different innovation strategies.
To summarize, Bombardier introduced the Sea-Doo in 1968 only to shelve it in 1973 due to
higher demand for its Snow-Doo product and lack of financial and manufacturing resources
to see through an uncertain early product development stage. Kawasaki, picking up where
Bombardier left off, put its considerable size and financial strength behind its expertise in
motors to successfully establish PWC as a new and long term viable product in recreational
boating. Once the product life cycle had reached a more sophisticated technology stage and
higher penetration rates, Bombardier re-entered the market and managed to successfully
revitalize its Sea-Doo brand, 15 years in hibernation.
Historic Sales and S-Curve
250,000
1,800,000
Annual Unit Sales
1,400,000
1,200,000
150,000
1,000,000
800,000
100,000
600,000
400,000
50,000
Cumulative Unit Sales
1,600,000
200,000
200,000
0
19
75
-76
19
77
-78
19
79
-80
198
1-8
2
19
83
-84
19
85
-86
19
87
-88
19
89
-90
19
91
-92
19
93
-94
19
95
-96
199
7-9
8
19
99
-00
0
Annual
Cumulative (S-Curve)
Figure 12. Growth story of Jet-Ski and Sea-Doo.
The s-curve of the sales growth above indicates the three key stage of product development.
The initial product development and adoption is illustrated by the flat curve in the period 75
32
– 85. Thereafter, sales pick up at an increasing rate and for almost ten years (till 1996) PWC
enjoy increasing popularity with consumers (mass-market appeal; Bombardier reenters
market). From 1997 onwards, the PWC market appears to have reached a point of relative
maturity. This is further illustrated in the sales CAGR chart below.
PWC Historic CAGR %
197
6-7
7
197
8-7
9
198
0-8
1
19
82
-83
19
84
-85
19
86
-87
19
88
-89
199
0-9
1
199
2-9
3
199
4-9
5
199
6-9
7
19
98
-99
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
CAGR %
Average
The original adoption period is going through an erratic sales growth pattern where at first
sales sky-rocket due to the high demand from early-adopters and then dip as Kawasaki starts
to tackle technology issues in the midst of oil shocks and external economic pressure. Then
the industry hits the high growth phase of the s-curve illustrated in the chart above by the
constant CAGR in the period 85 – 96 (i.e. exponential sales growth pattern). The dip below
the sales average growth rate towards the end of the 90s indicates that PWC are entering a
more saturated market stage.
In summary, we view the development of the PWC as a great illustration of several aspects
relevant to the successful commercialization of new technologies. On the one hand, the ups
and downs of the PWC’s introduction and market penetration, and the subsequent swap in
product development leadership from Bombardier to Kawasaki suggest that even the best
technological inventions face multiple and multi-faceted pitfalls on their path to success.
More importantly, that implies that when dealing with new product concepts there are many
ways to tackle the same technological/product development problem, especially when
approaching it with different package of resources.
On the other hand, the initial
commercial introduction of Jet-Ski by Kawasaki (Jet-Ski has become the standard bearer
name for PWC) and the subsequent, 15 years later, re-launch of Sea-Doo by Bombardier
(now the market leader with approximately 50% share) suggest that first mover advantage is
not always converted into market dominance and financial benefit.
33
Exhibit 1. Article at the time of original Sea-Doo launch
34
Exhibit 2. Article at the time of original Sea-Doo launch
35
Exhibit 3. Source http://www.marinenewswire.com/market5.htm
Exhibit 4. Source: http://www.marinenewswire.com/market4.htm
36
Recreational Boating
Outboard
Inboard
Inboard
Boats
Boats
Runabouts Cruisers Unit Boats Sailboats
Canoes
PWC
Jet Boats
1970
436,500
276,000
13,250
13,250
43,000
51,000
40,000
-
-
1971
447,500
278,000
11,250
11,250
44,000
59,000
44,000
-
-
1972
631,000
375,000
11,500
11,500
63,000
114,000
56,000
-
-
1973
726,000
448,000
3,200
8,800
78,000
120,000
68,000
-
-
1974
729,000
425,000
3,200
7,800
70,000
143,000
80,000
-
-
1975
592,050
328,000
3,700
6,500
70,000
107,850
76,000
-
-
1976
615,850
341,000
4,950
6,050
80,000
107,850
76,000
-
-
1977
571,800
336,000
3,430
8,370
84,000
58,000
82,000
-
-
1978
576,300
331,000
3,730
8,370
90,000
63,200
80,000
-
-
1979
585,500
322,000
4,050
8,550
89,000
71,900
90,000
-
-
1980
532,300
290,000
2,900
5,300
56,000
73,100
105,000
-
-
1981
543,500
281,000
2,950
5,450
51,000
77,100
126,000
-
-
1982
453,725
236,000
3,200
5,125
55,000
53,400
101,000
-
1983
514,125
273,000
3,900
7,485
79,000
43,740
107,000
-
-
1984
584,030
317,000
4,500
10,780
108,000
40,750
103,000
-
-
1985
553,300
305,000
4,500
12,200
115,000
37,800
78,800
-
-
1986
569,400
314,000
5,300
12,700
120,000
37,200
80,200
-
-
1987
624,500
342,000
6,600
13,100
144,000
33,500
85,300
-
-
1988
651,820
355,000
7,400
13,500
148,000
38,120
89,800
-
-
1989
552,700
291,000
9,100
12,300
133,000
27,200
80,100
-
-
1990
435,500
227,000
7,500
7,500
97,000
21,200
75,300
-
-
1991
426,800
195,000
6,200
3,600
73,000
8,700
72,300
68,000
-
1992
444,550
192,000
6,400
3,550
75,000
10,600
78,000
79,000
-
1993
498,775
205,000
6,800
3,375
75,000
11,900
89,700
107,000
1994
576,200
220,000
7,200
4,200
90,000
13,000
99,800
142,000
-
1995
663,760
231,000
6,900
5,460
93,600
14,300
97,800
200,000
14,700
1996
634,750
215,000
6,000
5,350
94,500
15,900
92,900
191,000
14,100
1997
610,100
200,000
6,100
6,300
92,000
14,400
103,600
176,000
11,700
1998
571,100
200,900
6,900
6,600
91,000
19,400
107,800
130,000
8,500
Exhibit 5
37
Estimated
Year Expenditures
Retail
Total US Boat
Boats Owned
Registrations
0
1970
$3,440,000
8,814,000
1971
$1,627,903
8,981,000
5,510,092
1972
$3,900,000
9,210,000
5,910,794
1973
$4,245,000
9,435,000
6,339,678
1974
$4,607,000
9,615,000
6,830,456
1975
$4,800,000
9,740,000
7,303,286
1976
$4,800,000
10,105,000
7,721,196
1977
$5,920,000
10,515,000
7,975,587
1978
$6,690,000
11,270,000
8,034,905
1979
$7,500,000
11,625,000
8,200,000
1980
$7,370,000
11,832,000
8,555,754
1981
$8,250,000
12,495,000
8,905,097
1982
$8,100,000
12,820,000
9,073,972
1983
$9,375,000
13,041,000
9,165,094
1984
$12,340,000
13,778,000
9,415,023
1985
$13,284,000
14,285,000
9,583,673
1986
$14,479,000
14,318,000
9,876,197
1987
$16,500,000
14,515,000
9,963,696
1988
$17,927,000
15,093,000
10,362,613
1989
$17,143,000
15,658,000
10,777,370
1990
$13,730,903
15,987,000
10,996,253
1991
$10,564,458
16,262,000
11,068,440
1992
$10,317,250
16,262,000
11,132,386
1993
$11,254,041
16,212,000
11,429,585
1994
$14,070,599
16,239,000
11,429,585
1995
$17,226,206
15,375,000
11,734,710
1996
$17,752,671
15,830,000
12,057,269
1997
$19,344,470
16,230,000
12,309,724
1998
$19,148,369
16,824,000
Exhibit 6. U.S. Recreational Boating Total Expenditures and Boats Owned
38
Exhibit 7. Recreational Boats in use by boat type
Exhibit 8. PWC technical drawing
39
Exhibit 9. Personal Watercraft Viewed from Front Angle
Exhibit 10. Personal Watercraft Viewed from Side
40
Source: Responsive Management
Exhibit 11. Percent of respondents in each activity group who had participated in jetskiing more than once within the past 12 monthsxxii
Source: Responsive Management
Exhibit 12. Percent of respondents in each activity group who had participated in
motor-boating more than once within the past 12 months.
41
Exhibit 13. Percent of respondents in each activity group who had participated in each type
of boating activity more than once within the past 12 months
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Sea-Doo
Yamaha
Kawasaki
Polaris
Arctic Cat
Wet Jet & Other
28.6%
39.3%
27.2%
4.0%
0.0%
1.0%
35.1%
33.7%
20.8%
8.4%
1.8%
0.2%
38.3%
26.5%
19.2%
11.8%
3.2%
1.0%
39.1%
23.7%
14.8%
15.0%
6.0%
1.4%
47.3%
23.6%
13.3%
12.1%
3.3%
0.4%
43.4%
25.1%
17.2%
10.7%
3.6%
0.0%
42.8%
30.9%
15.6%
6.4%
4.2%
0.1%
39.9%
30.4%
17.6%
6.8%
5.3%
0.0%
39.9%
34.4%
15.0%
8.5%
2.2%
0.0%
43.6%
32.3%
14.0%
10.2%
0.0%
0.0%
Total
100%
100%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
Sources:
For 1992 - 2000: "USA PWC Market Share by Mfr. By Season" based on NMMA data
For 2001: Bombardier estimates
Exhibit 14. PWC Market Share by Manufacturer 1992 - 2001
42
ENDNOTES & BIBLIOGRAPHY
i. http://powerboat.about.com/cs/boattype1/p/pwc.htm
ii. http://en.wikipedia.org/
iii. http://www.parkeryamaha.com/68seadoo/sdbirth1.htm
iv. http://www.sea-doo.net/history.html
v. http://www.dalesjetsports.com/watercraft/History_PWC.htm
vi. http://www.jetski.com/section.cfm?id=67
http://web.mit.edu/invent/iow/watercraft.html
vii
viii. http://www.cgaux.org/cgauxweb/news/auxhist.html
ix. http://web.bryant.edu/~history/h364proj/sprg_01/rafferty/history.html
x. Domestic Shipment Statistics 1970 to 1998, www.nm ma.org
xi. http://www.rbbi.com/white/conflict/conflict.htm#intro
. http://www.boat-ed.com/wa/course/p1-5_knowyourpwc_ada.htm
xii
. http://www.pwia.org/
xiii
. http://www.nasbla.org/pdf/Boating%20Participation%20report.pdf
xiv
Responsive Management is an internationally recognized public opinion and attitude
xv
survey research firm specializing in natural resource and outdoor recreation issues. Their
mission is to help natural resource and outdoor recreation agencies and organizations better
understand and work with their constituents, customers, and the public.
National Marine Manufacturers Association (NMMA) is dedicated to creating, promoting
xvi
and protecting an environment where members can achieve financial success through
excellence in manufacturing, in selling, and in servicing their customers
The Growth Philosophy Of Bombardier An Interview With Laurent Beaudoin, Chairman
xvii
And Ceo, Bombardier Inc. Mehrdad A. Baghai, Stephen C. Coley, Ronald H. Farmer, And
Hugo Sarrazin The Mckinsey Quarterly, 1997 Number 2.
xviii
Source: Bloomberg.
xix
Source: Kawasaki Motors website (www.kawasaki.com).
xx
Source: Proprietary historic industry data from Bombardier.
xxi
Source: Proprietary historic industry data from Bombardier.
xxii
Interview with Christopher Dawson. VP Sales & Marketing. Bombardier Recreational
Products. INSEAD alumni.
xxii
Factors Related to Recreational Boating Participation in the United States. A Review of the
Literature. Responsive Management
43