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January 17, 2005

The Cost of Saying No

The New York Times writes today that Mike Ramsay, CEO of Tivo, had the opportunity to do a partnership with Comcast last summer. According to the Times:

Yet, at the last minute, Michael Ramsay, TiVo's chief executive, decided to pull out of the deal. Comcast was not going to pay TiVo enough money or give it enough control over its service, Mr. Ramsay told the company's board, according to people involved in those discussions.

Om Malik and PVRBlog, among others, point out just what a huge catastrophe that was for Tivo, and I couldn't agree more. This is a classic business example of not factoring in the costs of saying no, and while it will make good fodder for business schools and new MBA students, it was likely a bad turning point for Tivo.

I've watched this play out from both sides of the fence. A big company wants to license a technology from a smaller company and offers what appears to be a a jaw-dropping low bid for the technology. The smaller company looks at the bid and walks away from the deal, factoring the current price of the technology versus the asking price. It's easy to calculate doing a deal with a larger company versus the status quo, but unless the big company isn't serious about entering the market, the status quo is about to change radically. The question really should be, what is the true cost of saying no?

In Tivo's case, the cost includes giving your biggest competitor Microsoft an easy entry to the market. The cost also involves the lost sales from Comcast users who will try renting a unit from their cable company before purchasing a DVR from a retailer. The cost includes losing marketshare and lost ad revenues. Tivo might have not have been able to afford to do a Comcast deal, but I'm not sure they were any better able to afford not doing a Comcast deal.

No one really knows all the details of the Comcast deal, and likely the terms were probably pretty lousy for Tivo. Perhaps Tivo did all the right calculations, saw the market shifting, and came out with the right decision. One must wonder if that were so why we didn't hear about the Tahiti plan last August?

Posted on January 17, 2005

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