If business were a fable, the scrappy young character would get kicked around by the evil Powers That Be but ultimately win out with perseverance, tenacity, and creativity. Think David versus Goliath or Jack against the Giant. Some real-life stories do turn out that way: Apple displacing Sony in the personal entertainment space or Netflix triumphing over Blockbuster. But far more often, the story ends badly, as the would-be hero, mounting a gallant frontal attack, is crushed under the heel of the Giant on his home turf.
The Tale of TiVo is one such story that should keep executives up at bedtime. A true innovator, TiVo came to the rescue of TV viewers everywhere with daring solutions to long-standing frustrations. We hate commercials – TiVo skips them. We hate missing our favorite shows – TiVo records them. We hate channel surfing – TiVo surfs for us. We the villagers rejoiced and started to reward TiVo with gold (profits) and, more important, the precious real estate atop our TVs.
The Cable Giant was none too pleased. He owned that real estate and had big plans for turning our viewing habits into gold (though being a Giant, he had been slow to execute). Still, as Giants are wont to do, he carried a huge club – a well-established, subscription-based business model with a big installed base. We villagers were accustomed to paying these monthly rates, so he simply appended a “good enough” technical solution — basic DVRs – onto this model, added a modest $5 per month to our bill, and quickly ground TiVo’s bones:
The moral of the story? Inventing cool technology will get you press and begin to energize the most frustrated segments of an otherwise staid consumer base, but to beat a Giant you need a new business model. It wasn’t MP3 technology in general that took down Sony: it was iTunes’ “pay-only-for-what-you-want” business model. It wasn’t Netflix’s mail service that upended Blockbuster (which eventually offered the same service): it was the elimination of late fees that Blockbuster, with its high overhead, simply couldn’t afford.
Could TiVo have done something to avoid this fate? I think so. First, rather than go toe-to-toe with the Giant, TiVo could have made a partner of the cable companies (a lesson it may have learned too late). Second, TiVo might have diversified by identifying other, more defensible markets, in which its unique, tailored-entertainment model would work. Could TiVo have, for instance, become Pandora, addressing our legacy concerns with broadcast radio? Could it have become Groupon, serving up locally relevant and timely discounts based on our preferences?
Ultimately, TiVo didn’t defeat the Giant, but he did make him dance. Here’s hoping our hero lives to fight again as the world is full of frustrating Giants.
Kevin R. Bolen is a partner at Innosight.