Two start-up ventures are at war

Two start-up ventures are at war

Their start-up ventures are not just duking it out for market share; they are fighting to change the very way America watches television. It’s the ultimate lesson in competitive battle practices

One evening in 1991, Anthony Wood came home late from work. That he was a few hours late was not so significant; but that he1d failed to ask his wife to tape his favorite show, “Star Trek: The Next Generation,” set off a spark that promises to ignite a consumer-electronics revolution.

Annoyed that he’d missed the program yet again, Wood dreamed of a device that might forever change the way we watch TV. He envisaged a black box – a sort of mini-computer – sitting on the top of his set. Instead of his programming his VCR and loading a new tape every time he thought he might miss a show, this box would automatically record each episode each week and save it on an internal hard drive.

Wood, then 26, was a programmer who’d started his first software company while still in college at Texas A&M.; He thought he could build such a device – or get someone to make it for him – but he knew it would be expensive. We’re talking about the days when a computer with a 100MB hard drive (the same storage capacity a Zip disk has today) was considered a powerhouse. Wood knew that he needed a hard drive with 100 times that capacity, probably more. So, he stored the idea in the back of his brain. And waited.

Every month Wood would peek at the prices for hard drives in mail-order catalogs. He watched prices fall gradually as drive capacities grew. Then, one summer day in 1997, he decided the time was right – or, as Bob Barker might say, the price was right. By September he had put in $200,000 of his own money and raised another $800,000 from friends and private investors. (Wood was a veteran entrepreneur by this time, having founded two businesses since his 1991 epiphany.) He quietly launched Replay Networks (then called Pacific Digital Media) in the heart of Silicon Valley, in Palo Alto, Calif.

There was one small problem. A few other people were also watching the prices of hard drives. Mike Ramsay and James Barton, former executives of Silicon Graphics Inc. (SGI), the graphics-workstation company, had also decided that the time was right for what they were calling a “personalized television service video server” for home use. The well-connected Ramsay mentioned his concept to the folks over at the venture-capital firm Institutional Venture Partners (IVP), and one of the partners, Geoff Yang, became very excited. Yang had been looking into personalized TV himself – he’d even commissioned a study at Stanford Business School – and was dying for someone to walk into his office and say he wanted to develop it. They struck a deal within a few weeks. IVP initially put up $1.5 million, and Ramsay and Barton were off and running. Just as Wood’s Replay was launching, Ramsay and Barton set up shop seven miles down the road in Sunnyvale. There TiVo was born – and with it a heated rivalry.

When Ramsay announced TiVo’s plans last summer at a digital-media conference, Jim Plant, Replay’s director of marketing, was sitting in the front row during the video presentation, “taking notes as fast as [he] could.”

Espionage? Not at all. Competitive necessity? You bet. Personalized TV, or digital-VCR technology, as it1s sometimes called, is being touted by industry analysts as the killer application for television, the Yahoo of the boob tube.

“It’s the battle for the most valuable square foot in America,” says Larry Gerbrandt, a senior analyst at Paul Kagan Associates Inc. in Carmel, Calif., of the digital-VCR market. Eighty-two percent of television owners also own VCRs, but only 10 percent regularly use them to record programs. “That little space on top of people’s TV sets is huge.”

Replay was scheduled to ship its box by this month, and TiVo was set to go by next. Who will come out on top? It1s a toss-up. But the way in which each is pursuing market share offers a lesson for anyone facing tough competition or breaking into a new market.

THE RIGHT BUSINESS MODEL

Fourteen months after founding TiVo, his product just entering its trial phase, Mike Ramsay, 49, is sitting in his spacious, wood-paneled conference room. With an accent that hints at a Scottish upbringing, he talks about how, when he left Silicon Graphics nearly two years ago, he was looking to take on a project that was a “big play – something that would change the world.”

He says the Valley’s filled with successful companies that have cool ideas, but they tend to be focused on niche markets. Ramsay had had enough of developing cool niche products that cost thousands of dollars. He wanted to make a mass-market device that cost $250.

Posted by on November 1, 1999

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