July 14, 2024

Chicago News Cooperative: An Old Company With New Tricks to Teach

Early in this new century, another Chicago entrepreneur — Andrew Mason — took his shot at invention. Groups are the essence of this network-crazed era, and coupons embody cut-rate deals. Voilà: Groupon.

Companies grow faster these days than they did in Galvin’s time. They can also implode quickly. And that’s why it’s worth considering an instructive mash-up: stodgy old Motorola and the upstart Groupon.

The Motorola name has survived more than 80 years because three generations of Galvins and their successors dreamed big while remaining rooted to old-fashioned notions of profit and loss.

They invested in big ideas and enough basic research to keep thousands of scientists gainfully employed. Aggressive investment in new technology, savvy assessment of new markets and an unwavering commitment to the bottom line led to solid, steady results.

Motorola essentially invented the cellphone business. But not all of its innovations have paid off. The Iridium satellite-phone operation demonstrated that it was a bad idea to spend billions encircling the globe with dedicated satellites so people could phone home from deep-sea oil platforms, desert islands and Arctic tundra.

When technology and market changes dictated a radical change, Motorola responded. Early this year, it split in two. Motorola Mobility is, essentially, the former Motorola’s feast-and-famine cellphone business. Motorola Solutions is the stodgier sibling.

Nobody writes gee-whiz stories about Motorola Solutions. The company makes communications equipment used by police and fire departments, soldiers and security guards, retailers and manufacturers. Dull. Unless, of course, the equipment saves your life or boosts your business.

It would seem, at first blush, that Groupon has a great deal to learn from Motorola Mobility. After all, both Groupon and Mobility are in the consumer marketplace. They both have to be fleet-footed to stay on top of — and drive — retail trends.

In fact, Groupon, the upstart deal site, might learn more from stodgy Solutions. Groupon may be a hot new concept in Web-based commerce, but it isn’t much of a high-technology company. The key to long-term success will lie in its ability to make its fairly prosaic offering — cheap goods and services — an essential part of its customers’ everyday lives.

That’s something Motorola Solutions knows how to do.

With $8 billion in sales, Solutions spends about $1 billion a year on research and development. That’s a significant chunk, but even more critical is the way the company tailors those investments to the markets it serves.

For a single product set — the communications gear inside a police cruiser — Solutions conducted in-depth interviews and ride-alongs with more than 250 officers. The technology that resulted can scan license plates in a parking lot at speeds up to 20 miles an hour, remotely control gun locks that keep officers safe and help the police talk to headquarters while chasing bad guys.

“Innovation is alive and well at Motorola Solutions, and our business is thriving,” Greg Brown, the chief executive, told technology reporters at his new company’s debut on Wednesday.

Solutions, which dumped a troublesome networking company early this year, is earning profit margins of around 20 percent on its continuing operations. Through the end of March, sales to corporate customers were up about 14 percent, while sales to the government rose about 5 percent. Company officials say profits will most likely rise more quickly than sales once the economic recession eases.

Groupon has shown signs of its ability to build a sustainable business by focusing on customer needs. It is segmenting its markets into areas like travel, focusing on delivering deals where its members are located, and rolling up customers in a sprint to create a competitive advantage over other deal sites. And it is reaching around the globe in the belief that a bargain in Beijing is just as attractive as one in Boston.

The trouble is that despite its strengths, Groupon has also demonstrated a weakness for the facile and fatuous.

Groupon rightly drew sneers last month when papers filed in advance of its first stock offering showed it had come up with a fanciful new way of measuring results. Rather than focusing only on profit and cash flow, Groupon suggested, people should take a look at how much money Groupon would make if it didn’t have to spend $130 million in the last year — and growing fast — on the costs of marketing its products, acquiring new customers and distributing stock to its executives.

This is the same sort of misguided thinking that once had people believing revenues trumped profits or clicks outweighed operating costs. Then the dot-com bubble burst.

If Groupon’s stock offering proceeds as its founders hope, a company with revenue of $1.3 billion in the last year — also growing fast — could be worth at least $15 billion to investors. That’s precisely the current market value of Motorola Solutions.

Chances are Groupon will top its targeted $15 billion valuation, but the real test will be the one Motorola Solutions has passed: demonstrating, perhaps decades from now, that Groupon was worth it.


Article source: http://feeds.nytimes.com/click.phdo?i=50b92cc65e65a27e4ecf0da90d9c8312

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