Article at a Glance – Innovation, Operations
SK Telecom, Korea's largest mobile carrier, needed to pioneer new markets as the telecom industry's growth slowed. But it didn't have much experience directly planning and developing new services and hardware on its own. The premium set-top box "B box," which began in 2012 and launched in early 2014, wiped away concerns about inexperience and gave the company confidence that it could create a new growth engine. Here is what the company did to turn the set-top box — traditionally seen as a mere accessory to the TV and a product with no need for differentiation — into an independently-branded product:
1) Gave it a sleek, white-porcelain feel and mood-lighting functionality, so instead of a set-top box shoved inside a TV cabinet, it became one you want to place outside on display. They also paid attention to making the remote control feel upscale.
2) Added convenient free value-added features like home monitoring (CCTV function), while putting the fundamentals of TV — channel viewing and video-on-demand — front and center in the screen UI.
3) Brought in developers hired from smartphone makers and internet portal companies starting at the product-planning stage, raising development feasibility and keeping manufacturing costs in line.
Editor's note: DBR Case Study has so far covered many success stories. But we decided that even early-launch products for which commercial success cannot yet be judged can be subjects of case study if they are innovative in themselves. This case is written from that perspective. DBR will revisit this case one to two years from now, when commercial performance can be evaluated, to analyze the factors behind success or failure. Because many factors influence commercial success, we cannot declare success at this stage, but we believe the awareness this case raises and its product-development process have value. We hope many business leaders thinking about new-product development will gain insight.
In the autumn of 2012, the Product Planning 1 Team gathered in a meeting room at SK Telecom's Euljiro headquarters and put their heads together with consultants from a UX design firm. They had been put on the project to build a set-top box for internet TV at home. Internet TV is originally the territory of the subsidiary SK Broadband, but in the spirit of "setting product strategy from a new viewpoint, regardless of wired or wireless," the parent company SK Telecom took on the planning of the new set-top box.
The concept planning started in early 2012. The mobile telecom business was close to saturation, and fixed internet, IPTV, and internet services were in the same boat, so the company needed a new growth engine. As one planner put it, "While doing product planning for next-generation growth, we reached the conclusion that the next battleground is likely the home. The home is where wired and wireless services meet. Fortunately, we have both IPTV and fixed-mobile infrastructure, so we said, let's make a product that can capture the home." That's what Choi Jeong-ho, Manager of Product Planning 1 Team, said.
Initially advanced as the "H Project" — to develop a product that spans wired and wireless and can act as the home's communication/entertainment hub — the new product was later renamed "B box" to align with SK Broadband's branding.
The devices that can act as home IT hubs are the ones that are always on and connected to the internet — refrigerators, washing machines, and TVs. A considerable number of electronics makers, telecom operators, and internet companies have been investing in developing TV's potential as a home hub. No single company had yet shown clear results, but SK Telecom, through SK Broadband, also zeroed in on the internet TV set-top box business it was already running.
Up to that point, it wasn't so difficult. The problem was how to get consumers to accept this product. There are countless innovative IT products that disappear because consumers don't feel any particular need to buy them.
Another problem was the structural nature of the internet TV business. The one actually selling internet TV service and set-top boxes to end users is not SK Telecom, but its subsidiary SK Broadband. For the sales team, which has to sell a monthly-subscription internet TV service, the set-top box is a fixed cost. In Korea, consumers typically don't buy the set-top box directly; instead they pay a cost-recovery-style rental fee when they sign up for internet TV and effectively lease the box for the duration of their contract. Internet TV operators earn most of their revenue not from set-top box rentals but from the monthly service fee. So from their perspective, if the set-top box chases too many high-end features, the price rises and the tail starts wagging the dog.
In short, the B box had two kinds of customers. They had to consider the benefits to the end consumer watching TV, and at the same time the profitability of SK Broadband selling the service.
Figure 1. B box development timeline
Internalizing development capability
The difficulty didn't end there. The most awkward problem in shaping the project concept was that SK Telecom had almost no prior experience planning and manufacturing hardware and software systems for tangible consumer products. As a telecom carrier, it had long been the domestic number one in building communication infrastructure like optical networks and in selling mobile-phone and smartphone service, but it rarely planned or built the phones themselves. The subsidiary SK Broadband also sourced its set-top boxes through OEMs. Taking an internet TV set-top box — a complex piece of consumer electronics — from a blank slate through to manufacturing was a hard project to run. There was no project experience, no development infrastructure, only will.
Manager Choi Jeong-ho recognized this difficulty. "Until then, we'd had almost no experience of internalizing a development organization within the company. We were a network-business organization. Until smartphones and open platforms like Android spread, telecom carriers — especially the high-market-share ones like SK Telecom and KT — held the initiative. We could just order external vendors to 'build it to our specs.' Everyone wanted to work with us anyway, so those were the good days when we didn't have to keep our own internal development organization. But the world changed. Smartphones came, the era of open OS came. The internet was opened. Now external software vendors no longer have to build products only for a specific carrier. If they match a public spec like Android, one product can be supplied to countless carriers and service operators. In other words, the power of outside vendors grew compared to the past. Meanwhile, through those good days, our own development muscles had grown weak."
In other words, whereas an SK Telecom planner's job used to be reviewing the planning documents brought by outside vendors, the planning work going forward meant literally managing, on one's own, the product and service concept as well as the design and manufacturing process. It was no longer the case that if you simply offered a platform, app developers would line up to jump on. For example, when the team proposed porting a popular mobile game to a TV version in order to strengthen the B box's gaming features, the game company demanded 100 million won per month regardless of user count. That was equivalent to the rental revenue of 20,000 set-top boxes — an ask that was hard for SK Telecom to accept. In the old days, a game company would have pleaded to get its title onto SK Telecom's platform even at its own expense; now the world had flipped and game companies were the ones talking tough to platform operators.
Acutely aware of the lack of "basic muscle," the product planning team aggressively reinforced its ranks from inside and outside. Under SVP Wui Seok-gun, the team added Manager Yoon Young-ran, who had done smart-TV planning at Samsung Electronics' U.S. subsidiary, along with young people in their early-to-mid thirties drawn from various in-house teams. Manager Choi Jeong-ho, who had been in charge of marketing strategy and CRM, was brought in as PM. These were people who could think relatively freely of SK Telecom's existing mobile-telecom paradigm. Developers and managers from SK Broadband joined the team as well, and experienced hires came in from internet portal companies and smartphone makers. Developers including Manager Cho Gyu-hyung, who had been developing Android system software at Pantech, participated actively from the planning stage to complement the SK Telecom planners' lack of manufacturing knowledge. They checked feasibility at every stage of the planning proposals coming from the product-planning team. Thanks to that, hardware and software development could progress in parallel, and development was possible in a relatively short time. (Figure 1)
Get it out of the TV cabinet
From the autumn of 2012, the hybrid team thus formed set out to put flesh on the abstract concept of "a beachhead device to enter the home market." Progress up to then had been slow, and they needed to hurry.
In the existing market, it's not an exaggeration to say the set-top box's role was limited to showing TV channels and VOD. Even people using higher-priced set-top boxes with internet features, or smart TVs, spent nearly all their time watching TV, with under 1% of their time used on add-on features. In most homes, the set-top box just sits hidden inside the TV cabinet and does nothing more than display the channel number.
In this context, building an expensive, feature-packed set-top box might attract momentary interest, but it would be unwelcome to both consumers and salespeople. For the set-top box to function as a home hub, there had to be an occasion to naturally re-define the role of the set-top box itself. Once the set-top box started to stand out as an independent brand product rather than a TV accessory, the thinking went, plenty of business opportunities using the wired and wireless networks would follow.
Sure enough, every problem came back to square one: how to break free from the traditional set-top box image. The saving grace was that almost every home has at least one set-top box, and the product is indirectly repurchased whenever someone switches internet service provider.
In the autumn of 2012, Planning 1 Team decided to think from the consumer's viewpoint again. They brought in Plus X, a UX (user experience) design specialist. The SK Telecom planners and the Plus X consultants started by trying to understand how people perceive TVs and set-top boxes. TV, short for "television," is a device for seeing (vision) things far away (tele). And "set-top box," by its dictionary definition, is a box installed on top of a TV. Customers were especially dissatisfied with the set-top box's messy look. As a result, the Korean market was dominated by flat boxes designed to hide inside TV cabinets or be as unnoticeable as possible.
After brainstorming, the meeting participants concluded that SK Telecom's "home hub" should look completely different from existing set-top boxes, starting from the outside. A home hub should literally become the center of a household. "Let's take the set-top box out of the TV cabinet so users can see it with their own eyes" — that was the conclusion they reached. The task was now narrowed to three: (1) a design that looks pretty and not awkward even when it's out of the cabinet; (2) features that don't interfere with TV viewing but add more on top of it; and (3) a software UI that makes TV viewing and the use of extra features comfortable and efficient.
The remote control was made rechargeable to eliminate the hassle of replacing batteries. The biggest source of anxiety for regular TV viewers is remote-control batteries, but since they'd always taken it for granted, they rarely complained — this team caught that blind spot.
The exterior-design consultancy proposed these four brand keywords for the "home" concept:
1) Rounded/Soft (flexible and softly falling)
2) Harmonious/Suitable (naturally blending in)
3) Connectable/Centric (connecting communication from the center)
4) Minimal/Simple (clean with no excess)
Because the TV cabinet was not in mind from the start, various form factors were considered. The finally chosen design was a box with softened corners that evokes traditional Korean white porcelain. They chose white — differentiated from the usual black set-top boxes — and, to achieve a smooth, seamless look like porcelain, they found a manufacturer able to produce the case with a plastic injection-molding technique. The corners were gently rounded. Every element was considered so as to match the feeling of the word "home." Finally, a lighting function was built into the inside of the case, so the set-top box itself emits indirect light.
"We thought that if the exterior was beautiful, users would take the box out of the TV cabinet and display it instead of hiding it, but it couldn't just be 'pretty because we say so.' Design is a matter of personal taste. So we made it usable as an indirect light or a mood lamp, so it feels like an interior accent," says Manager Yoon Young-ran.
More important than the case design was the remote control's design. What a TV viewer actually touches all the time is not the set-top box but the remote. It's handled dozens of times a day. So, even at higher cost, they used a premium-feel white plastic material. Instead of the squishy rubber buttons usually seen on remotes, they injection-molded and assembled hard, premium plastic buttons. The central 4-direction key had a sensor inside, so you could move the cursor by sliding your finger like on a laptop touchpad. To remove the inconvenience of replacing batteries, the remote could be charged via a standard smartphone charging cable through the set-top box, TV, or computer. Remote-control batteries are the biggest anxiety for regular TV viewers, but since it had been taken for granted, they rarely complained — and this team captured that overlooked corner.
Figure 2. B box with the lighting on, and the remote control.
Add-on features
In early 2013, as design work proceeded, hardware and software feature development also started. For consumers not to feel burdened by the extra cost, the box had to offer useful features. They added features in line with what other internet TVs and smart TVs offered, while also choosing Android OS for future extensibility, so external developers would find it easy to build apps. In addition to the basic TV and VOD viewing, the following features were added:
- Home monitoring: monitor the home situation and detect motion via a video camera placed on top of the TV; also viewable in real time from outside the home via a smartphone.
- Video calling: HD-class video calls through the TV screen using the same camera. Phone numbers use the existing 070 internet-call numbers directly. Calls between B boxes, and between a B box and an LTE handset, are possible.
- Internet: an internet browser optimized for the TV screen.
- Family board: a board for sharing photos/videos/schedules among family members.
- Zimly: an app to wirelessly view media content stored on your PC on the TV.
- Ability to install Android widgets and apps for TV.
They found an OEM manufacturer that could turn these planned specs into the actual set-top box product. A factory-less SK Telecom couldn't go all the way to manufacturing on its own. After multi-faceted review of product strategy and the competitive environment, they chose Dasan Networks — a domestic set-top-box specialist with more experience implementing video-calling — as the manufacturer.
The premium design and added functions made higher manufacturing cost unavoidable. Apart from the plastic body and the aluminum trim on the bottom, no particularly expensive materials or parts were used, but they didn't compromise on overall aesthetics. The B box rental fee is currently 5,000 won per month on a three-year contract. That's 2,000 won more than the existing digital set-top box with VOD functionality.
Software design
But it was clear that extra features and a pretty form alone wouldn't be enough to convince users to pay the extra 2,000 won per month. Even the smart TVs rolled out by heavyweights like Samsung Electronics were spreading slowly despite massive marketing. Internet-based TV products from Google and Apple weren't seeing much traction either.
The B box product-planning team decided to return to first principles. Rather than haughtily forcing add-on features, they decided to respect consumers' existing media usage patterns and give them what they most want first. That is, they raised the convenience of TV and VOD viewing — the features consumers overwhelmingly use most on a TV.
The first screen that appears when you turn on the TV uses a smartphone-style "widget" approach. On most smart TVs, when you turn them on, a complicated jumble of menus comes up and the TV image gets pushed to a corner. On the B box home screen, the currently-selected channel's TV picture appears large right in the center. Small windows on the side also let you check the current broadcast of your top 20 channels at a glance. Beyond that, you can place features you want — weather, news, and so on — on the home screen. This is also a characteristic of the Android OS system used on smartphones.
The next most frequently used feature, VOD, was focused on making content easy to search. On existing set-top boxes, to pick a program you want, you have to burrow through Menu → Channel → Program. The B box adopted a center-alignment approach, where the currently-selected menu always appears in the center of the screen without requiring the user's eyes to move. (Figure 3) As a result, instead of the user chasing the menu, the menu follows the user. Using the remote's touch sensor, users can flick through lists with a finger. Also, the edges of the remote, the set-top box body, and the on-screen UI were all given the same curvature to produce a consistent style. (Figure 4)
Figure 3. Center-aligned VOD selection screen.
Figure 4. Remote control, body, and widgets with matching curvature. The body shown is a prototype; the product actually sold carries the B box logo.
Product launch
The B box was made public on January 23, 2014. With the launch of the B box, SK Broadband now had three types of set-top box in its lineup: the basic set-top box optimized for real-time TV and VOD at 2,000 won per month (3-year contract), the smart set-top box using Google TV 4.0 at 3,000 won per month, and the premium B box at 5,000 won per month. Full promotion and distribution of the B box started in March.
Because the B box was only just released, it is impossible to judge its success yet. And because many factors — marketing capability, strategy, luck — affect whether something becomes a commercial success, predicting future performance is very hard. The company does not disclose exact unit sales but said it achieved 30% of its annual target in the three months after launch. Even before full marketing had kicked in, it was selling more than originally projected. Factoring that in, the company revised this year's sales target up 50% from the initial goal. One concern is that customer complaints related to the remote control are relatively frequent compared to previous products. The company says it's a matter of users accustomed to the existing infrared-style remotes adapting to the new Bluetooth remote. It's a problem caused by a lack of development experience, and they're working on improvements together with the OEM.
The B box's design got strong reviews not only from the public but also from expert circles. It won main awards at two of the world's three biggest design awards (iF product design award 2014, IDEA design award entertainment category). Manager Yoon Young-ran said, "IDEA awards usually go to products from huge manufacturers like Samsung, LG, and Sony — and this time, among the co-winners was a curved OLED TV that costs over 4 million won. I think that's an achievement in its own right."
After the B box settled into the market, SK Telecom sold the tangible and intangible investment assets related to it to SK Broadband for 8.76 billion won. Development and launch having been completed safely, the baton now passed to SK Broadband, which handles the actual sales. Compared to SK Telecom's total revenue of 16.6 trillion won in 2013, the 8.7 billion won earned from a project invested in for more than two years could be seen as a negligible amount. But the more important outcome than the revenue was the confidence that SK Telecom could find a new growth engine and pioneer new markets on its own.
Manager Yoon Young-ran said, "Our company used to make invisible services, not visible products. We proved to ourselves that we can do this kind of thing too."
Manager Choi Jeong-ho, who served as PM, sees an even bigger possibility. "Until now, the competitive rule in the traditional set-top box market was how many tens of thousands of VODs you have that no one ever watches. The B box, on the other hand, aimed to be a set-top box whose goodness you only understand once you use it. I see this as an opportunity for the competitive rule in the market to shift from the number of VOD titles to actual user convenience."
Implications — A new approach to set-top boxes
The set-top-box market is generally seen as one in which end-consumer preferences are not varied. Because it is wired to routers, TVs, and power plugs, it looks messy; and after you turn it on, it only changes channels, so there's no need for it to be "good-looking." On top of that, consumers only care whether it provides the TV programs they want, so it's hard to differentiate on service either. In short, set-top boxes were products that needed no differentiation in the market either as a device or as a service.
When differences among products in a market are small, consumers rely on the habit of "inertia" to repurchase the same product, or rely on another habit, "variety seeking," and try many products. Products with this kind of low consumer involvement form a wide range of markets — from consumer goods like toothpaste and tissue to office supplies like printer paper and toner, and even financial products like banks and auto insurance. Planners in such markets make various attempts to create not a commodity that matches the general public's flat habits, but a "spicy," differentiated product reflecting the picky preferences of individual consumers. They emphasize that the product is new, simplify the functions, advertise that their ideal customers buy it, or send eco-friendly messages.
The B box shows an unusual case of attempting differentiation in a habit-based market. First, for differentiation as a product, the set-top box's interior-decor function was emphasized. With clean cable management, a distinctive form and color, and mood lighting, it can now play the role of an interior accent you can actually display. Next, for differentiation as a service, various features beyond TV were added. Features essential to a home hub — video call, home monitoring, family board, launcher, and more — were added so they can be operated conveniently through UIs familiar from computers and mobile. In short, it was designed as a product that goes against what consumers intuitively expect, to match preferences for expandable services.
Broad collaboration
In the existing set-top-box market, manufacturers did not reflect diverse consumer preferences and focused on unit-cost competition, while developers moved to the more opportunity-rich smartphone market. As a result, even when someone plans an innovative set-top box for meaningful differentiation, excellent manufacturers or development talent are hard to secure, so development costs rise and the final quality isn't guaranteed. When supply resources for differentiation in the market are lacking like this, Korean big companies typically look for talent overseas. They go to specific schools in North America or Europe (campus tours), or find specialized workers with similar skills but lower labor costs in China and India (sourcing). But recently, thanks to high-level education programs in Korea, gaps in education between countries have narrowed, and labor costs in China and India have risen. In some cases, finding supply resources overseas is even harder than at home.
B box development is distinctive in that it didn't simply rely on specialists trained abroad. Instead, Korean planners, developers, designers, and manufacturers collaborated to plan and develop the product. In the past, developers often reviewed planners' specs and concluded, "This can't be done." With the B box, developers were heavily involved in planning and often said, "If you tweak it this way, it can be done." If internal collaboration between planning and development was effective, externally effective communication with outside vendors was equally crucial. Thanks to constant communication with companies with different goals and cultures — the design firm Plus X, set-top-box manufacturer Dasan, remote-control manufacturer, and more — the unique initial concept was preserved while a set-top box with many functions was completed. This kind of cooperative relationship matches development-team Manager Cho Gyu-hyung's words: "We worked like a venture."
Sales and operations must also be innovative
With new products, it's hard even to plan the concept, and hard to push through to actual development. And research shows that even after getting through all these stages safely, the probability of success in the market is less than 1% (Cooper and Kleinschmidt, 1987). But because successful new-product launches are essential for a company's survival, there are many arguments about the consumers who will buy a new product and the suppliers who will develop it. Most of those arguments are, however, tilted toward one side or the other: (1) focused on consumer issues — which consumers buy new products, when should they be launched so consumers will buy, what marketing actions to take after launch — or (2) focused on supplier issues — how to compose the development team, how to encourage communication across teams, how to coordinate the production process (Hauser, Tellis, and Griffin, 1996).
By contrast, the B box project is a challenging one that has to shake both consumers and suppliers awake simultaneously. Predicting market demand was uncertain, and predicting development costs was hard. As a result, this was a project with very high "internal uncertainty." In such a case, the decision-maker's stance toward uncertainty and belief in the final outcome can stimulate both consumers and suppliers at once. The products of visionary innovators — James Dyson with the Dyson vacuum, Steve Jobs with the iPhone, Elon Musk with Tesla electric cars — were things consumers didn't even know they wanted at the time of launch, and there were countless trial-and-errors in development. The B box, breaking away from being a set-top box and moving toward functioning as a home hub, has overcome uncertainty at the planning and development stages, but sales and operations also need innovative management that can tame various uncertainties. In particular, there's a need for various sales-and-marketing strategies and after-service systems that can trigger changes in consumer behavior.
Prof. Juh Jae-woo, College of Business, Kookmin University — designmarketinglab@gmail.com
Prof. Juh earned a BA in humanities and an MA in business from Seoul National University, and a Ph.D. in marketing from the University of Toronto's Rotman School of Management. Based on behavioral decision-making psychology, he mainly studies design marketing, new-product development, and consumer behavior.
Reporter Cho Jin-seo — cjs@donga.com
