Gauri nanda net worth

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ELIE OFEK ELIOT SHERMAN

Clocky: The Runaway Alarm Clock

Having the alarm clock hide from me was just the most obvious way I could think of to get out of bed.

— Gauri Nanda

Gauri Nanda paused to catch her breath. The 27-year-old Massachusetts Institute of Technology (M.I.T.) graduate student was in the midst of a P.R. blitz that was unlike anything she’d experienced in her life—articles, interviews, and television appearances that had culminated, most recently, with a spot on Good Morning America, ABC’s erstwhile morning news show. And she wasn’t finished: next on her schedule was a guest appearance on the Today Show, Good Morning America’s NBC counterpart. It was October 2005, and the foreseeable future was looking busier by the day.

The source of all the attention, the result of years of hard work on Nanda’s part at M.I.T.’s Media Lab, was an innovative alarm clock named Clocky (see Exhibit 1 for a picture). Clocky was designed for people who had difficulty getting out of bed in the morning. In addition to emitting a repetitive beeping noise like a normal alarm clock, Clocky could jump off a nightstand and roll around the room, forcing owners to get out of bed to turn off the alarm and thereby ensuring a successful wake- up process. With an embedded computer chip Clocky could go in a random direction every morning, in order to keep owners “on their toes” and prevent pattern recognition.

But the flurry of media attention had come at an inopportune time for Nanda. Despite her efforts, Clocky was still only a prototype, one that had come close to not functioning during a live performance on Good Morning America. Buyers were lining up, but by Nanda’s own estimate she was still at least a year away from having the capacity to debut Clocky properly on the open market. Getting there would involve a steep learning curve, from manufacturing and distribution challenges to intellectual property issues. Overcoming these challenges and completing the production of Clocky would bring a slew of new challenges: how to best leverage the PR gained from the media attention to market Clocky, for example, and whether to partner with a large-scale retailer such as Wal-Mart or Best Buy or even to pursue co-branding opportunities with a product development outfit, like iRobot, that could make distribution easier but might require her to relinquish some control over her product.

Looking ahead, Nanda also wondered if, in the end, the rush of media exposure would prove to be a hindrance for her product and business. Would consumers interested in buying Clocky now be frustrated once they learned that the product was not yet commercially available, or would they be content to wait until Clocky reached the market? Should she make any effort to defer the current

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Professor Elie Ofek and Research Associate Eliot Sherman of the Global Research Group prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2006, 2007, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1- 800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

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507-016 Clocky: The Runaway Alarm Clock

media interest, with the intention of reigniting it once Clocky was closer to completion? And how would the current exposure affect her options for positioning Clocky? Nanda was putting the old adage that there was no such thing as “bad publicity” to the test.

The Birth of Clocky

Nanda had always been interested in melding technology and entertainment. She took a job as a software engineer at Apple Computers in 2000 shortly after graduating from the University of Michigan with a Bachelor’s of Fine Arts in Media and Music Technology. While she enjoyed the relaxed but professional atmosphere, she found that a lot of the work she was doing was entirely technical in nature and did not allow her to indulge her creative side: “At Apple, I was working as a programmer for Final Cut Pro, which is video editing software. I ended up there because that was a logical step considering my education. But it wasn’t the right place for me and I wanted to put my efforts towards work which wasn’t purely technical.” Nanda could not shake this feeling, so after one year at Apple she left the company and enrolled at M.I.T.’s Media Lab. In her second year at M.I.T., Nanda signed up for an Industrial Design course, finding the heavy dose of both real-world problem solving and creativity an excellent fit. She also discovered that she enjoyed working on projects from scratch and seeing them through to the end.

In Fall 2004, Nanda began designing Clocky as her electronics project for the course. She knew it would be a great topic—she had always found waking up in the morning difficult, resulting in multiple late arrivals and missed classes. She remembered a roommate during her undergraduate years who repeatedly slept through her alarm; for her the alarm clock had become completely ineffective, as she simply unconsciously incorporated the sound into her dreams. Nanda realized that for people like them an effective alarm clock needed to do more.

For her initial prototype Nanda fed randomly generated speed and directional values to a motor connected to small wheels that enabled the clock to move, reposition and find different “hiding spots” every day. She gave her project a dry run in her class where it was well-received, and pictures of the prototype robot were posted on the course web site. Nanda shelved her idea temporarily to finish work on her thesis, but before long, in February 2005, pictures of Clocky were raised from the depths of the web, linked into the limelight by popular gadget aficionado sites such as www.slashdot.com and www.gizmodo.com. It was not long before mainstream media outlets such as The Boston Globe began contacting Nanda to see if they could do detailed write-ups of Clocky. Calls from television producers soon followed.

Nanda received permission from her advisor to put her thesis on hold, and dove into the process of turning Clocky into a viable prototype that would be ready for “prime-time”: initial designs had the device connected to an external circuit as if on life support. As she was soldering circuit boards and sculpting Clocky’s skeleton from foam and wood, Nanda continued to field media inquiries, making for many late nights.

Design Choices

In developing Clocky’s “look,” Nanda attempted to evoke a warm, friendly reaction from consumers, similar to how they might view a household pet. Said Nanda, “Clocky is like your hungry pet cat. He’s going to wake you up and get you out of bed and he’s cute. The only difference

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Clocky: The Runaway Alarm Clock 507-016

is that he gets you up at the right time. I used to have kittens that would get me up and although they annoyed me at first, I couldn’t help but be amused by them, especially since they are so cute.”

One of the first design decisions Nanda made was to determine Clocky’s gender. She explained, “Some people ask me why I decided to make Clocky a he. Since I couldn’t have him genetically tested, I just decided that Clocky felt more like a him, like a male character.”

While Clocky’s physical design certainly set him apart from most other run-of-the-mill alarm clocks it did not necessarily strike many as more aesthetically pleasing—one reviewer went so far as to note that he resembled a “swiss roll on wheels.”1 Another observed that Clocky bore an uncanny likeness to the alien Tribbles of Star Trek fame.2 Despite these reviews, Clocky’s shaggy appearance represented a calculated effort to emphasize the object’s inherent “cute factor.” For Nanda, cute and funny-looking weren’t necessarily mutually exclusive. However, Nanda noted these comments and realized she may need to consider changing the design in the future so that Clocky’s look would appeal to a wider audience.

Sleep: Clocky versus. the Snooze Button

Neuroscientists who studied sleep found evidence that stealing an extra ten or twenty minutes of sleep in the morning had little restorative value; it was instead detrimental, often making people drowsier during the day. This was due to the interaction between two types of chemicals in the human brain: orexin, a protein produced by “wake-up” neurons, and acetylcholine, a neurotransmitter produced by “activity” neurons. One expert noted the crucial role that these two neurons played in the brain’s wake-up process,

The activity-neurons send back positive signals to [wake-up] neurons. So in other words, they are mutually reinforcing ... sort of creating a positive feedback loop between these two groups of neurons. When your alarm clock rings in the morning and you stay in bed and keep pushing the snooze button, you start to be active but you’re not physically or mentally active, so you do not complete this mutually reinforcing positive feedback loop.3

In this respect, Clocky’s morning activities presented consumers with a way to save themselves from the snooze button. Such a “positive feedback loop,” or mutual stimulation of the two types of neurons, was achieved in the case of a Clocky owner by getting out of bed and walking across the room to turn off the alarm. This made it more difficult for the brain to go back to sleep, waking the user more effectively and promoting superior wakefulness throughout the course of the day. No matter how restful it felt to remain in bed and slap the snooze button several times, getting out of bed constituted a biologically superior alternative. Unfortunately, statistics told a tale of a work force that frequently gave in to the snooze alarm: according to a national sleep survey, one-third of adults who used the snooze button hit it at least three times.4 25- to -34-year olds represented the biggest offenders, as 57% of them hit the snooze button daily, compared with the fastest risers, those in the 65 and older age group (only 10% of which regularly used their snooze button).5

The wake-up difficulties of Americans were due in part to a population-wide sleep deficiency, the consequences of which were considered grave by academics and medical researchers. Scholars found, for example, that children who did not get enough sleep were at greater risk for obesity, learning disabilities and an array of other health and psychological problems.6 In adults, one study linked lack of sleep to hypertension,7 and another found that it impeded physical recovery for athletes in training.8 Another found that a single sleepless night had the same effect, in terms of reaction time, reduced coordination and judgment, as consuming the recommended amount of alcohol for an entire

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507-016 Clocky: The Runaway Alarm Clock

week all at once.9 Finally, an additional study found that every two hours of sleep subtracted from the recommended daily minimum of eight hours effectively reduced a person’s IQ by two points, meaning that, by the end of the week, a worker who otherwise felt fine might be operating as if their IQ were as much as 15 points lower.10

While many sleep-deficient Americans managed to avoid these particular debilitating consequences, at the very least their lack of sleep made it much harder for them to wake up in the morning. Although sleep needs varied across age, gender and personality, human biology generally demanded nine or ten hours of sleep. Adults in Western nations, on average, allowed themselves seven hours.11 Young adults, 18-to-29 years old, averaged about 6.8 hours of sleep a night, the least of any group.12

Alarm Clocks

Alarm clocks represented a segment of consumer products that had seen little innovation in functionality since the inception of the snooze button by General Electric-Telechron in 1956 (see Exhibit 2 for advertising text). The importance of GE’s innovation, which had been rapidly adopted on a massive scale, was not lost on Nanda, who hoped to debut Clocky for the snooze alarm’s 50th anniversary.

The first clock radio was produced in 1928 by a Czech immigrant, and the first commercially- available digital clock debuted in 1956.13 But since then there had been few significant changes: while modern alarm clocks offered a bevy of new features, such as aromatherapy or gradually increased lighting and nature sounds, these changes had yet to fundamentally alter the wake-up process on a large scale in the manner that the snooze button had.14 This lack of successfully applied creativity had left the door open to innovation and Nanda sought to step in and fill the gap with Clocky.

Early Innovation Attempts15

Aside from the snooze alarm, clockmakers had long attempted to be creative with the wake-up process. However, as yet, none of their designs had stuck with consumers well enough to leave a lasting impact on the market. Some of the more original attempts included the following:

Alarm Watch, c. 1810 An early attempt at portable alarm clock technology designed for France’s Napoleon Bonaparte, the Alarm Watch was neither very portable nor very effective as an alarm: instead of ringing at a set time, the alarm went off after a set duration (e.g., eight hours). The alarm bell rested under the watch’s face, while the device for setting it was situated above it.

Match Alarm Clock, c. 1877 At the set time, a lever struck sandpaper against a set of matches. An arm then swung the matches 180 degrees to light the small oil lamp on the top of the clock. The subsequently brightened room would wake the sleeper; owners simply had to beware accidentally burning their house down as they slept.

“Tugaslugabed,” c. 1910 This novel alarm clock woke the sleeper by pulling their toe. When they went to bed, they placed a loop around their toe and connected the other end to the alarm clock, which was bolted to the floor. Eight seconds before the set time, an alarm would ring and then at the set time the clock would pull hard enough on the loop to wake even the soundest of sleepers.

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Though each of these examples utilized primitive technology, they represented a long-held demand for a more effective means for waking up.

The Alarm Clock Market

Americans spent over $7 billion on clocks and watches in 2005.16 Data Nanda had at her disposal revealed that consumer spending on clocks, lamps, and furnishing as a category exhibited a general growth trend (see Exhibit 3). With the help of Timothy McCaffery, an M.I.T. Sloan colleague, Nanda started gathering data that would help her understand spending on alarm clocks specifically. Though not collected on an annual basis, the United States Census broke out manufacturing costs by type of clock.

Table A Total Manufacturing Cost of Alarm Clocks and All Watch Products in the United States

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Category

Alarm Clocks All Watch Products (including alarm clocks)

1992

$42,518,000 $842, 977,000

1997

NA $751,060,000

2002

$46,566,000 $638,244,000

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Source: U.S. Bureau of the Census, 1992, 1997, and 2002 Economic Census

Nanda was encouraged by the fact that the decline in all watch products did not seem to carry over to alarm clocks. Moreover, imported watches and clocks seemed to be growing. McCaffrey found that the 2002 market for all imported watch products, on a COGS basis, was $3,020,024,000 with a growth rate of 4% over the previous year.

Competing New Products17

In 2005, Nanda was not the only one working hard to get a wakeup-related product to market: Axon Laboratories, a small start-up based in Providence, Rhode Island, was hard at work on a device known as “SleepSmart.” They promoted the device in the following manner:

Do you fear your alarm clock or have problems waking up in the morning? It might be because you woke up from a non-optimal phase of sleep. While we sleep, the brain moves through several levels of activity called sleep stages. If we wake when the brain is in an inactive, “deep” sleep stage, we feel tired and groggy. If we wake when the brain is in an active “light” sleep stage, we feel alert and energetic. [. . .] Enter SleepSmart: an intelligent solution to groggy mornings that monitors your sleep cycles and wakes you [at] the most optimal stage of sleep. [. . .] In order to feel better in the morning, sleepers wear a minimal, comfortable and sleek headband that passively and harmlessly monitors the brain throughout the night.18

The market for SleepSmart appeared to be more limited than Clocky’s, especially given its price point: Axon Labs estimated their product would be priced between $200 and $300.19 They saw regular business travelers, executives who were tired of dealing with the negative effects of jet lag, as their market. All the same, Nanda thought she should consider the potential for positioning overlaps.

Another innovative, unusual design was the Puzzle Alarm Clock. When it rang, this appliance discharged four colorful puzzle pieces from its top that scattered around the room; properly re-

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507-016 Clocky: The Runaway Alarm Clock

assembling them was the only way to silence the alarm. Created by a small Danish company, it retailed for about $50. Nanda realized that the Puzzle Alarm served a purpose similar to Clocky’s, but believed that her innovation added a “living quality” that the Puzzle Alarm lacked. Clocky was not only about waking people up, but humanizing technology and trying to give it an appealing personality.

Manufacturing Clocky

In order to manufacture Clocky on a large scale, Nanda needed to decide whether to partner with an American product design firm or an overseas company; each choice involved distinct advantages and disadvantages. After some initial discussions with domestic firms, Nanda began to worry that working with them would quickly become prohibitively expensive, in terms of their fee structure and predilection for up-front payment. She wondered if partnering with an overseas firm, specifically one in China, could potentially deliver the same capacity but at a lower cost. At the same time, such a venture might expose her to risks that could be avoided, or at least mitigated, by working with a potentially more experienced American firm. Among these potential risks were fraud, quality control, scheduling and communication issues, and a potentially less viable means of legal recourse in the event of such negative consequences.

Any manufacturing firm that Nanda worked with would be paid for the cost of the good, per each individual Clocky made. She estimated one Clocky could be made for at most $15, recognizing that it would be more expensive for an American firm and might be less expensive for an overseas manufacturer. Shipping would likely add an additional dollar to the cost of each Clocky. Warehousing and packaging fees would also combine to add approximately one dollar per Clocky. Credit card processing fees would likely add another dollar, and Nanda had been advised to expect about 15% of products sold to be returned, representing a lot of wasted merchandise. Nanda was aiming to bring Clocky to market in time for the 2006 holiday shopping season.

Distribution Challenges

To date, Nanda had built her own prototype, relying on guidance and support from M.I.T.’s Media Lab, and a small loan of $45,000 from family members. While she was grateful for the assistance provided by her graduate program, she knew that the road to distribution would be a demanding one.

The M.I.T. Media Lab opened its doors in 1985, and its students soon developed a reputation for innovation and cutting-edge technological design, combined with a strong entrepreneurial streak (since the lab’s inception, faculty and graduates had gone on to start over 60 companies).20 By 2005, with the support of 100 sponsors, including many large media-related companies, the lab operated with a budget of over $30 million.

When Nanda began as a student at M.I.T. Media Lab, she signed an Intellectual Property agreement which stipulated that all patents created by the students would be the property of M.I.T.; however, upon graduation, the students were entitled to a royalty-free license. The M.I.T. Media Lab offered to patent Clocky for Nanda and list her as the inventor, a course of action that Nanda was in the process of finalizing. While Nanda briefly considered teaming with a Media Lab sponsor who had voiced an interest in commercializing Clocky, she soon realized that because sponsors also had the right to a royalty-free license, they could implement Clocky without offering her a share of the

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Clocky: The Runaway Alarm Clock 507-016

profits. Another downside to the restrictions imposed by the Media Lab patent was that the design could not be sub-licensed for a period of two years, putting many potential partner proposals temporarily out of the question.

Nanda’s instinct was to rely on the entrepreneurial spirit that had taken her this far. At the same time, she was receiving multiple tempting licensing and commercialization offers from product development outfits and was in early discussions with Wal-Mart, who seemed enthusiastic about distributing Clocky on a large scale. The idea of pairing with a company experienced in bringing products to stores intrigued Nanda; if she were to do it, she wondered, what retailers would represent the ideal channels? Would Clocky be better suited to more upscale electronics venues such as Sharper Image or Brookstone? Alternatively, Nanda considered forgoing large-scale manufacturing operations and selling through smaller design stores such as the Shop of the Museum of Modern Art in New York City.

One advantage of working with a larger retailer such as Target was the opportunity to obtain a letter of credit. A letter of credit was essentially a guaranteed purchase order that could serve as a form of currency. With a letter of credit to stock, for example, 20,000 Clockies, Nanda could go to her manufacturer and get work started right away, with Target agreeing to send payment five or six weeks later. This meant that Nanda would not have to raise all the money for the initial manufacturing run herself, a prospect that she definitely found appealing. However, because it was essentially as good as money, getting the letter of credit would be a difficult undertaking; Nanda was soliciting aid from the CEO of a smaller distribution company that did business with Target, who might be able to secure a letter of credit for her by recommending her product to a Target buyer.

Nanda knew that each of these distribution options would entail paying a markup (see Exhibit 4 for a summary) and expected small retailers and boutique shops to claim a higher than average percentage of the retail price. Alternatively, she considered bypassing traditional bricks-and-mortar retailers altogether and pairing with the Home Shopping Network, or a similar channel. Such a venture potentially offered a more cost-effective way of reaching millions of customers, but it also bore the risk of inadvertently branding Clocky along the likes of questionable home appliances and “miracle” weight-loss pills.

For each of these options, Nanda had to consider the potential loss of control over Clocky, not just as a product, but as an enduring brand. It seemed that as the distribution stakes were raised, her leverage in any and all negotiations declined. At the same time, bringing Clocky through the development cycle and all the way to market on her own was an equally if not more daunting prospect, one that would require mastering manufacturing, marketing and distribution.

Media Madness

In the time leading up to Clocky’s first television appearances in April 2005, Nanda gave over 50 radio interviews, including some with outlets such as National Public Radio and the British Broadcast Corp (BBC). Other notable media attention included print publications like the Guardian UK, USA Today, New York Daily News, Chicago Tribune, the Boston Globe, the LA Times, the New York Times, and Reader’s Digest. The following excerpt from a New York Times review was fairly typical of the coverage Clocky received, noting both a natural interest in the idea and the potential for hostile morning reactions:

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507-016 Clocky: The Runaway Alarm Clock

Every morning, millions of Americans begin the day with the annoying beep of an alarm clock—a noise they are likely to silence with a fumbling tap of the snooze button [...] Many hit the snooze button again and again, prolonging their wake-up time and leaving themselves late for school or work. For these undisciplined dozers, a machine has arrived that promises to get them out of bed—literally [...]. Might there be a risk of abuse? After all, not everyone will take to having his alarm clock play games with him. But late sleepers might want to keep their tempers in check. While Nanda engineered Clocky to withstand a drop of a few feet (the fall from the night stand to the floor) it can’t handle much more than that.21

Once Clocky’s prototype was advanced enough to take live, Nanda began making appearances on a wide variety of television programs, including the Discovery Channel’s Daily Planet and Beyond Tomorrow, Fox News, and CNN. The night before Nanda was to appear on Good Morning America, Jay Leno referred to Clocky in his monologue, joking “I have one of these, it’s called a cat.”22 Additionally, in spite of the fact that Clocky had yet to hit the market, Nanda received the 2005 Ig Nobel Prize in economics for her prototype. Sponsored by the irreverent scientific journal Annals of Improbable Research and modeled on the Nobel prize, Ig Noble prizes celebrated ideas that “first [made] people laugh, then [made] them think.”23 Bemused Nobel Laureates often attended the annual ceremony to award the prize that corresponded to their field. The 2005 ceremony praised Nanda for “ensuring that people DO get out of bed, and thus theoretically adding many productive hours to the workday.”24

The media attention primarily played up Clocky’s “quirk” factor, with much of the reaction centered around a debate over whether owning a Clocky would ease dreary mornings or just be obnoxious. However, Nanda soon encountered a problem—letters were pouring in from consumers all over the country, eager to find out where they could purchase a Clocky. Nanda was able to leverage some of this interest through her web site, www.clocky.net: customers registering a pre- order were required to submit some information about themselves from which Nanda created a “Clocky mailing list.” Unfortunately, Nanda estimated that she was still at least a year away from legitimately debuting Clocky; for now, she had no more than a prototype that could not, as yet, be effectively manufactured. Nanda realized that this wrinkle, combined with the some of the media’s “quirk” angle, would have significant implications for how she could position Clocky when the time came to do so.

Marketing Clocky

One difficulty Nanda experienced in determining how to market Clocky stemmed from the wildly divergent reactions that the product engendered. Clocky seemed to have a polarizing effect on consumers; they either loved the idea or despised it. Said Nanda,

When we demonstrated Clocky on ABC’s Good Morning America, Diane Sawyer said she “would kill Clocky in about two days,” while an eager consumer said “I think I may have the record for hitting the snooze button for five hours straight. I need help. Clocky may be my only hope.”25 These are the kind of varying responses I hear that make it difficult to assess how the product will be adopted and viewed.

This anecdotal evidence, combined with information gleaned from her website, allowed Nanda to narrow Clocky buyers down to two camps: the “need” market and the “fun” market.

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Clocky: The Runaway Alarm Clock 507-016

Need Market

Nanda viewed the need market as people for whom getting out of bed each morning posed a serious challenge. This segment contained a wide range of consumers, however: some who found waking up to be a minor annoyance, and some who found that it disrupted their life in significant ways, such as frequently making them late for work. The stories this latter group told of their trials and tribulations were part of the initial inspiration for Clocky. “People kept telling me the same story,” Nanda said. “They would put the alarm clock on the other side of the room which would force them out of bed, but because they knew where it was, they would sort of sleep walk to it and go right back to bed.”

At the farthest end of the spectrum were consumers with truly serious sleep disorders, one of whom wrote the following to Nanda:

I have narcolepsy. In the 8 years since I was diagnosed I’ve met many other people with narcolepsy and most of us have in common that we can be near impossible to wake up. This creates massive frustration for both us and our family members. It’s very difficult to hold down a job and for many our inherent need to sleep is quite isolating. I shared seeing about Clocky at my last Narcolepsy support group meeting and everyone was intrigued.

While the market for alarm clocks among narcoleptics, however untapped, was not very likely to be significant (the disease affected 1 in 2,000 Americans), it represented only the extreme end of a continuum of sleep issues that affected millions.26 Marketing Clocky towards the center of this continuum seemed to be a viable option, as a plethora of sleep research produced by neurologists and general surveys supported Nanda’s belief that disturbed sleep cycles and general wake-up difficulties plagued a significant portion of the country’s workers.27