Mike Ramsay and Jim Barton founded TiVo in 1997.
Their original plan was to create a network server for
homes. Realizing it would be hard to explain to consumers
why they needed one, they narrowed the idea
down to one component of the original plan: the
digital video recorder (DVR). The first version was
launched in 1999.
TiVo was ground-breaking in that it took all the
information that existed on television and gave
the viewers the power to manipulate it. With TiVo,
you could skip commercials, pause live TV, schedule
the recording of every episode of a series--all the things one might expect to be
able to do with data. But these new features sparked controversy in Hollywood.
Networks worried about losing control over how people watched TV.
By skillfully navigating the border between what's possible with technology
and what television executives would tolerate, TiVo brought about a revolution
in the way people watch TV. Like Google, its name became a verb.
TiVo went public in 1999. Ramsay stepped down as CEO in 2003, but
remained as chairman.
Livingston: You came to the United States when you were in your mid-20s.
What brought you here? Had you planned to stay for as long as you have?
Ramsay: The reason I came was because I worked for HP. I joined HP right
out of school. I was educated in Scotland, and they had a factory over there.
Through good fortune, I got a chance to come over here with HP and check the
place out, and loved it so much that my wife and I decided to come here.
It was the mid-'70s and Britain was in bad shape. That was when there was
25 to 30 percent inflation; there were strikes everywhere. By today's standards,
it was a complete mess. A lot of people, not just myself, were disillusioned. This
was like Disneyland for technologists, so off we came. I had a great career with
191
Mike Ramsay
Cofounder,TiVo
14
CHAPTER
HP and kind of moved on from there. It was definitely the American "looking
for opportunity."
Livingston: Wasn't the time around the start of the microcomputer revolution?
Ramsay: It was very early on. There were no PCs. The microprocessor idea had
just gotten going, and they were 4-bit microprocessors--that was state of the
art. Designs were all basically custom hardware designs, so it was very different.
I was involved in chip design at that point. That felt like rocket science. That
was the leading edge, and therefore it was the most exciting thing to work on.
When I left HP in the early '80s, I went to a startup company called
Convergent Technologies. They had been founded before the PC revolution--
that happened during the formative stage of the company. The idea of
Convergent was to build a workstation. That notion of a CRT and a CPU and a
keyboard was brand new. Computers were things that sat in rooms and had
terminals, and this was completely self-contained. I thought that was really
exciting.
It was during that period that the IBM PC came out. I remember the entire
company was run on an Apple II--this thing that looks like a little wedge.
Because it had to do all this stuff for the company, it got too hot and it had fans
bristling out of it. By today's standards, it was pretty archaic, but it was also very
exciting.
People like Bill Gates were young kids then. A lot of the people who are
now very famous were just young engineers that were trying to come up with a
good idea. And they did. So the rest is history.
We were definitely at the center of the universe, and that was fun. You felt
like whatever you did, you had the best opportunity and you could go to the
best places and work with the brightest people. They had energy and enthusiasm
and they couldn't fail. There was nothing that was impossible. Culturally, in
the UK, it was much more subdued; people were much more cautious.
I was just back there, and I was looking at a bunch of venture firms and
their portfolio companies. I was curious to see what's the attitude of a typical
startup in Scotland compared to here. I found that they are just culturally a
whole lot more conservative and cautious. And somewhat lacking in selfconfidence.
You come over here and... I had a meeting recently with a couple
of early 20-year-olds who have decided to drop out of Stanford because they got
bored, and they are trying to raise money to fund their startup. They believe
they can do it, and nothing's going to hold them back. They have confidence,
they have that spirit, which I think is great and is probably unique to this part of
the world. Being part of that for so long, for me, has been very invigorating.
Livingston: Take me back to when you decided to partner with Jim and start
TiVo.
Ramsay: I had a couple of stints at HP, and it was during that second stint that
I met up with Jim. We were building a team inside the company, and we hired
some very talented people, including Jim, and Tom Jermoluk, who went on to
run @Home. We all kind of became pals.
192 Founders at Work
After a year or so, I realized that I couldn't go back to a big company thing;
it just wasn't going to work. I got recruited to this opportunity at SGI, which
then was a couple of hundred people. Mark Perry just joined (he's one of the
partners at NEA), Dick Kramlich was on the board, and so I went over there
and thought this was the greatest thing I'd ever seen. The technology was phenomenal.
I thought Jim Clark was great. The people there were super bright.
Sometimes you just walk into an environment and you know. There are no
questions to be asked; you just kind of know and that's it. And that's how I felt
about SGI.
When I decided to join, I told T.J., Jim, and some others, and they said,
"Great, when do we start?" So there was a whole exodus out of HP.
We actually ended up in different departments at SGI. We never worked
very closely together, but we always kept in touch socially. Jim went off and
became a world-class technologist in his own field. He invented things at SGI
that nobody else had done. He made UNIX work in parallel processing systems.
He made UNIX work in real time. You had to have real-time systems to
do graphics, because the flight simulator couldn't hiccup once in a while. So he
went off and did that stuff, and I was very impressed with what he had done. I
was off doing all the low-end workstation things for SGI. I was hanging out with
the movie studios and special effects people and got to know that whole crew.
I started to get really interested in what you could do with computers in the
entertainment space, things that I considered not-boring, because most computer
applications are pretty boring. I got interested in how you can use
computing technology to do things that are really entertaining and very different
from what you might expect it to be used for.
Jim, on the other hand, coming from his technical background, started to
work on a video-on-demand system that SGI was doing with Time Warner. It
was in Orlando, Florida. They did the very first video-on-demand system,
called the Full Service Network. Technically it was brilliant, but the experience
turned him against all things institutional in the TV world, like cable companies
and satellite companies. He felt they were like monopolies and we were going
backwards. But nevertheless, he kind of liked that space.
So Jim was doing that and left SGI and went off and tried to start a company.
About a year later I left, and just by happenstance I got hold of him. I
can't even remember who called who, but we ended up going out to lunch and
we kicked around a few ideas. We said, "It would be kind of fun to work
together on some ideas, because we come at it from different angles. Maybe
we'll come up with something. Maybe we could do a company."
We thought that was a fine idea, so we kept going out to lunch and talking
about it. We had some great lunches. We started to home in on this idea of
using computing technology in home entertainment. At the time, it was like
home servers and home networks. You wired everything in the home network,
and it was a little bit ahead of its time, which got us interested.
After a while, we put this together in a presentation. It wasn't a business
plan, but we had some ideas of what we'd like to do. We came here [to NEA]
and other places and peddled it around. Most people just kicked us out because
Mike Ramsay 193
the model for venture capital was--and it is still to some extent this way today,
but certainly was 10 years ago--their ideal companies are ones where people
come in and say, "We have this idea. Here's the market. Here's the size. I want
$5 million, and I'll be profitable from day one. And I'll give you half my
company."
We came in and said, "It's not like that in our case." First of all, it was a consumer
play, and that was new. Second, it was a service company--because early
on we had really wanted to do that. At that time, VCs generally didn't invest in
service companies. Number three, we said, "It's going to be capital intensive.
It's going to require a lot of money. You can give us a little bit of money right
now, but it's going to require a lot more." So we had three things going against
us, and they all kind of freaked out. The only two people that didn't freak out
were Stewart Alsop of NEA and Geoff Yang of Redpoint.
Livingston: Why do you think they thought differently?
Ramsay: Geoff told me that he was fascinated by this space and wanted to do
something, but he hadn't seen too many companies with any ideas. We kind of
wafted in, and he thought, "Great. Suddenly we've got a couple people who
could probably run a company and who've got a creative idea and can make it
happen." So he was all fired up about that.
Stewart is a visionary. He's way out there. So this was a natural for him. He
looks for companies that are trying to push the envelope and do something radically
different. It kind of fit him emotionally. Neither of these guys were thinking
about, "How much money do we make? Is the market ready?" They
certainly weren't thinking about, "Are they going to violate copyrights or get
sued?" or all that stuff that we got threatened with. They just thought, "Here's a
couple of people that have got a fascinating idea. Who knows if it's going to
work or not, but we'll give them some money and see what happens."
Livingston: Your original idea was not just a DVR, right?
Ramsay: It wasn't. It was this flamboyant, home server network thing. And we
actually got funded based on that. When we got into the technology, we realized,
"Hey, network technology isn't quite there yet. The idea of a server is fine,
but how do you explain it to the average consumer?" We learned very quickly
that this was going to be a hard sell and a hard thing technologically.
At the time, this server had a ton of apps that we thought up, one of which
was DVR. We said, "Look, you can't do everything, so let's design a simple
server based on very low-cost technology. Let's decide on one app that we think
is the killer app to run on it, and let's do that. If that's successful, then we'll
branch out. Forget the network thing and forget the massive amounts of storage
and high cost and hardware models and all that."
We thought the DVR idea--we called it PVR at the time, personalized television
or something like that--we thought this was a cool idea. It fascinated us
because, once you looked under the covers, you realized it was a very difficult
technical problem. The fact that it was a consumer product and it had to be
television meant that it had to be completely reliable and bulletproof. Jim
194 Founders at Work
immediately flipped into this mode of "How do you make that work?" He
started thinking about this, and all his real-time UNIX and video-on-demand
experience started to come together, and we thought, "This could be very cool."
So we clicked on it.
We went back to the VCs and said, "Thank you very much for the money.
We've changed our minds. Here's what we're going to do and here's why we
think it's a good idea." They said, "Oh, that just sounds like a VCR." (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."
We then hired people who came in and were very creative and thought a lot
about the user interface and how you actually make this work internally. In a
very short space of time--like 6 months from when we got started--we had a
good-sized team of people who were all working on this from different aspects.
One of the things I worried about in starting a company was... you come
from a high-tech background and, depending on the technology, if it's cool, it
attracts the brightest. If you go back in history and you look at all the different
phases of technology evolution, you find there are certain things that are in
vogue that attract very bright people. Certainly through my tenure at SGI, the
big thing was UNIX. All the best people wanted to work on UNIX. UNIX was
the sandbox that they could be creative in and solve difficult problems. That's
where they wanted to be. So companies that did that, like Sun and SGI and
others, attracted very bright people, and therefore you got great work done.
I thought, "I'm going to start a consumer company. It's going to be a little
box that can't cost more than $200 or $300. It's going to do a very simple function.
It's got to work with a remote control. Is that going to be challenging
enough for us to attract the brightest people? Because I don't want to run a
company that has a second-rate engineering organization. I want to run a company
that has a top-rate engineering organization." So I was worried about that.
Then Jim hired a guy that he had known from SGI who was really bright.
That was kind of the first key hire. We'd begun to realize that inside this thing it
was very difficult, and, as we identified these great engineers and they came in,
we sort of explained a little bit about it to them, and they said, "It sounds like a
very difficult problem. Sign me up."
I think TiVo became the first company, certainly in this area, that created a
new playground for those really great people. It was nothing to do with UNIX,
although it was a Linux-based system. It was to do with creating an integrated
system that really worked well and was inexpensive. Hide the technology from
people--that was the challenge. When you used it, you never thought of it as
anything. You thought of it as a remote control.
That, I think, really got people's imaginations going. They said, "Yeah, I'd
love to work on that. That sounds interesting."
Livingston: Can you tell me about some of the biggest technical challenges?
Mike Ramsay 195
Ramsay: While people had talked about storing video data on a disk before,
actually creating a consumer product that used a disk to store video was pretty
radical because, at the time, it was really expensive. We had to make a bet on
whether the price was going to come down fast enough to make this any kind of
consumer product. Originally, this thing had 14 hours of recording time and we
were going to have to charge $1,000 for it. We better be on a pretty steep curve,
right?
But once we had decided that, the big deal was, "How do you use the disk?"
A disk has got fast seek. It's not like a VCR, where you have to record something
on the VCR and that's all you can do with it--once it's recorded, you can play it
back; it's a linear thing; you can only do one thing at a time. What we saw on the
disk was--because it's a random access device and that little head moved really
fast--you can essentially create the illusion of doing things simultaneously, so
you can record and play back at the same time.
How to do simultaneous record and playback, pause and fast-forward and
rewind and stuff like that cheaply and efficiently was the key attribute. In fact,
that idea of how you implemented that through a device called a media switch
and sort of managed all that flow of data--that became part of the Time Warp
patent, which was one of our most important patents.
That was one of the first patents that we filed. Figuring that one out was
critical, and had not really been done before--simultaneously recording and
playing back video in a very low-cost way that "just worked." Maybe somebody
had built a massive professional video editing system that cost a million dollars
that could do that, but certainly nobody had done it to cost a few hundred
dollars, and that was a big breakthrough.
The second was the harnessing of the program guide data to actually drive
the function of the machine. Prior to that, and still to some extent today, that
program guide data was generated by companies who had armies of people
that were literally going through newspapers and calling up the TV stations. An
entirely manual process of writing down what was on when, and a description of
it. It's scary, but I think most of that still happens today. Very labor intensive.
They would create a database of stuff and then they would sell that to the newspapers
and magazines, so that when you opened the newspaper, it would tell
you what was going to be on.
We looked at that and thought, "I wonder how accurate it is?" If it's off a
little bit, it's not life and death, but, if it's a database that you want to drive a
DVR, and when you say, "Get me The Sopranos" or "Get me 24," you are very
intolerant of not getting it. So that data has to be accurate. We went to this company,
Tribune Media Services, and we said, "We'd like to use your data for this
purpose."
So we start to use their program guide data, and we had to massage it and
figure out what was wrong with it and change it and modify it and bend it into
shape for what we wanted to do with it. Then we had to try it out. It was pretty
wild and crazy. There were things wrong, and it was not clear how it was all
going to work. But we plugged away at it and we finally got it to a place where it
was pretty reliable, and you could download and it worked. It could drive the
196 Founders at Work
DVR. That had never been done before. Nobody had ever thought of it before.
It was a brand new idea.
I remember complaining to the team once that we were like 6 months from
release of the product and we hadn't recorded anything yet. I said, "Don't you
think it would be a good idea to test that out?" And everyone would go, "No.
That's easy. That's not the hard bit. The hard bit is pausing and all this kind of
stuff." And I'm going, "I know, but if you try and record something, the chances
are that it's not going to work and you are going to learn a lot." So finally I persuaded
them to record something, and, sure enough, it all fell apart and we had
to scramble at the end to make all that work.
That idea of driving the thing from this program guide data was brand new.
Then we had to decide, "How do you get it?" Today, you can switch on your TV
and you get a program guide. It comes down through the TV signal. We
thought, "Well, why don't we just do that?" We realized that not all TV signals
have it, and you could only get a certain amount of coverage.
So we finally decided, "All right, let's get it over the telephone line." We had
to put a modem in this thing and it had to call up, and when it called up, we had
to have a server at the other end that had all this stuff. It would tell the server,
"I'm in ZIP code 94022 and I'm getting Comcast cable and I have the basic
service; therefore, send me the program guide for just that." And everybody
was different. There were like 65,000 different combinations of program guide
that we had to sift through so that you got exactly what you wanted and it
matched exactly what your TV service was.
And we had to design this thing so nobody could hack into it. We wanted to
make sure that nobody went in and stole your TV programs, or, perhaps more
importantly, nobody could go in and find out what you were watching, because
people don't like other people to know what they are watching on television.
It's their business. So we had to make it very secure and very robust. We created
a reliable and secure back-end server farm--that we created from nothing--
and nobody had ever done that before in this kind of an environment. Stuff like
that was really radical at the time, and even when we released it, most people
kind of took it for granted. They hit the TiVo button and they got what they
wanted, and there's all this stuff going on in the background they had no idea
was going on.
We had our fingers crossed. I remember once the thing broke, and we had
to literally go in there and change people's DVRs. It happened very early in the
company. We responded instantaneously, and our customers hardly knew what
had happened and we got them back on air. We looked at each other after that,
and we said, "Thank goodness that happened right now, and not 5 years from
now." We put in place some things after that that made sure that you could
never send data to a TiVo that would break it. Because you have 4.5 million
TiVos out there, and if you get something wrong in a software release and you
issue the software to all these TiVos and it breaks them, you are in a lot of
trouble. So we had to ensure that that was impossible.
One of the things we did was this thing called TiVo phone home. It's like
controlling satellites that are orbiting Mars. You can only get a certain amount
Mike Ramsay 197
of information to them, and if they lose their way, they have to go into a safe
mode. So we had this safe mode for TiVo, where it would ignore everything and
it would phone back to TiVo and say, "I'm lost." When we contacted it, we
would then redownload the software so it could come alive again. Right now it's
4.5, but it has to scale for 10, 20 million. You got them all out there, and it's a
massively distributed, incredibly complicated system. So when somebody says,
"It's just like a VCR," you want to attack them.
Livingston: When did you first start getting users? You raised the first round of
money in '97 and then homed in on your plan. Then, you raised a lot more
money, right?
Ramsay: We raised a lot more money. We were able to get the first round done
because we had Jeff and Stewart and they were into it and it wasn't a lot of
money. The second round was a lot harder, because we wanted an uptick in valuation
and we needed to bring in some more investors. That was a very difficult
round. I can't remember all the numbers of what we raised, but the combination
of the first and second round was probably $10 or $15 million. Not a huge
amount of money.
For the third round, I believe we got Paul Allen--I think it was either the
third or fourth round. Paul Allen came in with Vulcan and invested a significant
amount of money. After Vulcan came in was another interesting time. That was
when the media companies started to get interested in us. We raised a lot of
money from major movie studios and content holders prior to our IPO. Then
we had an IPO; then we got an investment from AOL--$200 million. We did a
bunch of other rounds and if you add it all up from then till now, it was about
half a billion dollars that we raised. So we were in money-raising mode from
day one.
Somewhere in that process we hired Dave Courtney as CFO, which I think
was one of the most successful hires for us. Dave had not been a CFO; he was
an investment banker. I thought, "Though the accounting part of a CFO's job is
very important, the capital-raising part is so difficult and specialized. Why don't
I find somebody who is really good at that?" So we found Dave, and he joined
us. He had a ball raising all that money, and he got us through our IPO.
I would say that one of the reasons that TiVo is thriving today is that we
were well-capitalized. We were able to power our way through the downturn--
that early 2000 period when Replay went away. We were capitalized enough
that we knew we could ride through it. While we had to make a few adjustments
to the company, there was never a question that we were going to survive.
We knew we were going to survive.
Livingston: Tell me about the launch and the first users.
Ramsay: We launched at the end of March of 1999. It was the last day of
March, and we called it the Blue Moon event. It turns out that month was a
blue moon. Because it was such a momentous thing--our first product
shipped--we declared it a company holiday. It's still a holiday today.
198 Founders at Work
We were manufacturing it through a third-party manufacturer in Milpitas,
and we took the whole company over there and we all put on little blue jackets and
caps and we watched them making TiVos. That celebration was fun.
Prior to that, we had been shipping certain selective units. The previous
January, 3 months before, we had launched at CES (Consumer Electronics
Show), so people knew about us. We were in this hot debate with Replay, who
were trying to claim that they were first, and we were first. We actually released
the product and shipped first.
There were a bunch of beta users prior to that, including Geoff and Stewart,
and of course these things broke and didn't record the programs properly and
did all sorts of crazy things. They kept rebooting. We were a bit nervous about
giving board members TiVos, but we got through that.
We had an arrangement with Philips, and they started shipping through
their retail distribution system. We were fortunate because the press loved this
idea of a young startup company that was screwing up the media industry, and
the press loved this idea that we were locked in battle with Replay. We got a
huge amount of publicity. People knew what TiVo was long before we ever put
the product out. So we started to sell it and it went well.
We had to learn a lot. I remember one weekend, we took the entire company,
which was about 60 people at the time, and we divvied them up and went
to all the Fry's stores in the Bay Area, because they were selling at Fry's. We set
up demo stations and the employees were giving demos. It was great because
almost everybody had no experience of what it's really like to sell in a retail
store. So we started to do all that stuff, and it began to take off. That was the
end of March. By August/September, we had sold about 18,000 units and we
were going to IPO.
It was not a lot of units, and we were just riding the wave of this bubble that
was about to burst. We got in in September of '99 and we got our IPO done and
we were oversubscribed and the company's valuation went up to billions of
dollars and we thought we had died and gone to heaven.
During that period, we did a deal with Sony and we did an important deal
with DIRECTV. We started to supply DIRECTV with TiVos. That became a
big deal for the company and still is today for that matter. So we started to
branch out to some different partnerships there, and one thing led to another,
and we grew.
Everyone complained that we weren't growing fast enough, and, if the thing
was so hot, why did it not just take off? But we were charging $500 or $600 for
this thing, and I was pretty happy with how things were going considering that,
starting off, we wanted to do this big server and we had scaled it down to a
DVR. I thought we'd sell a few thousand, and then we'd go on to the real thing.
Now this thing has got a life of its own. People love it and we started to get great
feedback.
It was interesting because the press who reviewed it... there were two
kinds: the technology press, like Walt Mossberg, who hated it because it wasn't
techie enough for them; then there was the consumer press, who loved it
because it was nice and simple.
Mike Ramsay 199
I can't tell you how hard it was to get a bad review. It just tore the company
apart if somebody wrote a bad review about TiVo and we read it. "Oh God.
How can we deal with this?" It was a gut-wrenching time for the company. As
everyone started to review it, some people liked it, some people didn't. But at
the end of the day, it worked out just fine.
Livingston: Back to your first customers--were there any features you were
surprised they wanted as they started using it?
Ramsay: The thing that really got them was pausing live TV. That was the hook.
You go, "Blah blah blah and it can pause live TV." They'd look at you and go,
"Wait a minute. Pause live TV? How do you do that?" "Well, technically, you do
it this way and that way." "That doesn't work. You can't pause live TV. It's live!"
We couldn't get people to understand it. We'd say things like, "It's not like
the actors take a break or anything. You pause live TV." Then you'd show it to
them, and we got pretty good at this after a while, where we'd surprise them
with this and we'd pause live TV and you could see them going, "Wow. I never
thought that would ever be possible."
So that was a big catalyst. Once people got that idea, they realized it was
something really different.
The other things that people wanted to do--and I don't know if it was
because we did it and then they liked it or if it was because they asked for it
and then we did it--but this idea of a season pass or a wish list where you just
put in something--a very small amount of information saying, "I want this"--
and, for the rest of your life, you get it. So if you want to see The Sopranos and
you want it every week, you do a Season Pass, and that Season Pass will look out
for The Sopranos every time it's broadcast. It's clever enough not to get any
repeats, so you only get the real one. And it's clever enough to deal with times
changing and durations changing. So if you have a season finale that lasts two
hours, TiVo will automatically figure that one out. People loved this idea of "Get
me a Season Pass," and then they can forget about it. We expanded that to
WishList, which says, "Get me all the Martin Scorsese movies," or stuff like
that. "Clint Eastwood westerns." Those were very attractive to people, and over
time it became pretty clear that this was something very new and different.
Livingston: Tell me a little bit about times that you were most worried about
competitors.
Ramsay: The Replay thing was definitely an interesting case in point. We were
on parallel paths, and it was a bit of a mystery to us how we managed to get on
parallel paths.
We kept hearing rumors about them, and I'm sure they heard rumors about
us. They went out with a very different proposition. Theirs was much more
techie. They had no monthly fees; you bought a box. They were really scrappy.
We were kind of taking the high ground, and they were down there doing all
the dirty tricks to try to compete with us.
During that time, both their CEO and myself were getting interviewed by
the press, and they had us doing photo shoots together with dueling remote
200 Founders at Work
controls. We knew these guys, and there was no hatred, but there was a definite,
very intense competitive attitude. Our aim was to get them out of our hair,
out of our business. This wasn't, "There's enough room for everybody." This
was, "They have to go. They are the enemy and we're not going to let anything
stand in the way of us beating them."
While that was very angst-ridden and a lot of our employees were very concerned
and sometimes upset about what Replay said about us, I think it was a
great time for the company because the company learned how to compete. I
know, from my standpoint, I had never worked in a company that really competed
before. SGI, if it found competition, it went elsewhere. HP was not as
competitive back then as it is today. They relied on doing things very new and
different, so they differentiated themselves. In those days, they weren't going to
say, "You have one of them, I have one of them, I'm going to compete with you,
and this is not going to be clean." So we were doing that; we were competing.
I look back on that and it was a lot of fun, especially since we beat them. We
saw things that they were doing wrong. If you are playing a competitive game,
you worry about winning the game, but you are so much in the game that, while
you are doing it, you are not thinking, "Oh, gee, I'm going to lose." You are
thinking about "How do I win?" And that was very much that spirit.
The next big competitive threat was with DIRECTV. DIRECTV decided
that, in addition to us, they wanted to do a deal with Microsoft. Microsoft had
just bought WebTV, and they were building a DVR. DIRECTV decided they
wanted to have that DVR, too. So then all of a sudden DIRECTV was selling
both of them. They were under probably pretty similar financial agreements, so
for them it didn't make a whole lot of difference who bought which one. Except
Microsoft was pouring hundreds of millions of dollars into trying to develop this
market, and here's little TiVo with--although we'd raised a lot of money, we
didn't have that kind of resource at our disposal.
Lo and behold, we found out that we were outselling them by a significant
amount. People loved TiVo. The brand was getting known by then, and we were
better. We discovered that people preferred what we were doing to Microsoft
on a fair and level playing field. It was not our doing; this was DIRECTV
marketing it on an equal basis. It got so bad for Microsoft--they were putting
so much money into it--that they finally gave up. We thought, "This is great,
they gave up. Let's celebrate."
We then thought that the consumer electronics companies would come in,
and we were worried about that, because we thought it was a natural for Sony.
So what we did there was license our technology to them. We got some good
license deals and that sort of took that one off the table.
Most recently, a big competitive threat is from cable companies and satellite
companies, who are entering this market and essentially giving away DVR for
free. That's been a big issue for TiVo over the last several years. While TiVo has
been able to do deals with several cable and satellite companies, there are competitors
like EchoStar against whom we have had to enforce our patents in
court.
Mike Ramsay 201
More recently, TiVo has done deals with Comcast. It's renewed its deal with
DIRECTV, so it's moving in this direction of taking its technology and embedding
into those third-party platforms. I think that is going to be a trend for the
future.
Livingston: Do you think if the networks had realized what you were doing
early on that they would have tried to do something about you guys?
Ramsay: Oh, they did. That's a whole other story in its own right. Very early on,
this notion of digital recording got the attention of the networks, and it was
clear that they were concerned about what we were doing.
About the same time, we had built a prototype--it was a little thing based
on a PC, a little box with a handle--and we'd take it around to show it to
people. We had hired a guy called Stacey Jolna, who was from the media industry.
He would take me around all these places to meet his contacts and sort of
try to convince them that we weren't really a threat--that we were an advantage
and there were some advertising opportunities and audience measurements
things and all that kind of stuff. After the statutory hugging and talking about
their kids and their families and what they've been doing, it was not unusual for
them to let us know how they felt about what we were doing and show us the
door. "You're evil. Don't come back. You're going to destroy us."
We'd see quotes in the newspaper about how we were going to destroy
the US economy. People were becoming very irrational. We got threats of
lawsuits--all the time, every week. And we had people on our board from NBC
and Discovery and all sorts of other media companies.
Replay probably did us a fabulous favor when they stepped across the line.
There's a line in the sand that those media companies think about. You don't
know where it is, but if you step over it, they're going to get you. Replay
stepped over it by doing automatic commercial skipping. You didn't even have
to fast-forward through the commercials. They just found out where they were
and they eliminated them. And they let you share programs over the Internet.
That crossed the line. They got sued. They were the bad guy; therefore, we
were the good guy.
At the end of the day, actually, I think we got a lot of respect from those
companies, but it was a difficult time and these are powerful companies that
were hell-bent on getting rid of us. To this day, it amazes me that those
companies eventually decided to invest in TiVo, actually put money into the
company, and probably made the difference between TiVo surviving and not
surviving when the Bubble burst. That difference was attributed to Disney,
Viacom, Discovery Communications, NBC, Showtime, HBO, and Time
Warner. They all put money into the company. They put one representative on
the board--NBC has always had a representative, John Hendricks from
Discovery was the representative for a lot of the others. There was something
like $50 million that we raised from that group of people, and that got us by.
Livingston: Do you think they thought, "If we can't beat 'em, join 'em"?
202 Founders at Work
Ramsay: I don't know what it was. I still don't quite understand it to this day,
but it was fascinating to go through that. Though it was not without its trials and
tribulations.
I'm not sure if people still get today that the combination of the technology
development and the getting to market of a product, the development of
a channel and the marketing and the brand building of that product, the management
of the media companies and their desire to destroy you, and the
management of this highly competitive situation every step of the way, where
you had to win every day in the marketplace and worry about intellectual property--if
you think about all these massive things that we had to deal with every
single day of TiVo's existence, you realize that it was a big deal and not for the
faint of heart. You had to kind of learn to have fun with it and not to take it too
seriously.
Livingston: Thinking back on the early days of TiVo, what surprised you the
most?
Ramsay: Probably the thing we just talked about. The fact that these media
companies got involved and embraced it and invested in it and are involved in
it today. I would not have anticipated them doing that. Given their earlier
reaction, I would have thought it would be impossible, but it happened.
So TiVo's now a media company. It sort of transformed the company into a
media company. I think we have an appreciation for what media companies are
going through; that helped us develop in a way that didn't cross the line. And I
think the media companies have an appreciation for what a young, scrappy,
highly competitive technology company in Silicon Valley is trying to do.
They know that is a dynamic that is driven by the human spirit; that they
ought to embrace it rather than fight it. All the resources they have in the
world, all the billions of dollars, can't stop people being creative. There are a lot
of companies who, in one way or another, have changed the rules of the game
for the better. It's just going to happen. I think we helped a very conservative
industry get their minds around that.