A strategic Analysis on
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What are the barriers to imitating the distinctive competences of your company?(Tom Jozinovic) Tivo has developed many barriers that protect them from having their distinctive competencies imitated by its competitors. Product innovation is one of the main barriers that Tivo has established. By working with established companies such as Sony, Phillips, and Toshiba, Tivo has been able to custom tailor their digital video recording systems to fit into desk top cable boxes. Tivo spent four years of testing and development with Direct TV to have their DVR’s integrated with the new generation Direct TV digital satellites. Tivo’s technology and services have been used to promote many different products music videos, new car introductions, NFL games, and movie trailers. The many alliances and business partnerships that Tivo has developed make product innovation a formidable barrier to imitate for the competitors in the digital video recording industry. The second barrier that Tivo has established in this embryonic industry is the many patents that Tivo has acquired concerning DVR recording technology and the menus used to navigate the complex television schedules. Tivo has nearly fifty patents concerning DVR technology and services. The intangible assets Tivo possess pose a big barrier for Tivo’s competitors to overcome. The many product innovations Tivo has developed, as well as the intellectual and intangible assets are the two greatest barriers for Tivo’s competitors to overcome. Summarize your company’s most important internal strengths and weaknesses in a table. Any distinctive competencies should be listed under strengths in boldface. (Tom Jozinovic)
CHAPTER 4 How many different businesses need to be analyzed to give a picture of the overall success of your business? (Randy Seese) The overall success of Tivo can be analyzed by looking at one line of business. Currently, the only product that is offered by Tivo is the Digital Video Recorder (DVR). How differentiated are the products/services of this business? To the extent that they are differentiated, what is the basis of their differentiated appeal? (Randy Seese) Tivo competes directly with the generic DVR that is offered through the cable companies and satellite providers. The generic version of the DVR offers features that are similar to that of a VCR, allowing viewers to rewind, fast-forward, pause, and record live television. The enhanced DVR available from Tivo includes many features that clearly differentiate their product offering and create value for their customers. First, Tivo has a “user-friendly” operating system which enables users to easily navigate through the various menus to select the programs that they wish to record. Another addition that makes their product superior to competitors is the “smart computer” feature. When a show is selected by a viewer to be recorded, this information is stored on the hard-drive of the computer. The system then is able to learn the preferences of its viewers and make suggestions of shows that may be of interest to them. There are also multiple options that Tivo offers that are not available with the generic DVR, including:
What is the business’ strategy toward market segmentation? If it segments its markets, to what extent does it do so? (Randy Seese) Tivo currently offers only one product that is available to all customers; therefore they do not incorporate market segmentation into their business strategy. What distinctive competencies do you now believe the business has? (Randy Seese) When looking at the definition of distinctive competence; Company strengths that lead to a competitive advantage (which means achieving above average profitability in the industry), Tivo has no distinctive competencies. What functional units seem to be the main driving forces in your company? (Randy Seese) Though analyzing the company brings mystery to what functional units Tivo Inc. focuses on most. Analyzing customer satisfaction shows that Innovation, Research and Development, Marketing and Excellent Customer Service are the functional units that are driving this company. Tivo prides itself on being the pioneer of the digital video recording world. They were one of the first companies to provide a receiving unit and service that would allow television watchers to pause live TV and record programs without the need for a VCR. They succeeded in becoming innovators to this new sector of the home entertainment industry and they continue to make adjustments to their product, which makes it more user-friendly providing the user with an ultimate television viewing experience. In order to succeed as innovators, Tivo had to develop an excellent Research and Development unit that could decipher what features consumers wanted and then be able to incorporate them into their system. The R&D function must continually find new ways of improving their current features as well as develop new features to remain on the cutting edge of this market. Marketing is another functional unit that is driving Tivo towards success in the DVR market. By using an aggressive marketing campaign, Tivo has positioned them as the premier product offering in the DVR market. This has established brand recognition and has made Tivo the most recognized name in the DVR market. The final functional unit that drives Tivo Inc. is their customer service. Customer service is a very important aspect of a product that is in the embryonic stage of the product lifecycle. Customers may not necessarily understand all that there is to be known about a new product. Therefore, it is crucial to the company’s success that they are able to answer any questions that their customers may have in a timely fashion. If customers feel that their needs are not important to a company, they will take their business elsewhere. Based on all the information you have gathered so far, do you know believe that your company has a sustainable competitive advantage? If not, what might it do to create a sustainable competitive advantage? Could you improve the business level strategies you have discussed? (Randy Seese) Tivo does not have a sustainable competitive advantage. This is due primarily to the fact that they are competing in a market that is in the early stages of development. To date, Tivo has been experiencing a negative return on invested capital, which is how we measure the competitive advantage that a company has in its industry. However, Tivo does have strengths that can potentially lead them into a leadership position and attain a competitive advantage in the DVR market. They currently provide a multitude of features that are not available with the generic versions of the DVR that are offered by their competitors. They are the first movers in the industry and are constantly searching for ways to keep an edge on the rest of the field. By advertising through mainstream media channels and creating partnerships with well established firms, Tivo has been able to get their name out into the public which is helping them gain market share. Tivo may be able to become a major player in the home electronics market by broadening their product lines. With only the DVR Tivo is limiting their potential to the acceptance of this one product and is making themselves vulnerable to competitors, such as the cable and satellite providers. By diversifying their product offering they may be able to use their marketing efforts to segment different markets and provide more security to their long-run viability. Chapter 5 Which of the value chain activities does Tivo have a competitive advantage? (Ed Work) One of the major problems facing Tivo is the outsourcing of nearly all of the value chain activities. As stated by the Tivo managers in the 10K for 2003: “One of the greatest weaknesses for our company is the outsourcing of sales and marketing, and production activities to third parties.” Tivo outsources its production activities to Sony, Maxtor, Phillips, Direct TV, and other companies. The production licensing method of expansion has not allowed Tivo to experience any learning affects, or economies of scale. Tivo paid out 16.4 million in revenue sharing and manufacturing subsidy payments. Although production, and sales and marketing related expenses have been steadily decreasing, this does not eliminate the problem Tivo faces in building their value chain competencies in-house from scratch. Research and Development is one of the strongest sections of the value chain for Tivo. Research and development are the only value chain activities that Tivo has total control of. Research and development expenses for 2003 were 20.7 million dollars. Research and development, in combination with intense marketing, was heavily emphasized in Tivo’s beginning seven years ago. R & D and marketing now have declining budgets, and the focus is shifting to professional and customer services and licensing. The intense marketing, although not done be Tivo, did create value for Tivo by promoting the Tivo name. Tivo is to the DVR industry as Kleenex and Xerox are to their respected industries. I personally remember seeing Tivo ads on TV before I even knew what a Tivo was, and it took seven years for me to finally see one “in the flesh”. Tivo was not the first company to make a DVR, but when talking to salesmen, Tivo is the first name that arises when asking about this emerging industry. If Tivo is coming close to a competitive advantage in the value chain it would be in the area of R&D, and marketing. Although a concerted effort was made in these value chain areas, the results are slowly fading away in the growing DVR market. Tivo must reinvent the business plan and value chain activities to change with the growing market conditions.
The network effects of technology are the size of the web of complementary products that will, in turn determine the demand of Tivo’s products. Tivo has many complementary products that could increase the demand for Tivo’s products, first of which is the cable and satellite/dish industry. The every increasing channels available for people to watch means that there is going to programs that overlap, and cannot be watched at the same time. NFL sports Sunday is a good example. A dedicated football fan has up to three or four games being broadcast at the same time of Sunday’s. The Tivo will allow the avid fan to view every game in its entirety, and even rewind those controversial plays. A second complementary product is the advancement in the home theater technologies. Companies like Circuit City, Fry’s, Good Guys, and Best Buy sell record amounts of DVD players, HD flat panels, surround sound home theater systems, and other electronics. The days of an 18 inch television with ½ inch speakers are a thing of the past. The home theater products have created movie theater like quality in homes, and also created a want for products like Tivo than can pause and record your favorite cable movies. A third complementary product for Tivo is the Personal Computer, or PC. The PC allows you to remotely access your Tivo from anywhere there is an internet connection. The home media option from Tivo allows you to also email and share your movies with other internet users. Broadband internet service has also assisted in this relationship between Tivo and PC’s. This vast network of complimentary products has had a positive effect on the demand for Tivo’s, and other DVR’s in the industry. Where is the dominant technology in your industry on its S-Curve. Are there any alternative of disruptive technologies? How likely is it that your industry will experience a paradigm shift? (Ed Work) The dominant technology of Tivo’s industry, the operating system for DVR’s, would be at the low point of The Technology S-Curve. DVR technology is a product that is still near the beginning of its evolution. Being introduced to the market in 1997, the DVR is quickly becoming a must have item for television viewers. DVR technology has persistently improved because of an increased effort in research and development. New custom features, options and improved interfaces are consistently being introduced. Currently Snapstream is an alternative technology to Tivo. Based around the same principles of saving live television onto a computer processor, Snapstream provides software for the PC that can be used in conjunction with a television set to offer the same capabilities of a DVR. The company also offers a variety of features Tivo and other DVR’s cannot. By utilizing the other strengths of a PC, Snapstream enables television viewing from any computer connected to the network, or the ability to change the format of saved television shows so that it may be burned onto a CD or DVD for later use. Snapstream has heavy requirements for PC speed and ability, thus segmenting its market towards avid computer users. Although it is a competitive technology, Snapstream has not transformed the industry and its competitors, thus it has not developed as a disruptive technology. Although Snapstream’s technology has not disrupted the industry it has great potential. It hopes that with decreases in computer prices it will be capable of replacing Tivo’s existing technology. The probability of a paradigm shift in Tivo’s industry is very unlikely because it has yet to reach the natural limit of technology.
The factor conditions of the U.S also prove to be an asset to Tivo. Capital can be obtained from private individuals or large corporate banks. Though it is dimmed, the spirit of entrepreneurship still lives in the U.S.A. With a vast supply of skilled and educated workers, Tivo has the ability to choose from a knowledgeable workforce that can’t be replicated in most other countries. Another advanced factor that the U.S.A provides is the communications infrastructure. Most homes already have televisions or phone lines in them. This factor helps contribute to the demand conditions as well. Related and supporting industries for Tivo include cable and satellite companies, broadcasting stations, VCR’s, computer chip manufacturers and television set manufacturers. The broadcasting companies, such as ABC or Fox, have the ability to dictate the success of Tivo. Because Tivo is a complementary product to televisions, if Fox, ABC and other channels begin to offer substandard quality programming, the use of Tivo will drop considerably. But because the broadcasting firms in the U.S.A put out a surplus of television programs the public wants to see, a market for Tivo is created. The vast coverage of cable and satellite companies that offer services in the U.S also helps Tivo. And though much of chip and television manufacturing is done over seas, this doesn’t impact the operations of Tivo in the U.S. to much extent. As long as the chips and T.V. sets remain compatible with the Tivo receiver, Tivo doesn’t have too much to complain about. The intensity of rivalry for this industry is considerable. Tivo faces major competition from Echostar and Comcast, both companies that provide generic DVR’s given out with their satellite and cable service plans. ReplayTV is the largest competitor in the stand-alone DVR market, while SnapStream offers an alternative method for DVR’s by providing software that allows a PC to perform the same function as a digital video recorder. The amount of competition in the industry is forcing Tivo to evolve. Currently, Tivo is considering altering their business plan by shifting the production and research focus from DVR units to the development of software. The intense competition is forcing Tivo to cut costs while innovating its product, creating a better end product for consumers. What potential does your company have to add value to its products or services or to reduce the costs of value creation by expanding internationally? (Ed Work) Tivo may be able to add value to it’s product offering or lower the cost of their product to create more perceived value by taking advantage of the low-wage, highly skilled labor that is available outside the United States. For example, India is a country that has an abundance of highly skilled, cheap labor. A highly skilled workforce has the potential of creating a more innovative or higher quality product. This will create a greater perceived value in the mind of the consumer, therefore enabling them to charge more of a premium for their product and differentiate them from competitors. Also, this could help them lower their cost structure and put them in a better position to be able to compete on price, which seems to be a current weakness of Tivo. By expanding internationally, Tivo also has the opportunity to establish its presence in untapped markets. What foreign market might it enter? What approach to that market might it take? (Ed Work) Tivo could have possible success in foreign markets that are intrigued by media entertainment. In October of 2000, Tivo launched the Tivo service in England, and have a headquarters in Windsor England. Other countries that may be receptive to the Tivo service include China, Japan, and Korea. These countries also show a great desire to have the best and latest in electronics technology. Being that Tivo is partners with Sony their move to Asia might not be as unlikely as one might think. Sony currently offers a product in Japan, with Tivo integrated technologies, called My Cast. The My Cast is a basic DVR that is not coupled with the Tivo service. One feature the My Cast does offer is the ability to program recordings from you DoCoMo, which is a brand of cellular phone in Japan. In order for Tivo to gain acceptance in the Japanese set top market, Tivo might have to think about making their units smaller. Japan and China are known for the small electronic units and so Tivo would have to follow suit. This may be a present a problem because Tivo would have to figure out how to get all of their components into a smaller shell. Another obvious problem Tivo will face is making their unit compatible with foreign satellite and cable providers. In order to enter these markets Tivo is going to have to present itself as the “cool new thing”. The main problem with Tivo entering a foreign market is that it hasn’t had amazing success in the U.S. market. Usually a company moves to foreign markets because they have used up their homeland market or there is a chance they will be more successful in the foreign market. As of now there is no proof that either one of these is true.
Because Tivo does not have a competitive advantage they do not currently have any distinctive competencies, however using aggressive marketing campaigns they have positioned themselves as the superior product provider in the Digital Video Recorder (DVR) industry. Based on this positioning a good “filling-in-the-blank” idea may be developing a television which has features that are specified for use with Tivo’s DVR. The DVR unit could be built into the television rather than being a stand-alone box, which would cut down on extra unit space for the consumer. They may be able to design the television with higher digital quality and make their DVR compatible with digital TV. The Tivo television would be focused towards those who are looking to save space or eliminate the unsightly look of multiple set-top boxes Another “fill-in-the-blank” could be developing incremental memory upgrades for DVR units. Currently there are no DVR manufacturers who enable consumers to upgrade memory space on their DVR’s. Tivo could develop units that can take memory upgrades so consumers are able to purchase DVR’s with lower memory but as they realize they need more space they can purchase more memory. They could also leverage themselves as the only memory up-grade company on the market so as other companies develop these units Tivo could sell upgrades for those systems as well. This might be done much the same way a computer can be upgrades through RAM. One final “fill-in-the-blank” option may be bridging the gap between TV and internet by allowing people to store their recorded shows on the internet so they can view them on other computers when not at home. The technology would be very similar to the DVR system yet it would give the consumer more versatility in using their unit and their recorded programs. A drawback to this would be that it could prove to be very expensive as Tivo’s customer base continues to grow. All of the aforementioned would be great “fill-in-the-blanks” because they are slight advances using the technology Tivo is already using. They also would draw more people to the Tivo name because there are more products with innovative features that would work well with the present technology of the DVR. The existing competencies of Tivo that can be focused on in brainstorming “white spaces” opportunities include marketing, software engineering and customer service. These valuable abilities can be transferred over into new and exciting markets that can potentially reap large profits. With Tivo currently in limbo regarding the future of their capabilities to make profits in the DVR market, “white space” opportunities are an important strategic concept Tivo needs to discuss. (David Bolhorst) One “white space” opportunity that comes to mind is very similar to Tivo. The main difference is that instead of focusing on television, radio is the main attraction. Using the same concept of Tivo, the idea is that a processor can save songs, news or sporting events off of the radio. From there, a variety of options can be implemented. The unit can support two drives, one that stores the music straight off of the radio, and another, which can be used to “customize” the saved data. Songs and programs can be moved from one drive to another, allowing users to mix and match songs or programs in any order they like. A user can create CD’s from their customized collections. The user can save 2 weeks worth of Howard Stern shows, or every Warriors game of the season. The top 20 hits on Saturday morning KMEL 106.1 can be saved with ease now. These processors can be implemented in home stereos, walkmans, boom boxes, and most importantly, cars. Cars already have CD players included, so adding compact disc burning abilities to the vehicle isn’t a stretch of the imagination. The idea of creating CD’s has always included a personal computer. With this new software and unit, the user is no longer a prisoner to the PC when it comes to compact disc creation. Tivo can use their marketing competency to spread the word about their products. The company turned Tivo into the face of DVR’s, and can surely influence the masses when it comes to this new market. Another great “white space” opportunity would be monitoring viewing preferences and patterns for advertisers on television. Tivo could do this by keeping track of what people watch and record and then selling this information to cable companies and advertisers. This could prove to be very profitable because although most Tivo viewers fast-forward through commercials, regular cable and satellite viewers don’t have that ability. Cable and advertising companies could use information about Tivo user’s viewing patterns in order to market more effectively to traditional television viewers markets.
Given the market situation described above there aren’t many new competences Tivo could establish that would set them ahead of the pack for the future. The main competence that will drive this market is research and development however it seems that Tivo already obtains this and does a fairly good job at it even though it is not a distinctive competence. Because everyone is able to use and build upon the DVR technology it is apparent that Tivo can still continue to be a major player in this market as long as they can continue to offer new and attractive features that will differentiate them from their competitors. This means One possible “Premier Plus 10” competence could be developing better sales. As our junior consultant group examined DVR’s in Bay Area electronic stores we found that there were few places a consumer could actually test a DVR from any company. Most stores we went to could give us information about the product but didn’t give us a chance to experience it, which we found very frustrating as “acting” possible consumers. By placing Tivo representatives in stores, especially around the holidays, to demonstrate their products features, could solve this problem and give them a great advantage against their competitors. This may help to push their product ahead of others because purchasing a DVR is not simply based on information, but for most people based on experience. When consumers get a chance to “play around” with Tivo they realize how useful it is and can decide if it is worth their money.
A second “mega-opportunity” for Tivo could be sponsoring a sporting arena or stadium. They could have individual or group viewing areas where fans can watch the sporting event live and also on T.V. with the ability to use Tivo’s features. This could become widely popular because everyone at an athletic event wants to see the reply and many times stadiums won’t show the close and controversial plays on the jumbotron. Most avid sporting fans would love the chance to have a little control over their viewing using a Tivo and would be willing to pay a little more to have that feature. Another avenue could be a fan paying for a personal sized viewing screen that they hold and have control of in their seat. The effects of both these “mega-opportunities” would be two-fold; Tivo could make money off both of these new ventures and at the same time it would be a good marketing plan to give people a chance to use a Tivo DVR. They would go out to the bar or the game and have interactive control over what they are watching and then realize they would love to have it at home as well. Because they have already heard the name Tivo at the field, arena or bar that is most likely the name they will mention at the store. Has your company carried out any diversification recently? Do you believe it has been wise? Based on the above analysis, would you recommend your company embark on any diversification? Analyze the dangers of that bureaucratization costs or failure to understand the competencies needed for the new business might cause serious problems. (David Bolhorst) To date, Tivo has not carried out any diversification. Because Tivo is in the embryonic phase of the industry lifecycle, it makes since that they have not done so. In addition, Tivo has experienced net losses since its inception, which makes it quite difficult to consider adding any new businesses that are distinct from DVR technology. Tivo’s advantage is that they have many patents and technologies that may make them an attractive target for firms that are looking to diversify and take advantage of what Tivo has to offer. These companies may also be attracted to Tivo because they can take advantage of immediate tax advantages due to Tivo’s past loss from operations.
Identify approximately five companies whose executives might be interested in purchasing your study from the San Jose Consulting Group.
Works Cited1. Diaz, Sam “Despite Milestone, Tivo Faces Rugged Competition.” San Jose Mercury . 4 Nov. 2003 2. Wirednews.com 3. www.tivo.com. April 2003. Tivo Inc. 9 Dec. 2003 4. Casselman, Mitch and Nadeau, John. www.cata.ca/china/documents/TiVo.pdf. 29 Oct. 2002. Carleton University PhD Program. 9 Dec. 2003 5. Interviews with Tivo customers (Steve, Phil, Dave, Lofgren Family) 6. Interviews with store employees (Circuit City, Good Guys, Best Buy) 7. Phone conversation with Comcast salesman 8. Tivo DVR testing experience at Circuit City |