TiVo Needs to Change Their Strategy to Survive - Business Schooled

最近STM探討的 case TiVo, 找到一些建議TiVo修訂策略的文章.

TiVo Needs to Change Their Strategy to Survive - Business Schooled

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TiVo should rethink its business model to better position itself against these threats and to compete effectively within the maturing DVR industry. The following three recommendations work together to accomplish this goal. The process starts by re-branding the company, moving from a hardware-based to a predominantly software-based company, and leveraging its data gathering capabilities and services.

The first recommendation is a re-branding of TiVo. The company should switch from a focus of promoting its set-top box to promoting the “TiVo Experience”. TiVo has many differentiated features, such as its easy to UI, integration with on-demand video, smart search and recording capabilities and “TiVo-to-Go” which allows users to transfer TiVo recorded programs to their personal computer.
Effectively rebranding their service allows TiVo to take advantage of network effects that will create demand on both the user side and the content provider side. TiVo will position itself as the central platform that provides the User Interface consumers want and the access to consumers that the content providers and their advertisers desire. A similar effect was seen with the Intel chip. A consumer does not buy Intel directly, but one would not buy a computer without “Intel Inside”. Our goal is to make TiVo desired in the same way, where one does not want a DVR device that does not use TiVo software.

[CY] Accoring to Wiki, Network effects 要能發揮效用必須使用者或佔有率達到一critical mass. 以TiVo僅約300萬用戶來看, 是否已經達到critical mass, 需要進一步研究.

The second recommendation is that TiVo should slowly phase-out hardware sales. With TiVo’s current business model, hardware makes up only 17% of its revenues, but over 30% of its expenses. [ii] This leads to large losses on the hardware side and negative margins. The margins for the hardware segment for fiscal year 2007 through 2009 were -171%, -120%, and -40%. When compared to the software margins for these three years of 78%, 80% and 76%, it becomes evident that hardware is causing downward pressure on the company’s earnings.[iii] The sustainability of this recommendation assumes that TiVo is able to create demand among content providers as to avoid any hold-up effect.
Eliminating hardware sales allows TiVo to strive to become the standard platform for DVR software in the industry. Through a focus on Software as a Service, increased partnerships will allow TiVo to benefit from the low DVR penetration rate among content provider consumers. The percentage of Comcast subscribers with a DVR is around 20% and Time Warner is 25%[iv], showing that there is still a potential for deeper penetration within the existing market. If TiVo were to expand its partnership with Comcast and add Time Warner Cable, the net present value of these potential partnerships is $101.3 million (through 2014). See Exhibit 3 for details on the calculation of the NPV (not included). This business model generates a modest ARPU (average revenue per user) per month of approximately $1, however, it virtually eliminates TiVo’s hardware losses and subscriber acquisition costs.[1]

The third recommendation is to increase TiVo’s ability to leverage the viewer data that its software gathers from its subscribers. TiVo is capable of capturing the viewing habits of its consumers, both its own subscribers and from its partnerships with content providers. TiVo’s “StopWatch” ratings service has the ability to track what people watch, but more importantly, how people watch television.[v] The data obtained includes which hours viewers watch live or on time shift, which programs are the most recorded for later viewing, and which commercials are viewed or skipped when viewers watch the program on time shift.
TiVo’s data mining abilities creates additional benefits of the TiVo software and contributes to further network effects. TiVo can capture information from all users, providing more accurate and expansive marketing base for advertisers and other companies to access. Advertisers can use this information to make their ad placement more successful and profitable. This ability to increase the ROI for advertisers through TiVo’s technology will create demand from content providers’ advertising partners for TiVo’s services.

These three recommendations will shift TiVo’s competitive focus in the industry. It will move from a hardware provider to mainly Software as a Service company. TiVo will no longer be competing with Cable, DBS or Telecoms, but rather working with them as a partner and service provider.