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February 25, 2005

Count me an Apple/Tivo naysayer

As I have mentioned in the past, I'm a big fan of both Apple and Tivo. They both share a love of innovation and a focus on user experience. From the outside looking in, they appear to have similiar corporate cultures and a passion to deliver good quality products. If they were individuals instead of corporations, I'm sure my wife would try to play matchmaker because they make the perfect couple. Unfortunately, a corporate acquisition is not the same thing as a marriage, and while I personally wouldn't mind seeing the two merge, I can't help but point out the problems with it happening.

PVRBlog makes some great arguments in favor of a merger. It helps get Apple into the living room and it helps expand iTunes to new devices. It opens the door to opening an online video store right next to Apple's virtual music store. I think these things are compelling from Apple's point of view, and may lay creedence to the rumors that Apple is in contact with Tivo. If I were Steve Jobs, I'd have a conversation with Tivo's board as well.

Let me point out two wildcards that can change my internal equation before pointing out the flaws of the merger. One is Tivo's future product plans, the highest importance in my estimation is a HDTV DVR that can be sold as a standalone unit. The second is Tivo's patents, which I haven't spent time looking into and may very well be of high value for a suitor.

If you assume no wildcards as listed above, you can say that Tivo's assets are brand recognition, technical capability, and it's loyal customer base. Let's look at them from a critical eye and from Apple's point of view:

  • Brand Recognition: Tivo has a good brand name, but in some respects, it's a victim of its own success. Tivo has become part of the common lexicon and to many people, it's a synonym for DVR. The Tivo brand may help some companies that don't have a strong consumer electronics retail brand (eg possibly Creative, LG, etc), Apple already has a strong brand name that can be used in the DVR space. As an example, I can imagine a couple going into an electronics store to buy a DVR and say, "Honey, should we buy the Apple Tivo, the Sony Tivo, or the Microsoft Tivo?" The point being, I don't think the Tivo brand has much value to Apple.
  • Technical Capability: Here also, I don't see purchasing the Tivo engineering staff adding much core competency to Apple's already strong software and hardware engineering staff. I don't think hardware engineering is Tivo's strongpoint compared to software, where I think the Tivo magic of user interface really shines. If engineering capability was the entire reason to get into the DVR space, Apple would do better purchasing a software vendor like Elgato Systems which already has PVR products that run on the Apple platform and would likely come at a cheaper price.
  • Customer Base: This in many ways is the crux of the argument for Apple to buy Tivo, and while I consider myself an ardent Tivo fan, there are some strings attached to the customer base. One big one is that the bulk of current customers are DirecTV customers, and (if I remember correctly) Tivo has a limited ability to modify and upgrade those DVRs. Additionally, I sound like a broken record but the market is moving towards HDTV, and without an upgrade solution, there is a significant risk that Tivo will lose those customers over time. Tivo is bleeding marketshare to cable and satellite companies which offer cheaper solutions; I don't know how Apple owning Tivo changes that dynamic in a profound way.

If Apple buying Tivo doesn't change Tivo from an unprofitable to a profitable business, you are left with an argument which is the theme of PVRBlog's post: the synergy between the two companies will open up new markets and offet any negative losses by Tivo. The question then becomes, is Tivo the best strategy to open up the new markets?

I think you could make a compelling argument that at least in regards to selling movies and music online through DVRs, Tivo can be as much a hinderance as a catalyst. If you assume the DVR market is shifting to cable and satellite operators, for Apple to be successful they need to work with these companies. Competing with a corporation rarely makes for a good partnership.

Apple could turn around and offer Tivo as a an full service DVR platform, something that Tivo has been unable to do, or they could offer the technology separately that could work under any platform? At this point, I think the full service DVR ship has sailed and cable and satellite operators have formed partnerships that work. Wouldn't building a relationship with Scientific Atlanta and Motorola, along with cableco and satco, be an easier endeavor for Apple? Without doing so, it's hard to see this service, at least via DVRs, a ubiquitous service for Apple.

As a Tivo user, I'd love to see a merger happen. As an Apple stockholder, I'm luke warm with the idea.

Posted on February 25, 2005

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Count me in as skeptic as well regarding this rumor.

I think it probably makes sense on the surface, but there'd have to be one heck of a vision in jobs noggin as to what type of reece's a melding of tivo and apple would make.

I also concur on the HDTV front. TiVo needs a cablecard enabled TiVo by the end of the year or they are missing out, IMHO.


Posted by: rampy at March 2, 2005 10:34 AM

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