Their insight: PC users were using just 20-30% of the total computing power available on normal stuff like browsing, mail, working on MS Word or watching videos. Their solution: To create an affordable product with just enough computing power to perform these routine tasks. The Asus Eee PC (Personal Computer) project was formally kicked off in March 2007. In August, Shen called in a thousand Asus employees to test early versions of the new product - Eee PC.
Satisfied with the feedback, Shen knew it was going to be an exciting launch. Two months later, the Euro 500 product that rolled out of Asus factories was lightweight, ran on an easily navigable version of Linux which nevertheless also accorded it some geek cred and had a solid state drive. The product's tagline said it all: 'Easy to learn, Easy to work, Easy to play'. And rest as they is history; notebooks took the PC world by storm. "The results were beyond our imagination," says Shen, CEO of Asus. And then, "I wish we had also thought of a touch interface," he guffaws.
For a company that was started in 1989 in a single apartment by four computer engineers - Wayne Hsieh, Ted Hsu, MT Liao and TH Tung - to etch its name on the global tech leaderboard is a testament of their incredible journey led by Eee PC-like innovations. An oft repeated story in ASUSTek Computer goes back to the founding year 1989, when the founders decided to create a new 486 motherboard design without having access to a 486 processor that Intel wouldn't give to Taiwanese firms. And during a visit to Intel office, the co-founders found the engineers at the chipmaker grappling with a problem that the newbies fixed in minutes. But that was 1989. Intel now gives Asus top partner status.
"Now the chipmakers seem to think we are the company that will help the industry fight Apple," says Shen who takes pride in Asus being called 'affordable Apple'.
Game changer
Glance the company's numbers to gauge how well it has done in a cut-throat and stagnant category, like PCs despite a modest OEM (Original Equipment Manufacturer) background. Asus closed 2011 with revenues of $11.5 billion. And that is the revenue only for the ODM (Asus-branded products) business.
Back in 2008, Asus split its manufacturing and brands business. Today, the combined revenues of both businesses would exceed $45 billion. On the mobile PC front, Asus' worldwide market share is pegged at 11.7 per cent, up from 9.8 per cent during the same period last year. And it is currently No. 5 in the PC pecking order. In tablets, again, it holds the No. 5 place and sales were up 216 per cent with 23,50,000 units shipped in Q3 2012. And, just for the record, before the company split in 2008, one in every three PCs was using an ASUS motherboard.
So how did Asus manage to crack the tough computing business?
Lesson No. 1: A low margin business can also be a money-spinner
Asus is amongst the new crop of Taiwanese technology companies, like HTC and Acer, which have risen in the last 15 years or so to challenge the dominance of established tech giants, like HP and Dell. Ask Shen the reason for his success in a stagnant PC market when traditional giants like HP and Dell and the Japanese companies like Sony and Toshiba are struggling. He is quick to put it down to the way they approach the business and agility.
"The PC market is mature and in such markets margins are thin. For US companies, margins of 3-4 per cent are very low. Also, the American and Japanese companies are too slow to react. Companies like Asus moves fast and that speed to market gives us maneuverability even in a low-margin business ," he says.
Lesson No. 2: Innovate even at tough times
With the commoditisation of PC business and slow growth, the American and Japanese companies have focused heavily on managing cost. During that time, Asus has attacked the market with a slew of new innovative tablets (Transformer), ultrabooks (Zenbook) and hybrid netbooks (Taichi); all pushing the boundaries in performance and usability. Shen says even during the tough market situation when global PC growth has been stagnant, Asus has grown every quarter in 2012 due to the innovation focus.
"Two years back, I saw that the market was changing after Apple launched iPad. I told my people we have to be original. While the western companies were talking about cost to their OEMs, we were talking about innovation and perfection. We talk about innovation first, then cost," says Shen.
Lesson No. 3: Manage customer needs at right cost
Given that being cost competitive is a hygiene factor in a hyper-competitive industry like PCs, the challenge is to do that smartly. Asus follows W Chan Kim and Renee Mauborgne's Blue Ocean principles of Eliminate-Reduce-Raise and Create Grid to create differentiated products.
"We look at the product features closely. We enhance and raise the cost of the features that the customers want and we eliminate the features that customers don't care about," explains Shen.
Asus engineers works on the simple principle of add and minus management: add features like audio, touchpad and keyboard that increase customer satisfaction but subtract features that customers don't care about to balance the cost. "R &D is also not only for innovation but is also important for cost management," says Shen.
Lesson No. 4: Restructure to enhance competitiveness
Asus was originally a hardware vendor manufacturing motherboards, laptops and graphic cards for other leading PC manufacturers but later the company also started selling PCs under its own 'Asus' brand. In 2008, as the company grew, the business was split into brands and manufacturing with Asus keeping the brands and the newly-formed offshoots Pegatron and Unihan, focusing on manufacturing. The leaders restructured the businesses for better competitiveness and also to minimise potential conflicts of interest (Pegatron works with competitors , like Apple and HP).
"For an OEM, scale and efficiency is important, and for a brand, innovation and perfection. So we split the company to achieve more single-mindedness in our operations ," explains Shen.
While splitting the business worked for Asus, the leaders at another tech competitor, HP, think otherwise. The new CEO Meg Whitman refuses to part with the PC and printing businesses. "It is the heritage of HP. We are market leaders in the business and we are good at it. We have fantastic supply chain that helps us in our server, storage and networking businesses," she explains.
Lesson No. 5: Every product should push boundaries
After Apple launched its game-changing iPad, tablets have been one category that every PC company has targeted and struggled with. HP even pulled back after spending millions on its Touchpad and even players like Dell and Sony are struggling. Last year, Asus launched its EeePad Transformer, a tablet with an add-on keypad and EeePad Slider, a hybrid of a tablet and portable PC that tried go beyond the tablet format. Recently, the company launched Taichi, a dual screen, multi-touch fusion of netbook and tablet, another first. The strategy going forward is to target aggressively the 2-in-1 (notebook-tablet ) but also 3-in-1 (notebook /tablet/smartphone ) category.
"This year, we have sold more than 7 million tablets. The top players in the tablet market , apart from Apple, are one PC player (Asus), one smartphone player ( Samsung) and one content player ( Amazon). We believe the PC background gives us a unique advantage to play across categories and across multiple platforms," says Shen.
Lesson No. 6: Design thinking is a competitive advantage
With a new avatar in 2008, Asus' top management started pushing a design thinking culture throughout the organisation. Shen says it took two years of constant efforts on the part of the top management for design thinking to percolate down to each person of the organisation.
"Now we are trying to grow our brand through 'experience branding' . We want people to be moved and touched by the beauty and usefulness of our products," says Shen. Handling the Padphone 2 (smartphone/tablet combo), Shen demonstrates how the sleek smartphone slides into the tablet to become one working unit. "It weighs just 649 grams and it's thinner and sleeker than its earlier version. It can be turned into a notebook too," says Shen.
At the Taipei headquarters, the company has more than 100 designers working on different facets of design: material, industrial design and usability.
Lesson No. 7: Reimagining old products
A lot of Asus' growth can be attributed to its ability to re-imagine already existing products. Shen recalls how they are ready to think out of the square in PCs and that has helped the industry grow too, like with the Eee PC. In an incident that's reminiscent of the past, a few months back Shen and Shih flew to San Jose to meet Intel's Paul Otellini and his team with their new Zen Book, an extremely stylish ultra thin, ultra light notebook. "The Intel guys changed the name of the segment to Ultrabook. That means we also try and help the industry by evolving new segments," says Shen. The Intel marketing team had earlier coined the Eee PC category as Netbook.
Lesson No. 8: Be always prepared for disruption or big shifts in market
The PC makers have to be war-ready all the time with the post-PC era looming over their head. The popularity of newer devices, like tablets and smartphones, is changing the rules of the game. And the rules of change are brutal: adapt or die. Michel Dell explained his rationale to transform his hardware company into an IT solutions provider to CD in an interview few months back. "I think all business are seeing some greater change accelerated and that to some extent is driven by IT itself. So every business has to evolve and understand how it is going to stay relevant, affordable , valuable and create things which are going to be important to their current and future customers," he said.
How is Asus preparing for that era? Shen feels the PC industry is converging. Companies will need to have expertise in tablets, notebooks and smartphones to succeed in the future marketplace. And if the company has expertise only in one category, it will spell trouble in the near future. Asus already had a very strong engineering background due to its OEM background but today employs more than 4,000 engineers (more than 20 IITians included) in its R&D centers in Taipei and China who are constantly working on new innovations and new designs to keep one step ahead of the market.
But entering newer adjacencies is a dangerous exercise. PC makers who have tried to enter into tablet space (HP) and smartphones (Dell, HP) have failed. Will Asus succeed? Shen gives Asus a chance. "If we sell only smartphones, we will fail. But with the 3-in-1 innovation (tablet-smartphone-notebook ), it will work. We have spent two years to make the 3-in-1 platform perfect . After spending two years, we think we can go to the mainstream market. We are betting on the platform," says Shen.
The coming two years will be tumultous for PC makers as intense competition, newer devices , a fast rate of obsolescence and newer operating systems change industry dynamics. Shen feels they are on strong ground. "After the launch of Windows 8, big changes will happen from now to the end of 2014 in the PC industry. There will be consolidation and it will be clear who the winners or losers in the PC race are. Hopefully, we will be one of the winners," Shen says.
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