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C H A P T E R S E V E N
When Your Horse Is Dead I t seems like everything in Eindhoven, a small city in the southern Netherlands, has something to do with Philips. On emerging from Eindhoven railway station - built in 1956 to resemble a transistor radio, complete with flagpole-tower antenna and tuning-dial clock - you
encounter the austere bronze statue of Anton Philips, the eponymous company’s co-founder and for many years its guiding light. The old man is still revered for his entrepreneurial inspiration. His portrait hangs in the office of the current [2017] Philips CEO Frans van Houten. So it comes as a surprise to learn that throughout most of his tenure as the company’s chief executive, Anton Philips was an enthusiastic participant in an international cartel whose aim was not to advance lighting technology, but to retard it.
In 1911 GE introduced the tungstenfilament incandescent bulb. It produced five times more light than its carbon-based predecessor and lasted much longer. A great improvement, obviously. The problem for companies that had invested enormous sums in building factories to manufacture it was that the new bulb lasted too long, typically 1,500 to 2,500 hours. The makers felt it would be better if the bulbs burned out sooner, obliging their customers to purchase replacements. In 1924 the companies ganged up to form the Phoebus cartel. Its top priority was to engineer a shortened lifetime for the incandescent bulb, so that the filament would reliably fizzle out after just 1,000 hours. The manufacturers thus deliberately set out to reverse decades of progress. Factories bound by the cartel agreement were obliged to send regular shipments of sample bulbs for testing at a laboratory in Switzerland. Failure to fail within the regulated time would result in a fine. This cosy arrangement lasted until the outbreak of war in 1939, when collusion between members on opposing sides became untenable. Though the cartel is long gone, the attitude of the lighting industry to innovation remained much the same. The goal, above all, was to control the market. Then along came LEDs, ending nearly a century in which slow and steady had always won the race.
In October 2011, eager to see for myself how the world’s leading lighting company was responding to the greatest challenge it had ever faced, I travelled to Eindhoven. There I met Klaas Vegter, Philips Lighting’s Chief Technology Officer. Vegter’s role was to facilitate what he called the “massive transition” from conventional technology to disruptive LEDs. In this brave new world, lighting would do more than simply make you see, it would also make you feel; as well as functional, it would also be emotional. And that was something very different. A physicist by training and a Philips lifer with 25 years of experience under his belt, Vegter had spent his career climbing the corporate ladder in various laboratories, including two in the US. LEDs, he explained, had started to become a significant theme at Philips around 2000. Their arrival coincided with another transition the company was undertaking, from being a mere manufacturer of bulbs and fixtures to a provider of “lighting solutions,” an amorphous catch-all term that also encompassed the design of large-scale lighting systems, and the software used to control them. “We believe the future is in solutions with LEDs,” Vegter told me. Like everything else in the modern world, lighting was going digital. Meaning that instead of using simple variations in voltage to control lights, you could send commands in the form of binary messages. LEDs were also much smaller than conventional light sources, so you could deploy many more of them. It was natural to want to connect numerous tiny emitters in the form of networks. “LEDs are low-voltage and semiconductors, so it’s almost like you’re switching on another piece of digital equipment,” Vegter said.
In the past four years - starting around 2006, when Philips publicly committed itself to the phase-out of incandescent bulbs - the ratio of researchers at the company’s labs working on digital technologies, including LEDs and their controllers, had soared from twenty percent to almost eighty percent. Such a radical change required courage — and a leap of faith. While one part of Philips was trying to stay profitable in the traditional lighting business, another part of the company was simultaneously trying to destroy that business. “Life would have been a lot easier if LEDs had not been there,” Vegter sighed. “We would be just happily going on with conventional lighting as the number-one company in the world.” But to pretend that the change was not going to happen would have been folly. The lesson of the literature on innovation and the company’s own experience in the real world was that he who hesitates is lost. Or, as Vegter put it with typical Dutch directness, “dead meat.” If you were convinced that LEDs and digital lighting represented the future then, rather than waiting for someone else to do it, you had to go out and make it happen yourself. The opportunity was huge: “the [lighting] market is going to … I would almost use the word explode,” he said.
Back in 2006, heated debate had raged within the company on how important LEDs would become, and when the transition to solid-state lighting would occur. “I personally remember sitting in the cafeteria here talking with conventional lighting people,” Vegter said, “and they asked me whether I was insane, whether I was really doing the right thing by changing so fast to digital light. They didn’t understand, they thought I was too radical. Well, our opinion here is that you have to do this in a radical way. I mean, we’re eighty percent on digital lighting while the business volume isn’t at eighty percent, the ratios of investment now are way beyond the ratios in business today. So it’s entrepreneuring, it’s betting on the future — but in my view, it’s a good bet.”
To accelerate the transition, Philips was transfusing itself with fresh blood from other industries. In particular, from the fast-moving semiconductor industry. “If you want to turn your company around, if you almost want to kill your old business, you have to bring in people who know the high-speed semiconductor industry, to bring that culture into your own company,” Vegter said. The unhappy corollary was that researchers whose skills were now surplus to requirements had to be let go. “We have laid off fifty people, many of whom have the same twentyfive years’ experience that I have. We had to tell them, Sorry — right now we have no future for you. And that has been really painful for this lab. That’s exactly what makes it so difficult for existing companies to do this. But we don’t hesitate, because we are convinced that if we do we will not survive as a conventional lighting company.” But bliss was it, in the dawn of the LED age, to be a researcher at Philips Lighting. “I cannot find a place where there is more change than lighting, it is absolutely exciting,” Vegter enthused. “What intrigues me most is that we’re just at the beginning of understanding what lighting can do.” For young researchers in particular, it was very heaven. “It has been extremely simple for me to recruit good people into lighting, we get the best people, because they recognize how great it is to be in this industry right now.”
Two of the new people enlisted from outside Philips were Leon van de Pas and Rogier van der Heide. A serial entrepreneur with several startups under his belt, van de Pas was hired in 2010 to take charge of a venture that had been nurtured by Philips’ incubator program. Weaving conductive threads into textiles, it was working on ways of integrating LEDs into items of clothing, like hugely expensive t-shirts that could not be washed. In his first week, van de Pas axed those activities, arguing that they were too remote from the company’s core business. He began looking for a market niche where the fit between lights and material would be better. Hearing that Kvadrat, a Danish textile manufacturer, was seeking a partner to incorporate lighting into its acoustic wall panels, he flew to Copenhagen to meet with the company’s CEO. The combination of textiles, acoustics, and lighting could, it seemed to van de Pas, have all sorts of new applications. Four days into his third week at Philips, his team had built a prototype luminous e-textile panel. Workshops with architects followed. Over the next few months the team developed a large luminous surface that could be programmed to display low-resolution video images from various sources, including mobile phones. The LEDs themselves were invisible, hidden behind a
diffuser to create a gentle ambient glow. The point was not the light sources, it was the emotion that the light evoked in the eye of the beholder. The luminous wall panel was launched in late 2011. Implementations include retail outlets, corporate reception areas, hotel lobbies, and hospital delivery suites.
“Ten years ago, Philips was really a technology-driven company,” van de Pas told me. “The proposition I developed now is at the heart of the current and future Philips, because it is a turnkey solution. We provide the installation of the wall, the hardware, the software, the content, and a ten-year maintenance contract, so that’s recurring revenue. That is the big turn-around at Philips — we go from products - hardware - to sales of solutions, and this project is a prime example.”
Glowing wall and ceiling panels resonated with Rogier van der Heide’s vision of the future of lighting. “I expect architects to be inspired by luminous surfaces,” he said, “because they can make the colors and the patterns and the flows of light exactly the way they want.” LEDs offered entirely new ways of embedding light in buildings. The tiny sources could be installed in places where hitherto it had been impossible to put light. “The propositions about light as mood, as something seductive, something meditative — they all become more accessible with LEDs,” van der Heide told me. “Luminous wallpaper or light dust: LEDs enable things that we could not even dream of in the world of conventional lighting.“
Rogier van der Heide signed on as Chief Design Of ficer at Philips Lighting in 2010. It was an unusual career move for one of Europe’s top lighting designers. A passionate and charismatic man, he had previously worked with star architects all over the world, designing the lighting for big projects like Beijing’s “bird’s nest” stadium, centerpiece of the 2008 Olympics. But with the advent of LEDs the influence of lighting designers was, he felt, waning. Now it was the lighting manufacturer, not the designer, who defined what the visual effect of the equipment was. “So the roles are changing, and I thought that if I want to take part in shaping the outcome of the [LED] revolution, I’m much better off being on the manufacturer’s side.” Five years ago the idea of joining Philips would have been unthinkable to him. “Not a single hair on my head would have considered joining Philips,” he said. “I mean, it was just this big lamp factory where they put the product in the box and shipped it, not even knowing where it was going. There was a very low level of customer knowledge, customer intimacy, connection with the market.” Meanwhile, the rest of the world was moving on.
“Philips was focused on creating the best lamp,” van der Heide continued. “It was an art to create this lamp, it was about blowing glass, and chemistry, metalwork, and a bit of electronics, and it all came together in this beautiful product. It’s not easy to build a good [incandescent] lamp, so there was this incredible pride in the company, to produce the best lamp. Then along comes the LED, which is a semiconductor, and fairly easy to make. So Asian companies penetrated the market very quickly. Philips knew that it would never be able to beat these new entrants on cost. So several years ago the company had the vision to shift into knowledge and expertise in lighting and health, and connecting with behavior, perception, and well-being, rather than [competing on] performance and energy efficiency.” Formerly, lighting design had been like a craft: you gave lighting designers a source, then they would add a reflector, a lens, and a piece of glass to shape, sculpt, and direct the light. But with the advent of digital electronics it was no longer about reflectors and lenses and pieces of glass, it was about drivers and chipsets and Internet addresses and networks. Such new and unfamiliar considerations made some lighting designers uncomfortable. The transition was not merely a matter of technology: “it’s about rethinking an entire profession,” van der Heide said.
The first project that van der Heide and his team of advanced lighting designers took on was Amsterdam’s massive Rijksmuseum, which contains many well-known masterpieces including The Night Watch, Rembrandt’s famous group portrait of a militia company. Relighting the museum would be one of the largest LED installations ever attempted. To illuminate its 7,500 artworks took 3,800 spotlights, around 2.2 kilometers of LED uplighting for the ceiling, a total of three quarters of a million individual LEDs. The museum reopened in April 2013, its management declaring themselves delighted with the result.
Like many lighting designers, van der Heide got his start in the theater. He predicted that in the future, “people will discover that at home they can actually create ambience and mood with lighting, just like in the theater.” Philips’s first stab at ambience-creation, a product called LivingColor, was already available. It was a small, cone-shaped spotlight intended to augment illumination in the living room. Previously all you could do with light (other than switch it on and off) was to dim it. Now, using a remote controller, you could also change the color of the light, to suit your mood. LivingColor was proving a big hit with European consumers, selling millions of units. But it was merely a precursor to Philips’s next, far more ambitious foray into the uncharted waters of digital lighting. This was Hue, which the company dubbed a “personal wireless lighting” system, “a new era in home lighting.”
Development of Hue began in late 2011, right around the time of my visit to Eindhoven. A small team of young researchers led by “systems architect” - a novel job description at Philips Lighting - George Yianni was tasked with connecting lighting to the Internet. The brief called for something that would make a splash. “What we really wanted to do with Hue was change how people think about lighting,” Yianni told a reporter from Fast Company. “We need them to see lighting as more than just illumination.” Hue came in the form of a kit consisting of three colorchanging bulbs and a “bridge,” a small puck-shaped unit that plugged into your home Internet hub, connecting the bulbs wirelessly to your smartphone. To control the lights via your phone, you downloaded an app. It provided simple touch-screen control over individual bulbs, enabling you to change the color and brightness of each. The software also came with a range of preprogrammed light “scenes” that mimicked, for example, the setting sun (“Savanna Sunset,” warm) or sunlight glinting off snow (“Artic Aurora,” cool). Users could personalize the light by programming their own scenes, by dragging their digital photos into the system’s “color picker,” which would attempt to match the colors. The bulbs could coordinate with the TV and video games to produce surround-light (to go with surround-sound). By linking the lights to music via your phone’s microphone you could create a disco party atmosphere in your living room. In addition to ambience creation, Hue also gave users access to the biological benefits of light, for health and well-being, to modify hormone production to help you wake up or fall asleep. Settings included “concentrate,” “energize,” and “relax.” You could set a timer to fade the light down slowly as bedtime approached. Hue could also hook up to home security systems, flashing lights on and off to get your attention if an intruder was detected, or turning them red in the event of a fire.
The product was launched with a splash in March 2013, just 18 months after development began. Hue was marketed exclusively via the Apple Store. This not only gave cachet by association but was also an indication that Hue was aimed at the tech-savvy community. Philips opened up Hue’s software to allow third parties to produce their own addons. Developers responded with over two hundred apps. The openness was two-way. Most users probably didn’t realize it, but the agreement they checked when downloading Hue software gave Philips the right to monitor their activity. The company was thus able to accumulate precious information on how people were using their lights. Priced at $200 Hue was clearly targeting well-heeled early adopters. Not so clear was what would happen once the wow factor around ambience creation wore off. It was unrealistic to expect people to change their lighting on a daily basis. And Halloween comes but once a year. Some users simply used Hue to tune the color of their lights to simulate daylight, starting with a blast of blue-tinted light to jolt them awake in the morning and ending with an
orangey-red glow to relax them in the evening. Ultimately, however, Hue was more than just a gee-whiz gizmo, it was also a harbinger, pointing the way to the future of intelligent, human-responsive lighting. (It was also, according to the company, “a tremendous success” commercially.) And for its wellconceived implementation of this vision, Philips deserved much credit.
I left Eindhoven impressed with what I had seen and heard. The corporate aircraft carrier seemed well on the way to changing its course. I should not have been so sanguine. Understandably, Philips had only shown me its forward-looking aspect. But Janus-like, it also had backward-looking face. By 2014, it was clear that all was not well at the giant Dutch firm. Philips was known for its unsentimental readiness to divest itself of unprofitable divisions. Profits are, after all, the fundamental reason for doing business. CEO Frans van Houten had already shed the company’s loss-making consumer electronics arm, which included televisions. “When your horse is dead,” he said bluntly, “you need to dismount.” Still, it came as a shock to many when in October 2014 Philips announced its intention to spin off - or, as some commentators more pointedly put it, “cast off” - its venerable lighting division as a separate company, to focus on its more lucrative health technology business. In view of the company’s long history in lighting this was truly, as van Houten himself admitted, “a momentous decision.”19 What on Earth had gone wrong?
By 2014 solid-state lighting was coming on strong, stronger than anyone had imagined. In the final quarter of that year, LEDs accounted for 37 percent of lighting sales at Philips. During the same period, sales of conventional products fell by 14 percent. As we have seen, the company had anticipated the change. It had made sensible plans to accommodate the transition, spending huge amounts - by one estimate, between six and seven billion dollars - on acquisitions and direct investments in R&D. But apparently it was possible to do everything right, yet still lose out. Philips (and the other lighting giants) had simply underestimated the speed at which the change from conventional lighting would occur. They had also deluded themselves into thinking that there would be a “golden tail.” In other words, that sales of traditional lighting products like halogens and metal halides would taper off gradually, at a few percent a year. In fact, however, the conventional businesses had fallen off a cliff, collapsing more precipitately than the models had predicted.