Tivo

What is Tivo?

The company TiVo is an innovative company that offers product to those consumers who like to have more control on the TV programs they watch. TiVo acts as the "portal" for the world of television just as search engines have evolved into portals for the Internet. The result is the delivery of individualized content directly to the consumer.

The product TiVo, allows customers to customize their TV program content and timing. TiVo consists of a physical unit, a digital video recorder interfacing between the broadcast feed and the television, and a service, which can be subscribed to, for recording TV programs. The unit can then play back the recorded content as and when the user desires.

Who is TiVo best suited for...

TiVo is best suited for:

* People who love to have fun with new technologies

* People with high income

* TV lovers but with limited time available for favorite TV programs

* Parents - make kids study at the right time, teach sports using slow motion feature

* Kids - to see their favorite cartoon shows etc which are aired while they are at school

* People living alone who find solace in watching TV

The Appendix: Customer segmentation shows these customers segmented by age.

Back view of a Series 2 Tivo unit

English: The "peanut" remote for the TiVo.

Front view of a Series 2 Tivo unit

The Appendix: Factors influencing adoption of the product describes why/why not TiVo has been able to reach out to these customer segments.

The Environment...

The main players in TiVo's industry environment are the network operators, the advertiser and the cable operators.

Network operators: They want TiVo to be a mirror reflecting the audiences' preferences so that they can better negotiate with the advertisers on charging more for advertising at an "odd-time". Also the information from TiVo could help them produce better and more relevant shows.

Advertisers: The advertisers want TiVo to be a source of consumers' viewing preference data so that they can focus their ads to the relevant section of viewers. Also, the data from TiVo could help advertisers understand profiles of customers who forward or watch their ads, and to predict the TV audience for the shows on which they air their ads. This can solve the greatest challenge of ad. As John Wanamaker pointed out that half of his ad was useless, but he didn't know which one. The advertisers expect that with TiVo, TV Ad effectiveness would become as measurable as Internet Ad, whose viewers can so easily be counted by clicks.

What either do not want TiVo to be is a service that encourages the customers to skip ads and hence adversely affect the network's revenues, and the advertisers' attempts to project their products/services to the customers.

Cable Operators: The cable operators want to see TiVo as a partner. They want TiVo to establish well in the market before Microsoft enters the market with DirecTV, as it is a web based service provider and would hamper the business for cable operators by forcing customers to connect to their favorite shows through WebTV instead of using cable network.

Competition Analysis:

The existing and emerging competition includes mainly: DirecTV, Replay Networks, Jovio and Seagate-Thomson JV. Of these, only Replay Networks is currently in the market. Of the rest, while others are still under development, DirecTV from Microsoft is expected to be most dangerous as it plans to enter the market (nationwide) with a technically superior product. Appendix: Competition from Microsoft, analyses its strengths and weaknesses.

The threat from Microsoft's web based TV viewing (and recording) presents TiVo with additional opportunity to encourage the cable operators in their mutual interest to promote TiVo fast.

The other major threat in the future seems to be coming from Jovio, which is planning to launch the same service as TiVo but for free.

Problems facing TiVo:

With increasing threat from the competition, TiVo, a 14-month old start-up company must act fast to secure a safe place in the market and place enough barriers for the competition to take business away from them. For this, TiVo must target the mass market by increasing awareness and more importantly, encouraging people to try the product.

This can be achieved by using an effective communication strategy. TiVo's communication campaign would be successful if it contributes to a faster adoption of the product by the consumers, as it must rush into its growth phase lest it should be outrun by existing/future competition.

Appendix: factors influencing adoption of TiVo, compares TiVo on the variables affecting the speed of adoption.

Recommendations:

Presently, TiVo's communication campaign seeks to use a different medium for every stage of the product adoption process:

Product Adoption Stages Communication Medium

1. Awareness TV

2. Interest TV / Print Ads

3. Evaluation Website

4. Trial ---

5. Adoption ---

As can be seen above, TiVo's campaign ends at the third stage, leaving the consumer "alone" in the stages of Trial and Adoption.

TiVo must differentiate itself in the market in order to create a safe place for itself. As all competitors are flaunting their tech advantage, TiVo must in addition to projecting the tech superiority, assert on "Its ability to liberate people's life" which is in line with their proposed media campaign.

Hence, in addition to the initiatives already taken, TiVo must undertake the following actions:

Firstly, as 71% of the buyers are influenced by word of mouth from their friends or relatives, TiVo should focus on educating its existing customers on the key USPs by holding regular customer meets or circulating a monthly newsletter etc.

Secondly, Tivo achieved the best sales results whenever consumers personally experienced the benefits of the product, that is in the Trial stage. The Company should therefore absolutely "lead" the consumers from the "Evaluation Stage" to the "Trial Stage". Considering the obstacles of product demonstrations by salespersons, Tivo should seek direct communication to the consumers in the Trial stage. A way to do so would be company-organized product demonstrations at major points-of-purchase or technology fairs, as well as free trials/ paid monthly trials/ money back guarantee within one month of return etc.

Thirdly, TiVo must reduce perceived complexity of usage. In all its messages, TiVo must emphasize on simplicity of use.

Fourthly, in order to catch DirecTV on the wrong foot, TiVo must engage with the cable operators (COs) to encourage their customers to buy TiVo. This can be done by having COs send TiVo pamphlets/fillers to their customers every month.

Further, TiVo must organize its sales force's training on presenting the sales pitch and the key words to be used, who would then instead of trying to gives various possible reasons and uses of features, speak a common language that would help build brand coherence. Of course, the details can be discussed during demos.

Finally, as the threat from the competition looms large on TiVo, it must reduce the prices of both its sets and its service in order to create higher entry barriers. For this, TiVo must gradually reduce prices of its sets to close to price of the VCR (which is a mass market electronics product, as suddenly reducing prices from $999 to $399 would not be a good move as it might have adverse effect on the existing customers) and its service charges from $9.95 per month to $5 per month. The lifetime service enrollment may be kept at $150 instead of $200 as other competitors (Replay TV) are offering the same package of $200. This new price must be shown in all its communications (except from TV commercials where the aim is mainly to create awareness).

Therefore, instead of choosing one ad from the three short-listed, TiVo should consider airing all the ads instead of just one in order to appeal to all the segments shown in the customer segmentation appendix. Also, the content of the ads must be improved by adding simplicity of use, and price reduction (price not to be shown in the TV ad where the main aim is only to create awareness).

Expected future:

With 20 million families in the US owning a TV (in 1999), and customers spending an average of 4.3 hours (adults) to 7.4 hours (households) in front of the TV, the market potential for TiVo is huge.

The current position of TiVo on its lifecycle may be described as shown in the Appendix: Lifecycle of TiVo and The expected revenues are shown in Appendix: Revenues.

With competition heating up, in the future, TiVo is expected to be more driven by services rather than the sales of its "black boxes" (which may be sold by other manufacturers too). For sales of the units, innovation will be more and more important due to high pace of technologies getting outdated/obsolete. As service proliferation depends on sales of the physical units, TiVo will have to focus on R&D for both product and service. Thus, in order to open more revenue streams for securing money for R&D, TiVo must start developing on its idea for revenue generation through ads. As the product itself allows ads to be fast-forwarded, TiVo's idea of "telescoping ads" can be used.

With future in view, TiVo would likely tie-up with either DirecTV (Microsoft) or AOL as net usage for purchase and access to service is expected to increase. The current usage of telephone line for accessing the service would then be replaced by "hand-shake" on the net. Also, it must foster its relations with the network giants - CBS, NBC etc so that in the long-term, they can out-run other competitors like ReplayTV which, unlike TiVo, state that their products will let consumers skip ads.

Appendix: Customer Segmentation

As there are no clear identifiable segments for TiVo, it can segment its customers on the basis of age and usage as follows:

Children - School-going kids would find it very useful if they can have their favorite programs recorded, that they would otherwise miss.

Teenagers to 21- They would want to learn sports watching their favorite games (NBA playoffs etc) using the pause/ slow motion function in order to imitate the best players, or just record the programs, which they might miss because of hanging around with friends.

Adults (singles) - For them TiVo could become a source of entertainment instead of just watching TV with seemingly meaningless shows. Also, they can have their favorite games like Super bowl etc recorded while they work.

Married couples with children - TiVo would make their lives easier by having them deal with the kids better instead of running around them trying to make them study. Also, from socializing point of view, TiVo would benefit them by letting them watch the shows that others keep talking about in the gatherings.

Old people - For them, TiVo could become a lifesaver! With the age factor taking its toll and making them more rigid, TiVo would be a good source of entertainment for them.

Appendix: TiVo on the speed of adoption of a new product

Generally, the speed of adopting a new product mainly depends on the following criteria:

Complexity

One major problem for Tivo is that its product is not always perceived as user-friendly. Furthermore, it is difficult for Tivo to communicate the benefit, the usage and the technical features of the product.

Relative advantage

It will be crucial for Tivo to maximize the perceived added value among consumers. Facing the threat of new market entries, especially by Microsoft, which might have technological superiority, TiVo's success will strongly depend on the company's ability to quickly strengthen its position.

Compatibility

TiVo must market its product not only though Sony and Philips but other manufacturers of electronics goods too like Toshiba, Thomson etc.

Communicability

The aforementioned limited communicability of the product might explain why the innovators who had been targeted first, were not able to influence the majority of the consumers.

Appendix: Factors influencing adoption of TiVo

Factors facilitating TiVo's adoption were:

* The product features - TiVo liberated people's lives! The user could customize TV viewing content and timing, and "play" with the live TV feed (pause, forward or rewind live TV), instead of having to watch irrelevant ads or flip channels during breaks, the user could either forward the ads or only watch relevant ads.

* Effective distribution - by collaborating with Philips and Sony, TiVo was able to get a good availability of the product in the market

* Product reliability - again by co-branding with these companies, the customer did not have any inhibitions due to any possible product related problems.

* Satisfied early customers - The "innovators" who had first bought and used the product were mostly satisfied.

On the other hand, the factors making TiVo's adoption difficult were:

* Low Brand awareness - The market had low brand awareness as TiVo's promotional activities were restricted to public relations, animating the TiVo.com website and a limited mass media campaign. By the year 2000, only 0.04% of US TV-watching households used TiVo services.

* Ineffective sales pitch at purchase point - TiVo retail distribution was in the hands of hardware manufacturers and their sales team could not provide complete or consistent information to the prospective buyers.

* Customer perception of complexity - The complicated features (as perceived) deterred customers from getting more information on the product.

* High Price - The price of the TiVo was too high. The price was as high as the TV set! This prevented customers from trying the product especially when its functions seemed complex.

* Privacy issues - Some customers thought that using TiVo would be an intrusion in their private lives, as it would relay information on their TV viewing habits back to networks and other companies.

* Ineffective "word of mouth" - The early customers who had bought TiVo, although satisfied, could not always present the product well or consistently enough to their friends (likely prospects for TiVo) to encourage an immediate purchase.

Appendix: Competition: Microsoft's strengths and weaknesses

With Microsoft planning to enter the market with DirecTV by extending its existing business of WebTV, following are the strengths and weaknesses of Microsoft's proposal:

Strengths Weaknesses

* Synergy from WebTV - It would have a ready base of 1 million WebTV subscribers to tap.

* Sets manufactured by Thomson and Sony would enjoy same benefits as TiVo

* Along with digital video recording, the same service would offer e-mail, net surfing etc

* Technological advancement and ability to further increase R&D spend - watching and recording 2 shows simultaneously, recording pre-paid movies etc

* Does not involve the cable network setup. Therefore, the customer base is likely to stay as good as that of WebTV.

* Additional cost of satellite dish for prospects who do not one own previously (cable users)

TiVo is currently in the 14th month of its introduction and on the lifecycle is between the introduction and the growth phase (as shown by the dotted oval).

Appendix - Expected Revenues

Estimating number of customers per year:

US market for DVRs Estimates Units in Ks

US Households with a TV (1999) 20 million 20000

New DVR users per year 10% 2000

TiVo market share after proposed changes 30% 600

The estimate can be considered fair and conservative as:

The TV market is considered as of 1999, which is expected to increase.

Number of TVs per household is 4.3, while in this estimation, we are considering only 1 TV per house (1 TiVo (or like) set per household - this may be expected to increase with time).

Estimating revenues from the service subscription:

First consider for 100 customers and then extrapolate it for the 600,000 units:

Revenue sources Estimates Yearly revenue per customer ($) Revenues for 100 customers ($)

New buyers of equipment 100

Equipment bought from TiVo 10% ??

Equipment bought from TiVo's partners 90% ??

No service bought 33.33% 0 0

Old subscribers (continue on monthly basis) 5% 60 300

Old owners now subscribing full service 5% 150 750

New buyers of service (full) 33.33% 150 5000

New buyers of service (monthly) 33.33% 60 2000

Total expected revenue for 100 customers in USD 8049

* - The monthly charge has been considered @ $5 per month, and lifetime connection @ $150

Thus, TiVo can expect $80.5 in revenue per customer. This revenue has been estimated only on the service and not for sales of equipment (due to non-availability of manufacturing cost data).

Thus, for 600,000 units sold, the total yearly revenue from services will be: 80.5 X 600,000 ~ $48.3 million

However, this pricing strategy must be followed only till the market gets developed. There after, TiVo can consider increasing its prices for both (improved) product and services, and to take full advantage of the market demand depending on the competition. As is likely, DirecTV and other competitors will have to introduce better products and with the increasing R&D costs, the market prices can be expected to increase in the long-term. Thus, in the short-term, 2-3 years, this strategy should be followed.