Tivo Business Case
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“TIVO”
“TiVo” COMPANY BACKGROUND
TiVo is a small black box which contains a digital video recorder that allows viewers to watch what they want, when they want to watch it, it allows Pause and instant replay of live TV by storing information on a hard drive.
The TiVo Service represents what has been called the “Personal Television Industry” — Total control over the way you watch television.
The company established manufacturing partnerships with well established firms like Philips and Sony, and also made some agreements concerning distribution through retail chains such as Best Buy, Circuit City and Sears.
In sum, the product was designed and developed by Tivo, and then licensed for manufacture and sold in retail channels as a consumer electronic device.
Price range is between $499 and $999, plus and additional $9.95 monthly for the TiVo servive (with the option to pay $99 yearly or $199 for the lifetime of the service).
Sales, expressed in terms of the number of subscribers, have been growing consistently over the 14 months of the conpanyÐÒs lifetime, yet, they have grown at a much slower rate than the one that was anticipated in face of the dimension of the market and of consumer satisfaction.
It is no wonder that the company has been carrying losses through its short existence, yet, it is disturbing to find that there is no evidence of the sales “take-off” that has been expected to happen, especially on the Christmas shopping season.
SITUATION ANALYSIS
1. Product
What is TiVo after all ? A digital video recorder, a personal video recorder… PVR? DVR? PDR? IVR? No one seems to know. That is the first problem. The product that the company is trying to sell is located at the convergence of these four well established industries:
– Broadcasting & TV – which provides Content;
– Communications Equipment – which provides the Pipeline equipment;
– Software, which provides the software itself, for encoding, decoding, storage, database etc;
– Electronic Instruments Devices – the consumer products manufacturers;
ItÐÒs no wonder that the consumers are confused about Tivo. And they should, for it is genuinely a “new product” that may lead to a whole new industry.
But for the moment, Tivo is still in the introductory phase of a product lifetime cycle, as pictured below:
2. Market
The market potential is enormous, as there are 102 million potential consuming householders in the USA alone. But the company as failed to attract as much interest and sales as it should, with only 42.000 costumers so far, a mere 0,04% of the market.
3. Competition
Since it is a new industry, there is no significative competition for the moment. But two major movers have started to emerge – Replay Networks, which sells a more expensive product, is threat due to similar characteristics of its product and also to the large commissions it pays to the salespeople; Ultimate Tv, from Microsoft is about to enter the market a may become a significative threat mainly because it combines several products like Internet and Email, into the same product.
Many other competitors are expected to be on the market soon, since every key company in the four sectors discussed before (point 1) is paying extreme attention to this emerging market.
For the moment, TiVo still holds a competitive advantage, it was the first on the market, and it possesses a technological lead, but that lead is eroding and will soon disappear.
4. The Advertisement Industry Issue
The unique features of TiVo, that grants the consumer the opportunity to skip advertisements is viewed as a significant threat to the advertisement industry, and thus to the whole Tv industry because the networks are expecting that if TiVo achieves a large market penetration, the advertisers will drastically reduce their traditional media spend.
5. Pricing (Vs Costumer Satisfaction)
Pricing is a real issue in this case, since, in our opinion, is a real obstacle to product adoption, and may explain up to a certain level why the sales are so low compared to the customers satisfaction that has been measured.
This maybe somewhat controversial — but the reasoning behind this statement is the following — TiVo is not the main product, it is an accessory for the real product which is television, and television in turn is just a vehicle for entertainment. But we are asking the costumer to pay for an accessory that is still somehow confusing, a amount larger than that he would pay for an established product such as a DVD Player or a VCR, or for a TV Set. We need to review this pricing policy.
SWOT ANALYSIS
Strengths
– Partnered with many large established players, both manufacturers and retailers;
– Multiple potential revenue streams (direct ads, cross selling, special agreements);
– Technological Lead;
Weaknesses
– Partnerships with retailers create a barrier between tivo and costumers (no direct contact);
– Partnerships with producers are eroding the product margins;
– Financial Results and perspectives are poor;
– Product awareness is still low;
– Product is an hybrid, not yet regarded as a “must-have”;
Opportunities
– Large Market Potential;