Why TiVo is destined to fail.

The latest gadgets and tech toys.
Oct. 9 2002 10:55 AM

TiVo, We Hardly Knew Ye

Sorry fans, but it's destined for the ash heap of history.

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TiVo, the granddaddy of digital video recorders, or DVRs, enjoys a cult following noted for its evangelical fervor. There are few worse cocktail-party quandaries than being sandwiched between a TiVo owner and the wall. Should you ever find yourself in such a spot, prepare for a 45-minute sermon on the glories of pausing live TV, fast-forwarding through the ads, and watching King of the Hill reruns whenever you damn well please, without having to worry about setting a VCR timer. The devotee will even use TiVo as a verb, as in, "Why don't you come over tomorrow night, 'cause I just TiVo'd three episodes of Crank Yankers."

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But off-the-charts customer satisfaction has yet to turn TiVo into a rollicking success. The Alviso, Calif.-based company has burned through $400 million since 1997 and has never once shown a profit. Losses are narrowing as the subscription base inches toward 500,000, but the future is still precarious. TiVo hopes to get in the black by January. With only $26 million in cash reserves and a stock price well below the $4 mark (down from a bubble-era high of $76), it can't wait much longer.

You can ascribe TiVo's struggles to the business axiom known as "first-mover disadvantage." Technology pioneers typically get steamrollered, then look on helplessly from the sidelines as a bunch of Johnny-come-latelies make billions. First movers, the theory goes, are too smart for their own good, churning out gizmos that are too expensive or too complex for the average consumer's taste. The big boys survive their gun-jumping—think of Apple and its proto-PDA, the Newton,which might have dusted the rival PalmPilot had the company merely waited a year or two to iron out its kinks.Smaller fry go kaput.

The technology roadkill that TiVo's brain trust ought to be studying is Commodore, the defunct company behind the venerable Commodore 64 home computer. If you're on the younger side of Gen X, chances are you learned to program a few lines of BASIC on a C64, which sold 22 million units in 1983. Nearly a third of all computers sold worldwide that year bore the Commodore logo. The conventional wisdom held that the company's follow-up couldn't fail.

Except it did. Miserably. The Commodore Amiga was a multimedia machine designed to become the centerpiece of the family den. The designers foresaw the not-too-distant day when people would jack their VCRs and televisions into a PC like the Amiga, which featured such revolutionary perks as a full-color screen (a big plus in the age of green-and-black Apple IIc monitors) and stereo sound. The Amiga could be a video editor, a gaming console, a musical instrument. Geeks were dazzled.

Joe Six-Pack, however, was stumped. VCRs and video-game machines had just recently made a splash in the mass market. Now Commodore was asking people to add yet another box to their living-room array. The Amiga suffered from an identity crisis that the company never solved. Was it a gaming machine? People were happy enough with their Ataris. A music synthesizer? Cheap Casio keyboards were ubiquitous. A video editor? The camcorder revolution had yet to take hold. The Amiga flopped, and Commodore slowly lapsed into bankruptcy. Now the Mac renaissance is being driven by Amiga-like multimedia features, much to the chagrin of busted Commodore shareholders.

TiVo faces a similar story arc. It's had a tough time convincing consumers that its flagship DVR is a must-have. One tack the company has taken is to compare the device to a souped-up VCR. But people already have VCRs, and they don't understand why they should plunk down $399 (plus a $12.95-per-month subscription fee) for another one. Yeah, but this one's digital, a TiVo executive might insist. A DVD player is digital, too—how does a Best Buy salesman explain the difference in 25 words or less, especially with inexpensive DVD recorders about to the hit the market? As the CD-burning craze proves, people like their storage media cheap and portable, rather than entrusting everything to an unseen hard disk.

And compared with a VCR or DVD player, a TiVo is difficult to set up and maintain. It's not rocket science, but to mangle the words of H.L. Mencken, lots of businesses have gone broke underestimating the technophobia of the American public. For a nation that still prefers to access the Internet via the "sandbox" of America Online, hooking up a hard disk to a television seems like a fairly Byzantine task. When a British media consultancy recently distributed some TiVos, 30 percent of the recipient households "never really got to grips with them"—or, in other words, they preferred to let the pricey boxes gather dust rather than waste another second figuring out the labyrinthine menus.

TiVo's saving grace could be licensing. The company is pursuing partnerships with cable and satellite providers that hope to incorporate DVR technology into their hardware. People prefer getting one fat bill from their cable company to sending a monthly check to some DVR company in Silicon Valley. TiVo had better get cracking, though, as lots of competitors are eager to offer their DVR technology to the likes of Time Warner and Comcast. Boston's Trace Strategies recently estimated that ordinary cable boxes will account for 76 percent of the DVR market in 2005, while stand-alones like TiVo will barely register at around 3 percent.

The other 20 percent? Gaming consoles like Xbox 2 and the next generation of Sony PlayStations will likely include DVR technology. So, too, will a slew of bargain PCs, which are increasingly being bundled with DVR emulator software that can turn a Dell into, well, a TiVo. Just like the Commodore folks envisioned way back when, the family computer may soon become the conduit through which all entertainment flows—a jukebox, gaming center, and steroid-pumped VCR all rolled into one. The realization of the Amiga multimedia dream could kill TiVo's one-trick pony recorders.

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