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TiVo 2.0

As most of you probably know by now, TiVo, the company famous for offering “TV your way,” is making significant changes to its business model. Beginning in March of 2005, the company will begin serving ads to TiVo users as they fast-forward through television commercials of their favorite, pre-recorded shows. The ads will typically be a banner ad or other logo and will be placed over the existing commercial. TiVo will also target the ads to the viewer based upon their viewing history.

So, let me get this straight: TiVo wants to superimpose ads on top of the existing television advertising? Isn’t that going to make TV advertisers (many of whom have paid millions of dollars for their ads) angry with TiVo? If you feel like you’ve already heard this argument, trust me, you have. I can remember back when many within the interactive space were up in arms over this practice. I wonder if the folks at Claria and WhenU are smiling right now. After all, imitation is the sincerest form of flattery. Did you just hear a noise? I think that was the sound of their business model being vindicated once and for all.

I’ll admit, when I first heard about TiVo’s plans I wondered whether it would sit well with their customer base. The company has positioned itself as a champion of consumer control. Up until now, that included the ability to control exposure to advertising. Most of TiVo’s clients claim that their favorite feature is the ability to fast forward through commercials. So I can understand how a major policy change could leave TiVo users with a bad taste in their mouths. The knee-jerk reaction could be, “Why am I paying all this money to skip the commercials if in the end, I’m just going to be hit with different commercials?”

I thought about this for a few days. In my opinion, so long as the company continues to be up-front about what it is doing, then I don’t really have a problem with it serving ads. There are certain economic realities concerning the subscription business model, and TiVo will ultimately have to face those realities if it is going to survive.

If TiVo customers feel betrayed, or are otherwise upset, they are free to unsubscribe from the service. And I suspect that some of them will. But it’s not exactly unheard of for a company to undergo a major product and/or policy shift. Coke changed their formula -- and then changed it back. My beloved Mayor McCheese is in some retirement home sitting next to Bud-Man and all of the animated cigarette characters. And cable television, the original “final ad-free mass media zone” started running commercials pretty soon after its inception. Times change, and smart companies are able to change with the times.

When it comes to advertising, you can run, but you can’t hide -- nor should you want to. For example, there is absolutely no way that we would have anywhere near the number of programming choices if cable television were not ad supported. (Having 200 channels isn’t that attractive if there’s still nothing good on, but that’s a different rant for a different day.) Moreover, if advertising dollars were removed from the equation, your cable TV bill would be significantly higher.

So the answer is not to eliminate commercials but to figure out ways to make them more endurable. To make them more interesting. To make them more relevant. Consumers don’t mind getting ads, but they’re tired of being pelted with advertising that has nothing to do with their interests. Some of them wouldn’t mind providing their PII (Personally Identifiable Information) if they believed that doing so would enhance their experience in some way. Currently, TiVo doesn’t plan to use any subscriber PII in its ads lest it risk a knock on the door from the privacy police. However, as the company adds an ecommerce component to its service at some point down the road, it’s not inconceivable that some of its customers would opt-in to provide PII in exchange for ads that interest them.

TiVo is clearly moving into a new phase, and will be presented with a whole host of new challenges as it transitions from early adopter consumer app towards a mass-market content, advertising and commerce vehicle. I'll be interested to see how TiVo, in conjunction with its advertisers, addresses these challenges. Going forward, TiVo will undoubtedly be tempted to create new revenue streams by simply figuring out ways to cram more ads into its box.

I hope the company is able to resist that temptation.

Alan Chapell is a consultant focusing on Privacy-Marketing -- helping companies understand privacy and incorporate consumer perception into product development. He has been in the interactive space for more than seven years with firms such as Jupiter Research, DoubleClick and Cheetahmail. Mr. Chapell is the New York Chapter Chairman of the International Association of Privacy Professionals, and he publishes a daily blog on issues of consumer privacy.

Chapell & Associates is headed by Alan Chapell. In 1997, Chapell founded the privacy program at Jupiter Research, an internet research firm focusing on the consumer internet economy. During his four and a half years at Jupiter, Chapell also...

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