Critical mass needed: TiVo must reach tipping point in '05

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It's crunch time for TiVo: If it doesn't get it right, 2005 will be the year the company is consigned to the textbooks as a case of what not to do when marketing new technology to the masses.

If this year marks a tipping point in the adoption of digital video recorders, as many prognosticators predict, then it also marks TiVo's final chance to sign up enough customers to ensure critical mass.

TiVo initially launched with fanfare in 1999, garnering kudos for design and innovation, while scoring legions of rabid fans. Yet, it still only has about 2.3 million subscribers, more than half of which come from its association with DirecTV. And its refusal to cut deals with cable early on has left it on the sidelines as cable companies roll out their own DVR services at a cheaper price.

time to strike

"This is definitely the time for TiVo to take advantage before the competition really hits," said Jupiter analyst Michael Gartenberg. "Marketing can make all the difference in the world here."

TiVo fans (which include many analysts, journalists and public figures) are quick to blame its woes on the fact that it's just too innovative. Market-share growth was impeded by being far ahead of consumers who weren't ready for the product.

Explaining a brand new and fairly complex product is also difficult. Others say TiVo should have aggressively cut deals with cable operators to redistribute its boxes back in 2000. More recently, TiVo's troubles are blamed on increasing competition from cable and exacerbated by the fact that its own partner, DirecTV, will likely begin offering a plain box option from NDS (which, like DirecTV, is also partly owned by News Corp.), along with the TiVo box later this year.

To date, advertising has been sporadic (its current campaign was the first major push in four years) and broadly themed (taglines: "TiVo is TV your way." and the newer, "You have a life. TiVo gets it.") While most experts say that marketing alone could not make or break TiVo, both fans and critics agree that even though TiVo has done an excellent job branding its name, it has not been able to convey the benefits of its product in ads.

the tivo mystery

An Ipsos-Insight survey last year put TiVo brand-name recognition at 50% and analyst Lynne Bartos predicted the number will be much higher in this year's survey. But respondents did not know what TiVo did. "Mostly people have just heard the TiVo name," said Ms. Bartos. "Based on talking to consumers and hearing their misperceptions, I just don't think they've done a good job explaining what it is."

Some say it's because the concept and benefits of digital video recording are too difficult to explain in short messages.

Still, others say TiVo has never really tackled the basics.

"The underlying message from TiVo has always been `TiVo is cool, so you should get it.' They don't say it's better than a VCR or you don't need videotapes or anything like that," said Phillip Swann, president of "How about just showing somebody using it and how it makes their life better? They should have done that five years ago, three years ago and last year-and they should still do it today."

Changes have begun in TiVo marketing lately, though. The company launched a $15 million campaign in late summer and also hired a new marketing chief, Matt Wisk, a veteran of Nokia and more recently Herbalife. After only a few months on the job, Mr. Wisk declined to lay out all the details of his marketing plans in a recent interview, but did offer a glimpse at how he sees TiVo marketing evolving.

"One universal truth that everyone gets is why schedule around the TV you want to watch, when you can watch it on your own time? The challenge is the TiVo experience is so much more than that," Mr. Wisk said. So TiVo will choose particular features, such as its Wish List and Season Pass features to highlight to create "mental tattoos" for consumers. It will also use a wide range of people and partner outlets, such as recent promotions with the "Dr. Phil" and "Ellen" TV talk shows to give away free devices. Mr. Wisk said testimonials may also become part of the TiVo message.

TiVo has even begun to tap its extremely loyal fan base with its TiVo Rewards program, in which current customers can earn points for helping to sign up others.

big predictions

"We're at mile one, and we've got a clear lead (over cable digital video recorders)," Mr. Wisk said. "We're going from a 5% to 50% market penetration of this technology and we're getting there very soon."

He predicted by the time the market hits 20%, users will begin to be segmented into generic DVR users and those who prefer a more feature-rich branded box and service.

Still, no matter how optimistic TiVo remains, the road ahead is likely a tough one as competition only increases from cable and satellite providers. Analysts predict that the standalone DVR market will disappear as the capabilities become incorporated into other electronic devices. Most agree that the TiVo that emerges, if it avoids being acquired, will be far different than the company that began simply selling cool tech boxes and service to tech-savvy fans.

"TiVo is a textbook case of a product created by Silicon Valley engineer tech types who were brilliant in creating the product and in bringing it to market, but are literally dumb at marketing it to a consumer who's not like them," Mr. Swann said. "It's going to be a great book someday," he predicted. "People will talk about making the TiVo mistake."

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