Friday, May 29, 2009

Business Case: TiVo

One of the articles I plan to write every week is a business case. In these business cases is to, albeit with little data, I will take a look at a business and assess what I would do with its product portfolio. By doing so, I hope to be able to look back a year later and assess how my direction differed from the company's actual direction, hopefully garnering some learning for it. My first choice for one of these business cases is TiVo.

TiVo (TIVO) reported Q1 2010 earnings on the 27th, showing a revenue decline along with a 4 cent a share profit loss. TiVo is a maker of digital video recorders and has the best-recognized brand in the category. Despite brand presence, the company competes against DVRs integrated into set-top boxes. As of August 2008, TiVo's share of the DVR market was 6.54%. FY2009 revenue for TiVo was $250MM with net income of $103MM. Its brightest prospects rest with an upcoming roll-out by cable provider Comcast in Chicago and a patent lawsuit against competitor EchoStar which, if successful, may provide ammunition with which TiVo can pursue other makers of DVRs.

Company Product Strategy
TiVo's core product strategy elements are as follows: it manufactures its own DVRs for retail distribution; it distributes TiVo service via cable and satellite TV providers; it sells DVR-based advertising; and, it provides audience research.

1) Drive to being a software company as quickly as possible. TiVo needs to define a path that allows for expansion without the burden of high user acquisition costs and the distraction of the heavy distraction that user acquisition and retention represents. If TiVo has managed to port its DVR technology to a set-top platform for Comcast in a way that allows it to quickly port it to other set-tops, and if it has few restrictions on roll-outs in its Comcast agreement, it should quickly move toward other such agreements. If TiVo's porting was very model- and provider-specific, TiVo should prioritize porting to an inexpensive widely-available portal as quickly as possible. TiVo should seek the fastest possible exit path away from being a retail DVR manufacturer.

2) Focus feature development efforts on getting users more quickly to their desired content.
TiVo needs to be the Google of entertainment: not a landing site but a transit point. TiVo's strong brand derives from a loyal following that spawned from the initial platform. TiVo delivered the TV you wanted when you wanted it in a way that was not matched by any competitor, and still is not even today. That strength has not been improved upon, however. TiVo has instead been distracted by features which, though interesting, are impeded in usefulness by slow performance for most users and do little to make the company's platform attractive to cable and telephone companies who can rapidly expand TiVo's user base and provide funding for a proper extension of TiVo's functionality.

It takes a novice user at least 4 screens and almost as many seconds for them to get from one show to another (3 for a more experienced user). Finding your TV shows in long menus is even worse. My first priority for TiVo would be to decrease this time which will affect every user and may provide patent opportunities.

My second priority for TiVo would be to continue to leverage its best-in-class set-to-record features to make it even faster to set a "Season's Pass" or other options without disrupting the viewing experience.

My third priority would be to leverage the recommendation engine to make TiVo discover and propose content for the user from the very first use through an initial by-passable personalization routine. This could help make TiVo more attractive for users by reducing poor experiences with TiVo recommendations which results in users ceasing to use it, while driving potential ARPU for the content distributors by making TiVo a powerful tool in the broadcast customer's arsenal to increase content awareness.

Implicit in my priorities above is that I would be focused on reducing overhead on the TiVo platform, thereby making it much easier to port and move to cheaper and cheaper platforms. I would help this by making a choice to cease support of internet-based content distribution that is not pre-fetched (e.g., photos, Domino's pizza ordering, etc), which is underutilized and makes the device seem slow and inelegant. TiVo can be an internet interface after it has retained DVR market leadership but should not do so until then.

I would transition user acquisition efforts to partners as soon as possible and focus selling and customer retention efforts on brand, targeting potential TiVo customer points-of-entry (such as when consumers move and have to switch cable companies) to keep the advertising spend as efficient as possible. I would be highly focused on figuring out how to enable TiVo's advertising delivery and research capabilities to co-exist peacefully as a revenue source for TiVo with the needs of cable companies. I would offload TiVo customer support to partners, but under strict service level agreement conditions to protect the brand.

Implicit in the above recommendations is my belief that TiVo is trying to do too much for this stage of its business. By becoming very focused on what it does best and reigning in feature creep, TiVo may actually expand its strategic options (e.g., distribution through cable companies or retail via hardware partners) and enable the company to better leverage its powerful brand.

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