Review: TiVo 2007

Why study this case and this industry ? Demonstrates “convergence” of previously distinct technology spaces Allows application of Porter’s Five Forces model to an industry that is continuously changing Hjelm/University of Oregon

Demonstrates “convergence” of previously distinct technology spaces

Allows application of Porter’s Five Forces model to an industry that is continuously changing

TiVo’s Mission Hjelm/University of Oregon Founded in 1997, TiVo, a pioneer in home entertainment, created a brand-new product and service category with the development of the world's first digital video recorder (DVR). Today, the company continues to revolutionize the way consumers watch and access home entertainment, by making the TiVo DVR the focal point of the digital living room: a center for sharing and experiencing television, movies, video downloads, music, photos, and more. TiVo connects consumers to the digital entertainment they want, where and when they want it. Source: About Us, 2/09

What are the environmental factors affecting the TiVo’s Industry and their likely impacts? Hjelm/University of Oregon Category Factors Importance/Impact Economic Technological Political-Legal Sociocultural: Demographic Sociocultural: Cultural

Porter’s Five-Force Model Applied to the Digital Entertainment Industry Hjelm/University of Oregon Rivalry: Competition Among Existing Firms Threat of Potential Entrants Bargaining Power of Customers Threat of Substitute Products Bargaining Power of Suppliers Source: Adapted from Michael E. Porter, “Industry Structure and Competitive Strategy: Keys to Profitability” Financial Analysis Journal,July-August 1980,p.33.

Hjelm/University of Oregon Rivalry: Competition Among Existing Firms Porter’s Five-Force Model Applied to the Digital Entertainment Industry Threat of Potential Entrants Threat of Substitute Products Bargaining Power of Suppliers Bargaining Power of Customers Factors Affecting Intensity of Rivalry Impact on Industry Number of competitors Growth prospects in the industry Cost structure Switch i ng costs for buyers Exit costs Differentiation between companies

Porter’s Five-Force Model Applied to the Digital Entertainment Industry Hjelm/University of Oregon Rivalry: Competition Among Existing Firms Threat of Potential Entrants Threat of Substitute Products Bargaining Power of Suppliers Bargaining Power of Customers Factors Affecting Substitutes Impact on the Industry Price/performance of substitutes Switching costs Buyer likelihood to switch

Porter’s Five-Force Model Applied to the Digital Entertainment Industry Hjelm/University of Oregon Rivalry: Competition Among Existing Firms Threat of Potential Entrants Threat of Substitute Products Bargaining Power of Suppliers Bargaining Power of Customers Factors Affecting Supplier Power Impact on the Industry Concentration of suppliers Importance of your industry to this supplier group Importance of product relative to purchases in the industry Supplier’s products are differentiated or have high switching costs Substitutes are available Supplier group can pose the threat of forward integration

Porter’s Five-Force Model Applied to the Digital Entertainment Industry Hjelm/University of Oregon Rivalry: Competition Among Existing Firms Threat of Potential Entrants Threat of Substitute Products Bargaining Power of Suppliers Bargaining Power of Customers Factors Affecting Buyer Power Impact on the Industry Concentration of buyers Volume of purchases Availability of substitutes products Buyer switching costs Buyer capability of backward integration Purchases represent a large percent of buyer costs Product differentiation Brand identity and loyalty Importance of purchased products on buyer’s quality Buyer profitability

Porter’s Five-Force Model Applied to the Digital Entertainment Industry Hjelm/University of Oregon Rivalry: Competition Among Existing Firms Threat of Potential Entrants Threat of Substitute Products Bargaining Power of Suppliers Bargaining Power of Customers Factors Affecting New Entrants Impact on Industry Economies of scale Brand identity within the industry Switching costs Capital requirements Access to distribution channels Learning curve

Summary: Using the Porter Model to Analyze the Digital Entertainment Industry Hjelm/University of Oregon Weak Mod. Strong Rivalry: Competition Among Existing Firms Threat of Potential Entrants Bargaining Power of Customers Threat of Substitute Products Bargaining Power of Suppliers

Understand the evolution of the TiVo business model Stand-alone DVR sales DVR mass distribution Advertising Audience research and measurement Software and intellectual property International operations Hjelm/University of Oregon

Stand-alone DVR sales

DVR mass distribution

Advertising

Audience research and measurement

Software and intellectual property

International operations

TiVo’s early achievements and early missteps are important It did many things right Established a whole new category Created a great brand Created a very loyal following It did some things wrong Mixed success developing a profitable cost model Did not develop links to key players in its value chain Failed to develop a sustainable distribution model Failed to create significant barriers to entry Hjelm/University of Oregon

It did many things right

Established a whole new category

Created a great brand

Created a very loyal following

It did some things wrong

Mixed success developing a profitable cost model

Did not develop links to key players in its value chain

Failed to develop a sustainable distribution model

Failed to create significant barriers to entry

There are a few key influences on Rogers’ vision for TiVo. “ Long Tail” thesis Combine TiVo and Google – become the “Google of TV” Offer unequaled search capability Aggregate content Connect advertisers and consumers Importance of user interface and choice Simple, easy navigation to provider a superior user experience Offer an “opt-in, on-demand” choice of advertising to accompany ‘ a la carte, on-demand television” Provide sophisticated reporting and measurement tools Ability to develop network effects DVRs as a stand-alone have none DVRs interoperating with other parts of home entertainment ecosystem may have network effects, e.g. platform for TV advertising Hjelm/University of Oregon

“ Long Tail” thesis

Combine TiVo and Google – become the “Google of TV”

Offer unequaled search capability

Aggregate content

Connect advertisers and consumers

Importance of user interface and choice

Simple, easy navigation to provider a superior user experience

Offer an “opt-in, on-demand” choice of advertising to accompany ‘ a la carte, on-demand television”

Provide sophisticated reporting and measurement tools

Ability to develop network effects

DVRs as a stand-alone have none

DVRs interoperating with other parts of home entertainment ecosystem may have network effects, e.g. platform for TV advertising

The “Long Tail” theory underpins much of TiVo’s vision. Hjelm/University of Oregon For more information read The Long Tail by Chris Anderson or his 2004 article in Wired .

Can TiVo match the Google analogy? Google’s success is due to: Extremely focused targeting Consumers get focused search Advertisers get consumers immediately in the market Easy, ubiquitous distribution Free to consumers Wide open platform Scalable with relative ease Pay on performance – pay advertisers on actual traffic Hjelm/University of Oregon It is far from clear that TiVo occupies an analogous position to Google. TiVo could be correct that digital convergence creates an opening for the “Google of TV”, but is it that company?

Google’s success is due to:

Extremely focused targeting

Consumers get focused search

Advertisers get consumers immediately in the market

Easy, ubiquitous distribution

Free to consumers

Wide open platform

Scalable with relative ease

Pay on performance – pay advertisers on actual traffic

What should TiVo do? Hjelm/University of Oregon Making a decision depends not simply on the ideas, but on how it fits with TiVo’s strengths and its overall strategy! Where is the company’s competitive advantage? What should drive the decision? How do you make the tradeoffs between revenue-generating stand-alone business and scalable mass distribution businesses?

Where is the company’s competitive advantage?

What should drive the decision?

How do you make the tradeoffs between revenue-generating stand-alone business and scalable mass distribution businesses?

Can TiVo continue to follow both horizontal and vertical strategies? Hjelm/University of Oregon Sell vertically: box+software+service Concentrate on a layer: Software/service – with/without box Basic Mass Market Box + Upsell Differen-tiated Product + Service Broadband Video Content Distribution Audience Research and Measurement Advertising Services Software Layer Grow internationally

Key Take-Aways: Industry Analysis Technological innovation makes for an uncertain business —progress is difficult to predict, and the ultimate success of the endeavor is always in doubt. First movers in a product category face challenges appropriating returns in a category that faces rapid imitation and growing commoditization Industry change often results in making commitments to multiple – and sometimes conflicting – priorities Hjelm/University of Oregon

Technological innovation makes for an uncertain business —progress is difficult to predict, and the ultimate success of the endeavor is always in doubt.

First movers in a product category face challenges appropriating returns in a category that faces rapid imitation and growing commoditization

Industry change often results in making commitments to multiple – and sometimes conflicting – priorities

Key Take-Aways: Positioning A sustainable competitive position is based on what is valuable to buyers. It is hard to be all things to all customers Know your customers and what they value – premium home entertainment customers, mass consumers, advertisers, ARM clients Companies need to consider carefully the costs and the sustainability of the position – and move carefully to determine changing their business model. Competitive advantage arises out of aligning and coordinating internal resources across the value chain with the strategy You cannot be best in class in all attributes, e.g if mass distribution means lower cost structures, not diverting attention and resources to add to product feature sets You must make trade-offs. Strategy often results in making commitments to multiple – and sometimes conflicting – priorities Hjelm/University of Oregon

A sustainable competitive position is based on what is valuable to buyers.

It is hard to be all things to all customers

Know your customers and what they value – premium home entertainment customers, mass consumers, advertisers, ARM clients

Companies need to consider carefully the costs and the sustainability of the position – and move carefully to determine changing their business model.

Competitive advantage arises out of aligning and coordinating internal resources across the value chain with the strategy

You cannot be best in class in all attributes, e.g if mass distribution means lower cost structures, not diverting attention and resources to add to product feature sets

You must make trade-offs. Strategy often results in making commitments to multiple – and sometimes conflicting – priorities