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October 14, 2004

Tivo and the mustard lesson

Forbes has an article online talking about the difficulties facing the PVR market. While much of it was a re-hashing of information indicating that it's a tough racket to be in, two items were particularly interesting to me.

First, I never realized that 70% of Tivo users come from the DirecTV partnership. Given that the partnership appears to be rocky, that number is very disconcerting.

Second, I was interested in new Marketing Tivo bigwig, Matt Wisk's quote:

"[DVRs are] not the company's ultimate game plan," says Chief Marketing Officer Matt Wisk. He says TiVo is working directly with content producers, such as documentary makers, to package and distribute programming directly to consumers.

First, that doesn't sound like a company wanting to play nice so it can gain partnerships with satellite and cable operators. The Netflix/Tivo deal, which competes with the lucrative sat/cable provider Video On Demand service, already showed that weeks ago, so it's not a breaking story. If anything, I think they came to that realization that partnerships weren't workable a year or two too late, and now they are behind the curve. However, it's important to point out that while there might still be a slight chance to build a relationship, the love is pretty much gone.

More importantly, I find the "DVRs are not the company's ultimate game plan" less than comforting. I'd hate to be a Ford shareholder and here a spokesperson say, "Automobiles are not the company's ultimate game plan". Arguably, DVR technology is the only competitive advantage they have, and if that isn't their game plan, it's going to be a tough row to hoe.

I'm sure I'm over-reacting to a bit of Marketing spin. I, like many other Tivo users, would love to have additional services and features added to their Tivo box, "ultimately" making it more than a box that records shows. This is a website devoted to convergence and I'm a big fan of getting new non-PVR features integrated into my Tivo box. It gives Tivo owners additional value and I'm as excited as the rest when new updates come out.

What I worry about is what I call "corporate revolving-world vision", a common occurrence in companies that have initial success. It's easy to get caught up in the company culture when you live it day and night and it's enticing to believe that your technology has a bigger scope than it actually has. It's even easier for it to occur if you have a set of devoted fans, asking for features that extend the product's reach.

For an example of the "revolving-world vision", a successful company that sells mustard might very well come to the conclusion that mustard is the reason people eat hotdogs, and maybe if their product is really great, there may be an element of truth to it. If the world revolves around mustard, the corporate theory goes, and people eat other foods in greater quantity, then the company can grow its revenues by expanding into other food groups. Unfortunately, it's only one delusional step away before they start selling mustard as an ice cream topping and wonder why people aren't buying it. The mustard lesson: don't try to be a new food group if you are really a condiment.

I do think Tivo is more than a condiment, but from my perspective, their competitive advantages are clearly that they were first to market and have superior DVR technology. Listening to music and viewing photos from your Tivo is great, but there are other products that are cheaper and do it better. The Netflix/Tivo deal could be a great additional service for Tivo, but at the end of the day, I don't think people will be buying Tivos so they can use the Netflix/Tivo service.

The first to market advantage is being eroded by the cable and satellite operators investing in their own products, and the industry analysts are right that it is easier for the cable providers to sell them their home brand than for Tivo to sell it in retail. It may not currently be as good, but it's cheaper and easier. In the long term, the first to market advantage is good for brand recognition, but not much else.

That leaves their superior PVR technology. That sets them up nicely to be a premium brand as long as they don't take their eye off the ball. One only needs to look at products like MythTV and BeyondTV that there is a lot of innovation in the marketplace and the technology is moving quickly. Tivo users can point at some of the crappy products put out by cable and satellite operators, but over time those products will improve or integrate one of these competitive products. Tivo needs to continue to innovate, or they'll lose that advantage too.

I'm sure Tivo will continue to innovate, but I hope they undertand the mustard lesson, and spend their research dollars wisely. A good decision gives them a fighting chance; a bad decision is going to sting.

Posted on October 14, 2004

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