STRATEGIC INFLECTION: TIVO IN 2003

Introduction
 TiVo founded in 1997 and is a leading provider of digital video recorder (DVR) technologies and
services in User interface and entertainment business.
 It has suffered $500 million in operating losses since it was founded.
 TiVo operates in a complex ecosystem and user can pause live TV, record programs etc.
 It has solved two problems: conflict among people, shifting through channels.
 Tivo machine has Recording time of 40-80hrs with Cost $249-$349 and Installation cost-$12.95
per month or one time upfront fee of $299

In 2002, TiVo launched second generation product- TiVo Series 2 with a more robust processor and
increased memory. Also, TiVo and DirecTV launched an integrates Direct TV/DVR. In spring of 2003,
TiVo shipped its first premium service application-Home Media Option(HMO). TiVo also sold
services to advertisers and networks called Showcases.

TiVo is connected to TV and Internet or to phone jack Technology, it is a Computer with a large hard
disk drive with read /write MPEG digital video chips for encoding and decoding, a modem and
other components. They ran on MIPS CPU core with Linux operating system

TiVo DVR’s microprocessor contain cryptography software

The major problems faced by Tivo

The main problem was low market penetration of TiVo despite of innovative product and extensive
advertising. The major reasons for this are due to the following:

 Expensive-cost of installation & monthly fee.

 Competition from satellite and cable T.V networks providing DVR facilities at a lower price.
 Confusion among consumers about what DVR did and what DVR did not do.

The case also talks about Tivo’s ecosystem which consists of content aggregators, content providers and
content distributors.

The case concludes with a list of possible strategies that TiVo should adopt.
SWOT
Strengths:

 Pioneer in the product category

 Easy to use and equipped with numerous innovative features
 High level of customer satisfaction
 Unique features such as Season Pass, Wish list.
 Brand recognition and loyal customer strength
 Multiple potential revenue streams: opportunities for advertisers and networks.

Weakness:

 Expensive product with additional service fee

 Ineffective communication with its consumers
 Lack of brand awareness
 It dependents on only a few suppliers.

Opportunities:

 300% increase in number of families opting for luxurious electronics

 International Market
 Increasing adoption rate
 Electronic commerce

Threats:

 Competition and possible substitutes

 Dependency on major retail partners for distribution
 Dependence on external manufacturers
 Legal challenges

The company had good results in 2003 first quarter, but the CEO, Mike Ramsay felt that the company is
at its Inflection Point.

Inflection Point:-Point at which a corporation facing a new situation and must alter the path it is on and
adapts or falls into decline.

CEO realized that they are facing a lot of changes in their ecosystem and realizes the need for an alternate
path

He is in a dilemma whether to go for mass markets or for product differentiation

Competition:-Direct and indirect

In 1998 Tivo had just one competitor. Now it is more than a dozen. This includes cable networks,
computer manufacturers, broadband service providers etc.

 Transition in the cable industry from analog to digital set top boxes.
 The use of integrated entertainment systems.
 The change in strategic alliances with DirecTV.
 Changes in the patterns of advertisement.
 M&A in film industry and other content providers.

PROBLEM:

They had the first mover advantage and they had the superior technology also the markets were
growing but they couldn’t exploit the advantage of being the first mover and were not able to reach their
full potential. They incurred an operating loss of 500mn from its inception and they could not position
themselves clearly within customers.

Reasons:

 High cost of production resulting in high price for the product

 Slow adoption rate in the industry. This gave the competitors the time to adopt or imitate
 The cable operators could offer cheaper services that would appear in the monthly bills without
any initial investment

Steps already taken by Tivo:

 Launch of newer models such as Tivo Series2

 Alliance with DirecTV
 Introduction of premium service application HMO
 New advertisement models such as showcases, audience-measurement services
 Technology updating and patents
 Basic level service provided with Toshiba and Pioneer
 DVD players with DVR capability
 Entered the UK market
 Sales and marketing worth $150mn
 Unique features such as wish list, season pass, search engine etc.
Why Inflection?

The point where a new trend is initiated is called a strategic inflection point.

So why to go for a new trend because,

 The consumer adoption rate of TiVo remained relatively slow.

 Unawareness of the product to new customer’s
 constantly changing technologies
 Lot of CE brands available
 Loosing of the first mover advantage.
 This will give competitors enough room to catch up the market.

At this point (Inflection Point) the company should find an alternate path to avoid decline.

Company had half a dozen strategies for Mass deployment/Product development and differentiation

Since they were the experts in the DVR business, they had a lot of alternate paths.

STRATEGIES:
 Manufacturing and selling the basic Tivo DVR that would have no monthly fee plus Engineering
resources to be conserved. On the other hand Tivo would receive no monthly revenues until buyers
began up grading to the full TiVo services.
 Manufacturing and selling a DVR “white Box” to CE retailers, allowing the retailers to sell their
own branded DVR device. Used Apex as offshore manufacturing which sourced its products from
multiple Chinese manufacturers (with 6 months design cycle) Vs. Japanese (with 2 years design
cycle).
 Cost matters: Lowering the license fee Tivo charged CE manufacturers this would help in
Expansion of its pool of CE partners.
 Strategic alliances: Entering into a major partnership with a cable company. Enhanced advertising
revenue and premium service revenue to partners
 Diversification: Expanding efforts to grow TiVo’s services for advertisers. The advertising Market
was enormous. Tivo should be a television services company with Platform for advertisers to enhance
their ads with interaction and measurement.
 Focusing resources on developing new DVR and home entertainment capabilities using Software
portability, EPG/ IPG enhanced versions