Case Two- TiVo

ADMG4055- Seminar in Business Policy
Fall 2013

Hail Thy TiVo

The company TiVo was created by Mike Ramsey and Jim Barton, these two are veterans from the company Silicon Graphics, SGI. Both were very involved in the entertainment industry, Barton was involved in an on-demand video system and sponsored the Linux system while Ramsey worked on special effects for film companies. It was decided that the Linus software, an open source system, would be just what the TiVo product needed as its operating system foundation. This system combined with Barton’s idea to store a live TV signal on a computer and play it back was the real beginning of the product TiVo. Both inventors of TiVo knew they had a special idea that would appeal to consumers everywhere, Ramsey commented; “Wow, you know, you can pause live television – isn’t that a cool thing?” (J. David Hunger, 2012) This idea is appealing to consumers because it gives the average TV viewer the ability to watch what they want at their own leisure, more control for viewers.
Strategic Posture
Their mission for the company is to “redefine home entertainment by providing consumers with an easy and intuitive way to record, watch, and control television and receive videos, pictures, and movies from cable, broadcast, and broadband sources.” (TiVo Strategic-Paper)The objectives planned out by Ramsey and Barton were to create a home network-based multimedia server in which content to “thin” clients would be streamed throughout the home. Also other characteristics that were important to the founders were: flawless operations, reliability, and the ability to handle power failure gracefully. The best marketing strategy used by TiVo was word of mouth, when the product was first created the company started by sending famous celebrities, such as Oprah, TiVo boxes. These celebrity testimonies, paired with joint business ventures with stores like Best Buy lead to the awareness TiVo needed. TiVo became so popular by its users as well as nonusers that it became a verb, Regis Philbin was quoted saying “TiVo it”.
Corporate Governance
TiVo’s board of directors was made up of experienced executives from three different venture capital firms; Kleiner Perkins Caufield & Byers (Randy Komisar), Redpoint Ventures (Jeffrey Y. Yang), and New Enterprise Associates (Mark W. Perry). Three executives from NBC (David M. Zaslav), Coca-Cola (Charles B. Fruit), and Univision Communications (Joseph Uva). An Independent consultant previously a CFO at Univision Communications (Thomas S. Rogers), also TiVo’s past and present CEO (Michael Ramsey), and Jeffrey Hinson as the ninth member. This board of directors used five committees to conduct its business; audit, compensation, nominating and governance, pricing, and technology committee. Non committee members received annual money and addition for attending meetings while committee chairs received more money and stock option grants. Top management in early 2007 TiVo’s board of directors was as such; Thomas S. Rogers stepped in for Mike Ramsey as president and chief executive officer. Rogers has experience in media and entertainment, online and print media, as well as president of NBC cable. Steve Sordello was named senior vice president and chief financial officer in 2006; he previously was the financial officer as Ask Jeeves. James Barton; cofounder of TiVo, vice president of Research and Development, chief technical officer, senior vice president. Previously to creating and working at TiVo Barton collected a lot of experience in high management positions dealing with technical aspects of TV programs and products. Jeffrey Klugman; senior vice president and general manager of the Service Provider and Media and Advertising Services Division. Has a degree in engineering from Carnegie Mellon, also high management experience in a few companies dealing with online companies and their marketing. Mark A. Roberts; senior vice president of consumer products and Operations. Roberts is responsible for engineering, manufacturing, distribution, operations and strategy of consumer products.
EFAS Chart External Factors | Weight | Rating | Weighted Score | Comments | Opportunities * Foreign markets * Continue to evolve* Market more efficiently * New partnershipsThreats* High cost of patent * Competition against other DVR providers | .10 .20 .20 . .20 . .10 .20 | 4.5 4.0 5.0 . 3.0 . 3.5 5.0 | .45 0.8 1 . 0.6 . .35 1 | TiVo has a lot of room for improvement in their marketing department | Total Score | 1.0 | | 4.2 | |

Societal Environment
The general environment has many issues which can impact TiVo’s strategic direction. A socio-cultural hurdle in The United States was; the largest growing population was over 45 years old and TiVo’s target age market was 35. TiVo targeted this age market because it was observed that this market was more technology savvy which gave the company room to make more sophisticated and complex products and services. Economically, an item such as a DVR is a luxury. There is an initial price for the device, monthly subscription which is based on the service the customer would choose, and all of these things aren’t vital to being able to watch or use a TV. Luckily for TiVo, there are many consumers in the United States and around the world that like to be in control as much as they can be. Pausing, stopping and rewinding live television is an easy idea to sell. Technology in the environment of DVR usage and the understanding is widespread throughout the United States, DVR usage and understanding is widespread throughout the United States. Technology has made even the average home computable to imitate the basic DVR functionality. TiVo was very fortunate in the beginning stages of their growth to be paired with DirecTV, when sales were being made in stores such as Best Buy the sales associates were suggesting TiVo as if it were the only DVR option at the time. Also, the television purchase cycle has shortened due to updates in technology, types of offerings, and faster price declines. The technology offered within a stand-alone television unit often mirrors functionality found in a computer system. Politically and legally TiVo will always be under surveillance because of the ease of access the product gives its user. This is mainly cause for concern with YouTube videos, and the showing of copyrighted material without the permission of the owner. There are current patent lawsuits going on in technology over patent enforcement and how companies manage to get around them. However, DirecTV is not one of those companies. When DirecTV decided to create their own DVR included with their satellite service a three year commercial extension agreement was made to cover maintenance and support for existing TiVo customers. These customers through DirecTV made up more than half of TiVo’s customers.
Task Environment The threat of new entrants is Medium to High; TiVo acquires revenue from its hardware and software subscribers. This means that their direct competitors have the same sales, however TiVo has aggressively attempted to patent their hardware which has created obstacles for competitors such as; EchoStarNDS (builds the DVRs for DirecTV), MicrosoftMoxiScientific Atlanta (owned by Cisco Systems), MotorolaLG (DVR built into TV). TiVo has focused its efforts on designing new products around their current technology. Capital requirements are low in terms of software, since TiVo owns the software, but anyone with a computer can hook a cable to their satellite line for basic DVR service. This is where TiVo’s relationships with companies like DirecTV become important; this creates opportunities for additional services specific to purchasing the TiVo service. Power of buyers is high; this pertains mostly to the cable companies. This is because TiVo chose the route of business that forced them to rely on relationships with big buyers, such as cable companies. Purchasing customers more than likely find switching DVR services to be an inconvenience, but if losing their initial investment isn’t a problem then switches can be made. It’s also in TiVo’s favor that they have the only DVR set-top box sold at retail that substitutes for cable box and allows a consumer to combine many services in one interface. Threat of substitutes is high; the DVR concept is a strong idea with an open construction. Many companies are capable of creating their own, for example the split between TiVo and DirecTV. DirecTV basically took what they learned in their relationship with TiVo and made their own DVR product that could be included in their satellite service. On the other hand, many consumers have a high speed laptop that could be used as a DVR. Power of suppliers is medium; companies that produce hardware or software build generic DVRs and use broadcast companies to distribute their services. Other suppliers can be considered as Google TV, or Apple TV, however these suppliers are internet based. Rivalry among competitors is high; this is a high fixed cost industry with high exit barriers, which keeps companies in this sector even if they wish to exit. The DVR market in the United States has become saturated, different cable or satellite services provide the service, consumers can use cables from their computers and internet sources can also be used as a DVR.
Corporate Governance
When TiVo was founded, corporate values were written to ensure that TiVo would remain a special and different work environment. To paraphrase these values, “TiVo works to build a profitable and growing business by taking educated business risks while conducting themselves in an ethical manner. TiVo values their employees, respecting one another, working as teams and giving back to the community. TiVo strives to earn and maintain customer loyalty by creating real customer value and maintaining high levels of customer satisfaction. TiVo values creativity and innovation in all areas of business.” These ideals were formulated in 2000 and have seen challenging times in the past decade. The board of directors at TiVo is made up of up to nine members who stand for election every three years, in a staggered cycle. A nominating committee evaluates potential candidates in all aspects of their qualifications, with a view of creating a board with a diversity of experience and perspectives. While the board does not require a certain share ownership, the board believes the directors should be stockholders with a long-term view of TiVo’s interests. This board is made up primarily of members with an intimate knowledge of the communications industry. This may distort the view of the board rather than giving them the larger view of market outside of the communications industry. This board has been very tolerant of lack-luster performance with little guidance on revitalizing TiVo.

IFAS Chart Internal Factors | Weight | Rating | Weighted Score | Comments | Strengths* Customer awareness* Innovation * Two markets * Brand Equity softwareWeaknesses * Legal battles*Lost relationships*Saturated market*Cable companies taking customers | .10 . .20 .10 .10 . . .20 .10 .10 .10 | 4.0 . 5.0 3.0 4.5 . . 3.5 4.0 3.0 3.5 | 0.4 . 1 0.3 0.45 . . 0.7 0.4 0.3 0.35 | | Total Score | 1.0 | | 3.9 | |

Marketing
In other departments, such as Marketing and Sales, current employees would need experience in communication, networking, and analytics. Another important skill set for the executives and employees of TiVo to have would be flexible forecasting, this is because of the fast pace changes that are always being made in the technology world. Along with word of mouth propelling TiVo’s sales throughout their most profitable years another goal of the company helped to market the product, emotional connections with their customers. A mechanism in the DVR panel tracked viewing patterns of each customer, TiVo also looked into changes that were made by hackers to see what features could be added for future customers.
Finance
TiVo’s stock had risen and fallen due to events that occurred in the company; good press such as the FCC claimed TiVo was “God’s Machine” and fell when CEO Mike Ramsey resigned. Overall it seems as though TiVo had significant losses, substantial negative cash flow and made their money through selling stock shares.
Research and Development TiVo Community.com was the most powerful R&D tool used by the company; this is an interactive forum for hackers and customers to give constructive criticism. This online forum helped TiVo stay current with customer needs and develops new products and services that appealed to their customers. As the R&D department became more efficient so did the products, a remote was added to the product line that featured a thumbs up or down feature to quickly help record shows the customer wanted to watch. Another competitive move made by the R&D department was to patent the software and technology platform. This was an effort to keep TiVo’s revenue to themselves while increasing sales.
Human Resources TiVo considered their employee relations to be good, they never experienced a work stoppage or strike and the employees were not represented by a collective organization. The company hired 451 employees throughout the operations of service, R&D, Sales and Marketing, administration.
SWOT Analysis
Strengths & Opportunities TiVo’s most important strength is the company’s ability to be innovative and adapt to the needs or wants of their customers. Fortunately there are two separate markets for TiVo to make an impact on, two different devices are offered and have room for improved sales, broadcast and internet. The biggest impact has been with the TiVoDVR, this device can be used in any device. Another possible strength for this company would be to attempt to penetrate foreign markets; so far TiVo has been solely focused on the United States.
Weaknesses & Threats
TiVo’s biggest weakness is that it has focused on selling its own DVR in a saturated market. Most HD TVs already come with DVR capabilities and if the provider doesn’t offer TiVo’s service that household is no longer a possible customer. Providers such as DirecTV have become TiVo’s direct competition. Another negative against TiVo would be the lawsuits it has issued and have been issued against them. Revenue is being put toward fighting legal battles instead of where it needs to be, toward the products and promoting those products.
TOWS Matrix | Internal Factors | Strengths Customer awarenessInnovation Two markets to sell inBrand Equity of TiVo software | WeaknessesLegal battlesLost relationshipsSaturated marketCable companies taking customers | External Factors | | | | Opportunities Foreign markets Continue to evolveMarket more efficiently New partnerships | | SO Strategies Spend efforts marketing to foreign countries with less saturated markets | WO Strategies Make moves to become known in markets other than the over saturated one in the US | ThreatsHigh cost of patent Competition against other DVR providers | | ST Strategies Use customer awareness and innovation to create and sell a new product to afford the high cost of the patent, also to compete more with other DVR providers | WT Strategies Stop going after so many legal battles, revenue and resources can be better spent on positive movements toward growth |

Recommended Strategy
After reading about the tangled web that has been created for TiVo here in the United States, my plan of action would be to penetrate other markets. I feel that this would be a step in the right direction because TiVo as a company has learned a lot about what not to do. They have a reliable, innovative product that is in high demand except they’ve found themselves in quite a few arguments and legal battles. It’s unfortunate that TiVo has not always received the loyalty that is seen between large companies, DirecTV helped TiVo become what it is today and that relationship was served due to the greed of DirecTV. Overall TiVo is a smaller company than the companies it makes partnerships with and is treated as such, a smaller company that can be bullied. Since TiVo needs partnerships to sell its product I believe that a fresh start in other countries would be a positive change, they’ve learned some things to avoid and have a range of products to sell in a new and an unsaturated market.

Bibliography

ehomeupgrade. (n.d.). Retrieved from http://www.ehomeupgrade.com/2010/03/03/tivo-unveils-tivo-premiere-keeps-fingers-crossed-customers-pay-attention/

J. David Hunger, T. L. (2012). Strategic Management and Business Policy. Upper Saddle River : Prentice Hall.

TiVo Strategic-Paper. (n.d.). Retrieved from http://www.scribd.com/doc/52902906/TiVo-Strategic-Paper

TiVo.com. (n.d.). Retrieved from http://www.tivo.com/