Segway Finds its Way into Niche Markets

Thieves used to break into as many as five cars a week in the parking garage at Los Angeles' Union Station. Then the Metropolitan Transportation Authority came up with a simple solution: They put a security officer on a Segway Human Transporter.

"The first day that one of the security officers was on the device was pretty much the last day there was a break-in," said Robin Blair, a transportation planning manager for the MTA, which owns about 19 Segways.

Although the electric, self-balancing Segway scooter never quite caught on with commuters the way its backers had predicted five years ago, the gizmo has found a growing market among law-enforcement agencies, with more than 100 departments around the world now signed on as customers and many others testing the device.

The niche market, coupled with a burst of interest from Europeans struggling with gas prices much higher than in the U.S., have breathed new life into the Segway.

And Segway Inc. President and Chief Executive James Norrod, hoping to parlay the growth into a payday for the original investors in the scooter, has made grooming the company for an initial public offering in the next few years a top priority. Norrod said he was brought in as CEO last year for just that purpose by Segway's principal investors, Credit Suisse Group and the venture capital firm Kleiner Perkins Caufield & Byers, best known for its early investment in Google Inc.

"They thought it was the right time to bring me in to really lead this company through this crucial period and to a liquidity event," said Norrod, who began his career as a sales rep for IBM and went on to head the dial-up network company Telebit Corp. until it was purchased by Cisco Systems Inc. in 1996.

Gauging Segway's prospects in an IPO is difficult, since the company will not reveal its yearly revenue or whether it is profitable. Norrod will only say that "tens of thousands" of Segways have been sold around the world, and that the company's revenue has been growing by at least 50 percent over each of the last few years.

He said high fuel prices have made many potential customers take another look at the Segway, especially in Europe, where gas can be twice as expensive as it is in the U.S.

"That (high price of gas) has been a driver, a real driver of our business over there," Norrod said.

International sales were only about 5 percent of Segway's business two years ago, but by the end of this year could account for as much as 40 percent — much of it from law-enforcement customers and commuters struggling with high gas prices in Europe. The company also recently set up dealerships in Japan and China.

The company says the Human Transporter gets the equivalent of about 450 miles per gallon, based on the amount of gas it would take to create the electricity needed to run it.

For police and security users, many of whom bought the device with grants from the Homeland Security Department and other federal agencies, the fuel efficiency is only an added bonus.

In Los Angeles County, MTA's Blair said officers prize it because it allows them to stand a head taller than they would on foot, so they can see over crowds and cars and project a more prominent presence at events like the Rose Bowl parade.

The scooters, which travel as fast as 12.5 mph, also allow an officer on patrol to cover a much greater distance than on foot, and go indoors, onto elevators and other places bigger vehicles can't. Blair said the added efficiency allows a force to cut down on the number of patrol officers on each shift and recoup the Segway's cost in as quickly as a month.

In other applications, several bomb squads such as those in Ventura County, California, and Little Rock, Arkansas, are using Segways to transport officers in bombproof and hazardous-material suits that can weigh as much as 100 pounds. The Segway allows them to scoot in and out of a scene quickly, without having to waddle in on foot in the bulky suits. Segway marketing Vice President Klee Kleber said emergency workers responded to the London bombings last year on Segways, as traffic clogged the routes for larger vehicles.

The company is also selling its "smart motion" technology — the software and chips that allow a Segway to balance on two wheels — to robotic developers at universities and in the military. The technology will also be used in a robotic toy made by WowWee Ltd., maker of the "Robosapien" toy robot, that is due out later this year.

But despite the enthusiasm among law enforcement and robotics researchers, the interest in the Segway is still a far cry from what its supporters had predicted when it was unveiled five years ago, bursting onto the frenzied technology scene with the code name "Ginger" in a debut that belongs in the hype hall of fame.

Its inventor, Dean Kamen, famously predicted in a 2001 Time magazine interview that the Segway "will be to the car what the car was to the horse and buggy." In the same story, venture capitalist John Doerr predicted the company would be the fastest ever to reach $1 billion in sales. (At today's prices, the company would have to sell somewhere around 175,000 to 250,000 units per year for the Segway to rack up $1 billion in sales.

After its launch, the Segway found itself on a bumpy road, including a product recall and the departure of three CEOs since 2002. And the device is still expensive even five years later, retailing for between about $4,000 and $5,700, depending on the model and accessories package.

The company's critics believe Segway's continued silence regarding its finances is an indication it is still not profitable, especially given the reported $100 million spent developing it.

Mark Witaschek, a partner at the wealth-management firm Harbor Group Inc. in Segway's hometown of Bedford, New Hampshire, has been following the company closely since his wife was hired to help market the Segway in Europe a few years ago. He calls it a classic "chicken and egg" situation: the Segway will not gain broad appeal until its price comes down, but the company won't be able to bring the price down until it is able to produce the scooter on a much larger scale.

Focusing on the police and security market is "not going to gain enough sales ... to warrant the kind of numbers you need to raise money in an IPO and show it as a moneymaking operation," Witaschek said. "Just the same as Ford or General Motors could not survive if they only sold police cars."

This is a point not lost on Norrod. He said he hopes the police and security market will be just "the prow of the ship" for Segway.

"Market development happens as a function of finding one market that works really well and building your business from there," Norrod said. "This is kind of the first market that is blossoming for us and we want to use that and expand."

The funds from an IPO could help Segway expand its operations and acquire complementary technologies to help it grow, Norrod said.

"It's not like we have to do it," he said of an IPO. "We'll do it for all the right reasons."