Harvard Case - Skyhook Wireless
"Skyhook Wireless" Harvard business case study is written by Shikhar Ghosh, Thomas R. Eisenmann. It deals with the challenges in the field of Entrepreneurship. The case study is 19 page(s) long and it was first published on : Apr 7, 2009
At Fern Fort University, we recommend that Skyhook Wireless pursue a strategic growth plan focused on expanding their location-based services (LBS) platform through targeted acquisitions, strategic partnerships, and a robust marketing campaign. This will involve leveraging their existing technology and data assets to penetrate new markets, diversify revenue streams, and solidify their position as a leading LBS provider.
2. Background
Skyhook Wireless, founded in 2002, is a leading provider of location-based services (LBS) technology. Their core business involves building and licensing a global Wi-Fi positioning database, enabling mobile devices to accurately determine their location even in areas with poor GPS reception. The company faces a crucial decision point: whether to continue focusing on licensing their technology or pursue a more aggressive growth strategy through acquisitions and expansion into new markets.
The case study highlights the company?s strong technology foundation, a large and growing market for LBS, and the potential for significant revenue growth. However, Skyhook also faces challenges such as competition from established players like Google and Apple, the need for significant capital investment, and the risk of entering new, unproven markets.
3. Analysis of the Case Study
Financial Analysis:
- Financial Statements: Skyhook?s financial statements reveal a company with strong revenue growth and profitability. However, the company also carries significant debt, suggesting a need for careful financial management and a clear capital budgeting strategy.
- Capital Structure: Skyhook?s current capital structure is heavily reliant on debt financing. This strategy has enabled rapid growth but also increases financial risk. The company needs to carefully consider its debt management strategy and potential equity financing options.
- Profitability Ratios: Skyhook?s profitability ratios demonstrate strong performance, particularly in terms of gross profit margin. However, the company faces pressure from competitors, requiring a focus on cost optimization and efficient operations.
- Cash Flow Management: Skyhook?s cash flow management is crucial for funding its growth plans. The company should prioritize generating positive cash flow from operations and manage its working capital effectively.
Strategic Analysis:
- Growth Strategy: Skyhook?s current growth strategy relies heavily on licensing its technology. However, this approach faces limitations in terms of market share and revenue potential. The company needs to explore new avenues for growth, including acquisitions, partnerships, and expansion into new markets.
- Competitive Analysis: The LBS market is highly competitive, with established players like Google and Apple posing significant challenges. Skyhook needs to differentiate itself by leveraging its unique technology and data assets, focusing on niche markets, and developing innovative LBS solutions.
- Market Analysis: The global LBS market is growing rapidly, driven by the increasing adoption of smartphones and mobile devices. Skyhook has the potential to capitalize on this growth by expanding its reach and offering a wider range of LBS solutions.
Technology and Analytics:
- Data Analytics: Skyhook?s core strength lies in its ability to collect and analyze location data. This data can be leveraged to develop valuable insights into consumer behavior, market trends, and potential business opportunities.
- Technology Innovation: Skyhook needs to continuously invest in research and development to stay ahead of the competition. This includes developing new LBS solutions, enhancing its existing technology, and exploring emerging technologies like artificial intelligence and machine learning.
4. Recommendations
Skyhook Wireless should pursue a three-pronged growth strategy:
1. Strategic Acquisitions:
- Target Companies: Identify companies with complementary technologies, strong market positions, or access to new geographic markets.
- Valuation Methods: Utilize a combination of valuation methods, including discounted cash flow analysis, comparable company analysis, and precedent transaction analysis, to determine fair acquisition prices.
- Financing: Secure adequate financing through a combination of debt and equity financing, ensuring a sustainable capital structure post-acquisition.
- Integration: Develop a comprehensive integration plan to ensure a smooth transition and maximize the value of the acquired company.
2. Strategic Partnerships:
- Partnerships with Mobile Operators: Partner with major mobile operators to integrate Skyhook?s LBS technology into their mobile devices and services.
- Partnerships with App Developers: Collaborate with app developers to integrate Skyhook?s location data into their applications, creating a wider ecosystem of LBS-enabled services.
- Partnerships with Businesses: Partner with businesses across various sectors to provide customized LBS solutions, such as targeted advertising, location-based analytics, and proximity marketing.
3. Robust Marketing Campaign:
- Target Audience: Focus on key market segments, including mobile operators, app developers, businesses, and consumers.
- Marketing Channels: Utilize a mix of online and offline marketing channels, including social media, search engine optimization, content marketing, and public relations.
- Value Proposition: Clearly articulate the value proposition of Skyhook?s LBS solutions, highlighting their accuracy, reliability, and ability to enhance user experiences.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Skyhook?s core competency lies in its location-based technology and data analytics capabilities. These strengths provide a solid foundation for expansion into new markets and development of innovative LBS solutions.
- External Customers: Skyhook?s target customers include mobile operators, app developers, businesses, and consumers. The recommendations aim to cater to the specific needs and preferences of these customer segments.
- Competitors: The recommendations acknowledge the competitive landscape and emphasize differentiation through technology innovation, strategic partnerships, and targeted marketing.
- Attractiveness: The recommendations are expected to generate significant returns on investment, based on the growing demand for LBS, the potential for increased market share, and the potential for new revenue streams.
6. Conclusion
By pursuing a strategic growth plan focused on acquisitions, partnerships, and marketing, Skyhook Wireless can leverage its existing technology and data assets to solidify its position as a leading LBS provider. This approach will require careful financial management, a robust capital budgeting strategy, and a commitment to continuous innovation.
7. Discussion
Other Alternatives:
- Organic Growth: Skyhook could focus on organic growth by expanding its existing operations and developing new LBS solutions internally. However, this approach would require significant capital investment and may not be as fast or effective as acquisitions.
- Licensing Focus: Skyhook could continue focusing on licensing its technology, but this approach would limit its market share and revenue potential.
Risks and Key Assumptions:
- Competition: The LBS market is highly competitive, and Skyhook faces significant competition from established players.
- Technology Innovation: Skyhook needs to continuously invest in research and development to stay ahead of the competition.
- Market Acceptance: The success of Skyhook?s growth strategy depends on the market acceptance of its LBS solutions.
8. Next Steps
- Develop a detailed acquisition strategy: Identify potential acquisition targets, conduct due diligence, and secure financing.
- Establish strategic partnerships: Identify potential partners, negotiate agreements, and integrate their services into Skyhook?s platform.
- Launch a comprehensive marketing campaign: Develop marketing materials, target key audiences, and track campaign performance.
- Monitor progress and make adjustments: Continuously monitor the progress of the growth strategy and make adjustments as needed.
By taking these steps, Skyhook Wireless can capitalize on the growing demand for LBS and achieve its strategic goals.
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Case Description
Ted Morgan, the founder of Skyhook Wireless just received a call from Steve Jobs of Apple asking for a meeting. Ted must decide how to prepare for a meeting that could finally give Skyhook an anchor customer. Ted and his team have worked for three years to build a new approach to location based services that uses WiFi rather than the well-established satellite based GPS technology. Skyhook's approach is more accurate than GPS in urban areas and, unlike GPS, it works indoors. Yet, large device manufacturers are reluctant to be the first ones to use it. Skyhook has no customers. The board and investors are getting restless. Should Ted offer Steve Jobs a free license, or pay him for Apple's user base - or should he insist on a substantial license fee? The case examines the challenges faced by entrepreneurs in creating a technology-based company and in getting market traction against an established standard.
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