Logitech company history

CASE 21: Logitech: Finding Success through Innovation and Acquisition

Alan N. Hoffman

Bentley University and Rotterdam School of Management, Erasmus University

Logitech is a long-standing company with a reputation for quality personal computing products offered at a reasonable price. Additionally, Logitech’s reputation for being on the cutting edge of technology in the computer peripherals industry is second to none. This offers the company the enviable position of being at the top of its industry. However, the recent recession accompanied by the changing face of the personal computing industry offer significant challenges for the future. Logitech may have to find new ways to compete in a world where its products have become standard fare on most personal computing devices. With a reputation for leading the industry, will Logitech find new technologies to conquer, or will it find itself struggling to survive?

Company Background

Logitech, headquartered in Romanel-Sur-Morges, Switzerland, was the world’s leading provider of computer peripherals in 2010. Personal computer peripherals were input and interface devices that were used for navigation, internet communications, digital music, home-entertainment control, gaming, and wireless devices. Derived from the French wordlogiciel, meaning “software,” Logitech was originally formally established in 1981 as a software development and hardware architecture company by two Stanford graduate students in Apples, Switzerland. Shortly after establishing itself as a quality software development company, Logitech saw a new hardware product opportunity that was emerging in the mid-1980s: the computer mouse. The mouse was standard equipment on the original Maclntosh computer launched in January 1984. Logitech viewed the mouse as a growth opportunity, and this became a turning point for the company’s future. Logitech introduced its first hardware device, the P4 mouse, for users of graphics software. An OEM sales contract with HP followed, and in 1985, it entered the retail market, selling 800 units in the first month. In July 1988, Logitech’s executives decided to take the company public to help finance its rapid growth.

In the early 1990s, while facing increasingly strong competition in the mouse business, Logitech identified a larger market opportunity for computer peripherals and began growing its business beyond the mouse. Throughout the next few years, Logitech introduced products such as: (1) computer keyboards, (2) a digital still camera, (3) a headphone/microphone, (4) a joystick gaming peripheral, and (5) a web camera on a flexible arm. While these new products were introduced under the Logitech name, the company also continued innovation in its core mouse business. New and revolutionary technologies developed by Logitech allowed it to continue as an industry leader in the mouse and keyboard business.

Logitech provided consumers cutting-edge innovation while maintaining its product quality. Logitech maintained its product leadership by combining continued innovation, award-winning industrial design, and excellent price performance with core technologies, such as wireless, media-rich communications, and digital entertainment.

Strategic Direction

Logitech is in the business of designing and selling the world’s best personal peripherals. The company continues to expand both internally and through acquisition to grow their portfolio of peripheral products while maintaining the strength and quality of its core technologies. Logitech is “driving innovation in PC navigation, internet communications, digital music, home-entertainment control, and gaming and wireless devices” (Logitech, 2007).

Logitech strives to continually “deliver landscape changing technology, while keeping a focus on even the subtlest of design details that makes its products personal and its brand cherished by millions of customers worldwide. Logitech will continue to help make interaction with the digital world more personal and rewarding for entertainment in the living room, communications on the go, and personal computing in the office” (Logitech, 2007).

As a publicly traded company on both the Swiss Exchange and the NASDAQ Exchange, the organization’s overall corporate objectives are growth and earnings. Throughout its entire existence, Logitech has continuously grown through both innovation and acquisition, while maintaining positive earnings. To date, the company has done well at accomplishing its key objectives. Growing out of these main objectives, Logitech has set several additional objectives, including:

· Product leadership

· Continued innovation

· Award-winning industrial design

· Strong price performance

Logitech is extremely proactive when it comes to innovation. Along with incremental improvement of its core technologies and products, Logitech is also continuously, radically innovating new technologies in the peripherals industry. When Logitech sees a business or electronics industry that is growing rapidly or quickly gaining recognition, it finds ways to design and create innovative peripheral products to complement the products that make up the specific industry. For example, when the gaming industry began to experience recognition and rapid growth, Logitech designed and introduced its first gaming console controller in 2000 (the Logitech GT Force racing wheel for Playstation 2).

Another of Logitech’s significant innovations was the Logitech io Personal Digital Pen. This invention “merges the use of a traditional pad of paper with the digital world.” In today’s business world, a significant amount of information and documentation is stored and archived electronically. This new platform – the digital pen – will “enable the automated transformation of hand-written data into archived information for both consumers and professionals” (Logitech, 2007).

Through new product developments such as these, it is clear that Logitech is very proactive when it comes to innovation. The company wants to be the number one provider of all personal peripheral products in the world, and it strives to be the first to introduce any new and exciting peripheral technologies.

Competitors

As a specialized company, Logitech is exclusively in the industry of personal peripherals, which it sells to retailers 273274as well as major computer manufacturers. The demand of such an industry often depends strongly on the economic stability and income of its consumers, as well as the profitability of its business customers. This is because technology products like the ones offered by Logitech are often expensive, and individuals and companies are reluctant to buy them unless they have the income to do so. Within this industry, there are a number of factors that affect Logitech’s competitiveness and price structure. With respect to market competition, Logitech has three major competitors: Creative Technology Ltd., Microsoft Corporation, and Royal Philips Electronics N.V.

Creative Technology Ltd. is one of the worldwide leaders in digital entertainment products for the personal computer (PC) and the Internet. Creative Technology was founded in Singapore in 1981, with the vision that multimedia would revolutionize the way people interact with their PCs (Creative Technologies Ltd., 2010). The Creative Technology product line includes MP3 players, portable media centers, multimedia speakers and headphones, digital and web cameras, graphics solutions, revolutionary music keyboards, and PC peripherals. Creative had a net profit margin of −29.58% in FY 2009 and −32.82% in the first quarter of 2010.

Microsoft Corporation provides software/hardware products and solutions worldwide. Founded in 1975 by Bill Gates and Paul Allen, Microsoft’s core business is to create operating systems and computer software applications (Daily Finance, 2010; Rovi Corp., 2010). Microsoft has since expanded into markets such as mice, keyboards, videogame consoles, customer relationship management applications, server and storage software, and digital music players. In FY 2009, Microsoft Corporation had annual sales of $58.4 billion and a net income of $14.5 billion.

Royal Philips Electronics is a Netherlands-based company that focuses on improving people’s lives through innovation. Philips is a well-diversified company with products in many different industries. Products offered by Philips include consumer electronics, televisions, VCRs, DVD players, and fax machines, as well as light bulbs, electric shavers and other personal care appliances, medical systems, and silicon systems solutions (Philips, 2010). With this diversified portfolio of products, Royal Philips had FY 2009 revenues of $30.76 billion and a gross profit of $11.59 billion (Yahoo! Inc., 2010).

Logitech is the only company of this group exclusively focused on personal peripheral products, whereas all of its competitors have products and resources invested in a wide variety of other industries.

Trends

Logitech implemented a strategy of innovation mixed with strategic acquisitions to enhance its products with the technologies and software of other companies in order to create the most advanced, innovative, and collaborative experience for their customers. As Logitech has always been on the forefront of mouse and keyboard technology, it has also been a leader in video conferencing technology since the early stages of its mountable computer camera development. Instead of following market trends, Logitech has often created them.

From 1998 to 2004, Logitech made many important strategic acquisitions in order to enhance future portfolios and expand the depth of its peripheral product lines. Its first acquisition was the video camera division, QuickCam PC, of Connectix Corporation. This led to an influx of peripherals, such as cameras and wireless cameras, and served as a very early introduction to Logitech’s current video conferencing division. The second successful acquisition was the 2001 purchase of Labtec, Inc., an audio peripheral maker.

Following the Labtec acquisition, the company developed a hunger to expand its product focus. In 2004, Logitech acquired Intrigue Technologies, Inc. This acquisition positioned Logitech as a leader in advanced remote-control production. With this, peripherals suddenly were able to accommodate more than just computer and videogame uses. This positioned them for their next acquisition, Slim Devices in 2006, a manufacturer of music systems. Logitech used these two acquisition to expand its multi-business unit corporation into a diverse and specialized company appealing to a large group of technology users. Finally, with its acquisition of Paradial AS, Logitech was able to combine their peripheral products with the software, video effects, and security features Paradial offered (Logitech Acquires Paradial, 2010). This allowed Logitech to deliver a complete and intuitive HD video conferencing experience for companies of any size.

Future industry trends revolve around content strategy and consumer expectations regarding mobile web and Smartphone applications. Content strategy involves decisions about what information and features to include in a product, including those that provide the most benefit or fulfill the most needs; for Logitech, anything else is just noise and dilutes the product. In terms of mobile web and smartphone application trends, Logitech has three options: (1) develop closed partnerships with specific platforms (iPhone or Blackberry); (2) produce apps for each platform; or (3) produce “platform-neutral” apps by using the mobile web.