Innovate and Die? Wait a minute . . .

11 Aug 2004|Added Value

Why is it that sometimes a truly innovative product or service just doesn’t make it in the real world? Didn’t they do the research? Is it just ahead of its time?

Two recent articles in the The New York Times—one about how TiVo is “struggling” and another in Stuart Elliott’s “In Advertising” weekly email newsletter about the potential growth of satellite radio—got me thinking about how such a seemingly counter-intuitive situation could arise.

Isn’t everyone, from industry pundits to “regular” people, talking about how great TiVo is and how this “killer” app is going to change the way we consume media? The advertising community is searching for a way to either leverage or bypass the breakthrough technology.

On the other hand, I remember the first time I heard about satellite radio. My first reaction was “why would I pay monthly for something I already get for free?” It’s pretty easy to change stations to avoid commercials or simply play my own CDs.

So why is TiVo in danger while the satellite radio brands are expected to grow? I think part of the answer lies in the strategic corporate partnerships these companies have forged, which intentionally or not, point to the importance of understanding end-users’ behavior on a deeper and contextual level.

My initial reaction to satellite radio notwithstanding, I have noticed and been impressed with the presence these brands have been able to achieve. When renting a car at Hertz, I couldn’t help but notice the promotion to get Sirius radio in my car. Both Sirius and XM have partnerships with auto makers that let you get a satellite radio installed when you buy a car; XM has deals with its investors GM and Honda as well as with Toyota and Nissan, while Sirius is available on Ford and Daimler-Chrysler brands.

These deals all make sense given how people actually behave when it comes to using and buying radio. Most people “buy” their car audio system when they purchase the car to begin with, and pick out all the various options. The Hertz deal is a great idea. When you’re in another city, you might not know what station plays your favorite music; even I was tempted to try it out!

TiVo’s underlying concept is rooted in an understanding of how people wish they could watch TV: what they want, when they want it. And it does a great job at that. But how many people will actually go the effort of driving to the store or going to TiVo’s website to buy the thing?

TiVo has a partnership with DirecTV, which as the Times article points out “is TiVo’s biggest distributor; in fact, more customers subscribe to the TiVo service through DirecTV than through TiVo itself.” But now DirecTV is going to offer its customers an alternative DVR (digital video recorder, the generic term for the category TiVo helped create).

This situation really highlights the importance of a business studying not just the consumer, but all the forces at play, especially suppliers and distribution channels. GM and Honda aren’t just XM’s partners, they’re investors; it’s unlikely they’ll distribute a competing satellite radio anytime soon. Yes DirecTV invested in TiVo, but their core business competencies are much closer and the line is a lot blurrier.

Moreover, the satellite radio brands have multiple distribution points; XM and Sirius have deals with leading retailers like Best Buy, Circuit City and Wal-Mart. In contrast, TiVo has not been able to create partnerships with the cable companies, who are already rolling out DVR features as add-ons to cable subscribers. The DVR features are usually integrated into the cable box and priced as an additional monthly fee. The adoption is less “painful” since there is no need to buy a new box or pay a large upfront cost. This is great for cable subscribers who are already used to ordering new channels, upgrading to digital, or buying videos on demand. In effect, the service is brought to them.

So what’s the bottom line? For a brand to win in the marketplace and not be relegated to the Betamax pile of first-mover losers, it needs to take into account more than just how much people like something or if they will use it. An understanding of the broader context, including existing behavior patterns, how and when they buy or make purchase decisions, and the complex business forces at play, is crucial. This is an area where more in-depth study such as ethnography and observational research, as well as strategic marketplace assessment can be very useful.

I bet that TiVo did really well in concept testing and prototype research. Its early adopters swear by it, and “to TiVo something” is already becoming an everyday colloquialism. But whether or not the company can leverage how people choose and buy media will determine if TiVo becomes a future linguistic mystery or the “Kleenex” of DVRs.

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