“Lifetime” Guarantees for Technology

Ever since Tivo hit the market in 1999, it has been a tough uphill battle for them to achieve their growth goals. Some said that their problem was that the were trying to sell a product that came across as a very expensive VCR. Others said that you really had to have one in your home for a week or so before you appreciated how cool it was. Still others claimed that the idea of Tivo suggesting what you would like to watch was too weird for people to believe. Although all these are true to some extent, I think that the critical problem has been the subscription fee.

You see, the Tivo business model was built around a data connection between your machine and their servers. Not only did they use that to collect information on what people were watching, with a long range plan to sell that information to the networks, they needed that connection to update your onscreen program guide. Tivo made the strategic decision that they were going to provide it over a phone connection and charge $12.95 per month, (or you could choose a one-lump-sum “lifetime” subscription fee of only $300!). The subscription approach looks good on a business plan with a huge projected subscriber base, but how about all those people out there who already have that link set up through their cable or satellite subscriptions? Will they be willing to pay an extra $13 per month for the same programming information they already get? Tivo bet the farm that they would.

That $13 extra per month is precisely why I decided to get my first DVR two years ago through Dish Network, rather than commit myself to Tivo. I paid $189 for my Dish DVR (after rebate) and the normal $5 per month fee for the extra receiver (I think all cable and satellite plans charge you some small monthly fee for additional set top boxes).

What has happened since then is that most cable and satellite companies now offer some sort of combination DVR / set top box. I haven’t checked with all the cable companies, but my satellite provider doesn’t charge any more for a DVR set top box than it does for any other set top box. So you are only paying for the benefit of piping all your TV channels into another room, not for the DVR functionality.

Although Tivo has been trying hard to set up agreements with cable and satellite providers (they have one with Direct TV), it appears that those guys are smart enough to understand that they don’t really need Tivo and that many of their customers may resist the added fees. Consequently it came as no big surprise when Direct TV announced that they will start selling their own non-Tivo DVRs (like Dish Network does). Given Tivo’s continuing financial problems, one wonders what the outlook is for all those people who paid a lump sum for a lifetime subscription? Being in the technology business, I always chuckle when I see the word “lifetime” associated with any sort of tech product.

But at the same time I feel strangely bad for the Tivo company. They picked a memorable name that rapidly became synonymous with digital video recording, did an excellent job on their software, and introduced an incredible product that is changing the way people watch TV. If the company eventually goes under, it will make a good case study for Business Strategy 101.