Hubris Versus Humility: The $15 billion Difference

Describing your product as “new and “never been done before” instead of “we’re just like those others guys, but better” could cost your company billions.  RIM and TiVo are two examples of getting it right and wrong.

Research in Motion (RIM)
By 1992 Research in Motion (RIM) had been in business for eight years, had 16 employees, sales of about $500,000 a year, and three or four business lines. That year the two founders decided to get serious about being a company, and hired a CEO. Soon, RIM was focusing on making products for people on the move, using wireless communication and digital data.

Wireless Communications
In the early 1990’s two different trends were occurring in wireless communication. First, wireless voice networks – cell phone networks – had started to emerge. The ability to make a phone call untethered from a traditional phone was revolutionary and was starting to catch on fast. These new cellular phone networks were built around two-way circuit switched technology designed to move voice calls without interruption.

At the same time, digital data networks to support “pagers” were also growing rapidly. Pagers were small receive-only devices with 1 or 2-line displays that showed the phone number of who was “paging” them. Users ran to a traditional telephone and called a paging service who would read them their message. Doctors and drug dealers equally found these devices handy. Unlike the circuit-switched cell phone networks, pager networks were built around digital packet-switched technology.

Sell Directly to Businesses
In 1996 RIM was still in the hardware business selling packet-switched wireless radio modems to OEMs. In a major strategy shift, they decided to sell a product directly to businesses. In 1997, RIM introduced the first packet-switched messaging device. It used narrowband PCS and was housed in a clamshell device with a full keyboard.

RIM Interactive Pager 900

The new device could hold names, email addresses, phone and fax numbers and incoming and outgoing messages. In 1998 RIM quickly followed this up with a next generation product with an 8-line display, ran on AA batteries and would last 500 hours.

The fact that you could send messages interactively blew people away. Underneath the hood RIM’s product was a technical tour de force. But RIM decided to hide all of that from their customers.

RIM positioned the Blackberry as an “interactive pager” because pagers were something people could understand. While the device was actually was doing email, people understood it as “the pager that you could respond with.” While phrases like “mobile email and packet switching” didn’t mean a thing to RIM’s first customers, the “interactive pager” positioning proved important in attracting early adopters.

Resegmenting an Existing Market
RIM’s product needed very little explanation. If you knew what a pager was, you knew what an interactive pager was. You got it. (You might gulp at the price – paging prices were dropping like a stone ($9/month versus $99/month for a RIM interactive pager) since most people were moving from pagers to cell phone to get calls. But to businesses where instant information gave you a critical edge (Wall Street, politicians, etc.) these new capabilities were worth almost any price.

In today’s language of Customer Development, RIM positioned the Blackberry as a segment of an existing marketpager users who needed two-way communication. Their intent: initial sales would come from users who already understood what the product could do so adoption would occur rapidly.

Humility
RIM, the Blackberry and its network had more inventions per square inch than most startups. The founders could have easily described the product as “the first packet-switched interactive messaging network.” Or they could have said, “corporate email now seamlessly forwarded from your company’s network to your pocket.” They did none of that.  The founders swallowed their pride and simply introduced the Blackberry as an “interactive pager.” Their board, with no need to prove how smart and creative they were, agreed.

After a few years, as users became comfortable with the technology, the entire space of interactive pagers became known as the “Blackberry or “wireless email” market rather than the “interactive pager” market.

Video Recording
In 1999, about the same time RIM introduced its first interactive pager, another advanced technology company, TiVo, shipped its first product.

Recording video on magnetic tape was developed in the mid 1950’s by Ampex, and had evolved into a consumer-friendly cassette by the late 1960’s. VCR’s caught on in the home in the late 1970’s driven by movie rentals and pornography. Sales of VHS-based VCRs exploded after Sony and JVC fought a brutal standards battle (Betamax versus VHS) and when the U.S. Supreme Court ruled that home taping of television programs for later viewing (“time-shifting”) constituted a fair use.

But cassette tapes were still bulky and awkward. And most consumers had never mastered recording a TV program (let alone setting the clock on their VCR.)

TiVo
TiVo solved all those problems. It was the logical marriage of computers and video recording. Essentially TiVo was a computer with a hard drive integrated with a TV tuner and MPEG decoder.  It digitized and compressed analog video from an antenna, cable or direct broadcast satellite. But it was the software that made the TiVo great. It was reliable. Its user interface was simple. It let users record from the familiar program guide. Since you were recording video to a hard disk, you could appear to pause live TV, instant replay, rewind or record anything.

TiVo Series 1

TiVo originally sold directly to consumers through consumer electronics stores, via Sony and Phillips and was integrated into set-top boxes from DirecTV.

Creating a New Market
TiVo’s product needed very little explanation. After a demo, if you knew what a VCR was you knew what a TiVo was.  You got it. (You might pause at the price – VCR prices were plummeting – $150 versus $800 for the first TiVos, but compared to a VCR it took your breath away.)

In today’s language of Customer Development, a TiVo positioned as a segment of an existing market (VCR’s) was a no brainer. Everyone would have immediately understood it.

Except there was one problem. The TiVo CEO hated the idea that customers might think of TiVo as a better VCR. In fact he said, “Anytime anyone says that to me, I go completely nuts. So we had this challenge of explaining, It’s actually not a VCR. It’s a lot more sophisticated and uses a hard disk, and therefore you can record and playback simultaneously and do clever things like pause live TV, and so on.”  And the board, being enamored with Silicon Valley technology, first mover advantage and concerned about the huge price gap between a VCR and TiVo, agreed.

As a result, the company instead chose to position TiVo as a New Market. In a new market when customers have no idea what the product can do, a company needs to educate potential customers about the space not the product. This results in a much slower adoption curve – the classic hockey stick.

New Market Revenue Curve

Hubris
TiVo spent the next five years trying to convince users that the box they wanted to buy as a better VCR was really something different. Hundreds of millions of dollars went into marketing campaigns to create an entirely new consumer electronics category – Digital Video Recorders. TiVo was first positioned as a “personal television system.” But no one knew what that meant. Next they tried the slogan “TiVo, TV your way.” Early adopters simply ignored the company’s positioning buying the device in spite of the inane descriptions.

But trying to create a totally new market took its toll. TiVo had plenty of other battles to fight: competition, issues with channel partners, patent battles, as well as the movie studios, cable companies, broadcast networks and advertisers who all wanted TiVo dead. Instead the company used most its cash on marketing and advertising in trying to define a new product category and accelerate adoption.

Summary
RIM sales were $15 billion in 2010. In the last ten years they’ve made over $9 billion in profit.

TiVo sales were $240 million in 2010.  In the last ten years they lost $400 million dollars.

How much of this can be traced back to the time, money and energy they spent on their initial positioning?

Lessons Learned

  • Market Type matters
  • No one will stop you from picking a new market.
  • If you do, realize you have defined a space with no customers. You now need to spend your marketing dollars in educating users about the market not your product.
  • In an existing market you’ve picked a space that has customers. Here you need to spend your marketing dollars differentiating your product from the incumbents. Are you faster and better?  Are you cheaper? Do you uniquely appeal to a segment?

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24 Responses

  1. Excellent post w/ some superb insights. I’ve already pivoted our startup’s messaging as a result.

    Also, if any space opens up (or I can squeeze into some corner somewhere) for your NYC talk on Friday, please let me know. I’d love to attend.

    Many thanks.

    – E

  2. Do you think that better initial positioning alone would have changed the outcome for TiVo?

    It seems difficult to directly compare the two companies. RIM created a product that gave the people who had it a clear benefit that was worth a premium. RIM still enjoys clear differentiation from competing smartphones because of their focus on business use and security, but that doesn’t seem to be helping them fare much better in the wider consumer market than other smartphone vendors.

    TiVo created a luxury product for a consumer market with challenging go-to-market issues like compatibility with cable and satellite receivers. Cheap imitations from cable companies are inferior in user experience (while still better than a VCR) but superior in compatibility and cost, leaving only patents to protect TiVo.

  3. Something to consider: RIM founders are Canadian, TiVo’s are American (although one was born in Scotland). Different styles of doing business and presenting themselves: the stereotype of we Canadians tending to be much more self-effacing can be true at times.

  4. Thanks Steve,

    It’s really encouraging to hear your analysis of a decision we made when we started our company. While some investors will push a startup to be sexy or in “a hot space” it’s much more efficient to target a valuable segment of a large market.

    Also, I had no idea that RIM struggled in obscurity for so long. Sometimes Survival is Success.

  5. [...] P.S. Steve Blank has an amazing post today on the humility of targeting a new product at an existing market (RIM) vs. the hubris of creating your own market (TiVO). Highly recommended. [...]

  6. This RIM vs. Tivo case study makes me think of Clayton Christensen’s book The Innovator’s Dilemma (and it’s subsequent companion books). The essence of Christensen’s model is that truly disruptive innovations (technologies that meet a need not currently being met at all) displace much larger competitors, whereas those innovations that are sustaining (merely an improvement on something that already exists) tend to fizzle and die.

    By any measure or definition, RIM certainly introduced disruptive technologies. Prior to the Blackberry, what else could you use to do the same job? The phone? Snail mail? E-mail, yes, but only if you were sitting at your computer. Nothing else gave you the ability to communicate via the written word while you were on the go.

    It’s harder to make the case that Tivo was disruptive. After all, it is just a better version of a VCR. If you look at the job a VCR is “hired” to do, it doesn’t really do anything a VCR doesn’t, it just does it better.

    I’m not saying hubris wasn’t part of Tivo’s problems–I think it was. But the problem wasn’t necessarily that hubris led to the wrong marketing message, it’s that hubris led Tivo’s founders/investors/marketers etc. to believe Tivo was a disruptive technology when it was merely a sustaining technology. Had they understood this, they might have taken different approaches in a host of areas, including their marketing.

  7. Could it be as simple as acknowledging that an attitude like “Anytime anyone says that to me, I go completely nuts” may be a sign that you are acting in a defensive way which would make it less likely you’ll accept evidence (and learn) honestly review your strategy?
    I could imagine that “going nuts” may make it hard, for the person or those around them, to test the strategy or highlight data which might invalidate that approach.
    One of the values I like about the lean startup approach is that it encourages people to be open to the fact their ideas might be ‘failures’ in order that they are more open to data / feedback (and therefore learning).

  8. Very good article. I would consider these as two independent examples and not worry too much about comparing Tivo with RIM. Tivo is failing for a lot of reasons – despite having a superior product.

    RIM has done well – but getting their clocks cleaned by Apple and Goole. Checkout this recent article in Bloomber-Business Week –

    http://www.businessweek.com/magazine/content/10_42/b4199076785733.htm

    Regards,
    Kamal

  9. Correlation does not mean causation.

    “Early adopters simply ignored the company’s positioning buying the device in spite of the inane descriptions.” Is there any evidence of that?

  10. I think this analysis is essentially correct, despite some other comments saying perhaps much broader issues were/are at stake. One reason is that we see the same thing happening in “cloud” computing. Firms that want to stand out from the crown but make it hard to understand what they do struggle to educate their potential clients. Firms who swallow their technical pride or ego and “give in” and call in something that we always did but a little more are able to tap into market share more easily.

    I know because I feel frustrated not being being able to say “it’s more than you think” – so I know that argument, and I know what is better for sales.

    Walter Adamson @g2m

    http://xeesm.com/walter

  11. Wow, this a valuable lesson for all the reasons cited and more. For example, any new product has a positioning problem but that irons itself out when the first wave of customers start buying, then careful analysis of those customers–the reasons they buy really gives you the best blueprint for longer term positioning which really matters. Did any customer analysis help either company in choosing a positioning strategy. Your company and products are mostly defined by your customers rather than by most of your marketing efforts I’ve always found.

  12. Like an Aesop’s Fable. This story keeps being applicable at so many levels, not just startups. Thanks, coach.

  13. Fantastic post and advise. Keep it coming Steve.

  14. Great post. I think you hit it on the head when showing how RIM had lots of technical wizardry, but kept things simple to their consumers. Explaining tech without a point of reference (metaphor?) will confuse everyone except early adopters. Tivo, while still appealing as a product to early adopters, probably confused them by trying to take easily replicated technology and saying it’s the new sliced bread.

  15. As other commenters pointed out the differentiating factors between RIM and TiVo were more than marketing. Besides team culture, and technology the battles with incumbents left TiVo scarred. RIM grew rapidly (Nokia was their major competitor with Palm?) until the recent consumer smart phone explosion.

    It’s tough to make this kind of comparison based on a single factor.

  16. Great post. A similar way to tackle this problem is to do what I call piggyback marketing. Instead of trying to get customers to start an entirely new initiatve, identify an existing trend that your product can support, e.g. Six Sigma, net Promoter, etc.. and then talk about your product in the context of how it can help them achieve their existing goals -that way you are already talking in their language and piggybacking on an existing initiative

  17. [...] follow to become an expert problem solver. See myth #3 that’s usually the shortcoming.   Hubris Versus Humility: The $15 billion Difference According to Steve Blank, serial entrepreneur and business lecturer  , when you have something [...]

  18. [...] Hubris Versus Humility: The $15 billion DifferenceWhile I think that the comparison in this article is a bit apples and oranges, it’s an interesting take on initial market positioning. Share/Bookmark Tagged as: economics, history, informationoverload, language, netculture, programming Leave a comment Comments (0) Trackbacks (0) ( subscribe to comments on this post ) [...]

  19. Sorry, but I think your analysis of TiVo is WAY off the mark. I was selling personal electronics during the time TiVo was introduced.

    Calling TiVo a ‘better VCR’ fails at first glance. The # 1 use of a VCR is to play back tapes – I’d guess that was over 95% of actual usage. To say that TiVo is a ‘better VCR’ that doesn’t play tapes makes it a ridiculous statement.

    RIM was selling to businesses – where cost isn’t that important while TiVo was selling to Consumers where cost is VERY important. RIM was selling to businesses that had dedicated staff to setup and maintain (IT department) equipment while TiVo was dealing with consumers who are on their own. RIM was selling a complete solution while TiVo had to try and get their equipment to work with hundreds (or thousands) of different cable and satellite tuners and needed a phone connection in locations that usually didn’t have phone jacks.

    RIM solved a need while TiVo solved a want.

    No offense, but this seems like a complete over-simplification of a complex problem.

  20. [...] Unusual doesn’t translate to alien. As consumers we like what is different, but still classifiable as an existing type of thing. Steve Blank discusses a detailed example of resegmenting existing markets. [...]

  21. sfmitch is right. 100 million VCRs were replaced by 100 million DVD players, not TiVos. In practice, very few people routinely used their VCR to time-shift TV programming, and those that did had a terrible user experience. Many tried and were driven away by the user experience. Most VCRs in America were blinking 12:00, a testament to their inability to serve a customer need. TiVo correctly didn’t want to tie themselves with that failure.

  22. A friend has a brilliant idea for a startup, where should he get started?…

    Very cool, excellent step-by-step intro, thanks Maya! I JUST posted a question regarding Steve Blank’s post on hubris and maximizing potential. I’m curious as to your thoughts on it given your thorough and comprehensive response you’ve written here….

  23. [...] which sounds like a great thing but is often a curse given the high cost and extreme difficulty of creating a new market or the possibility that no competition means that there isn’t a market at all.   All three are [...]

  24. [...] which sounds like a great thing but is often a curse given the high cost and extreme difficulty of creating a new market or the possibility that no competition means that there isn’t a market at all.   All three [...]

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