Business Tech

Sometimes even a well-designed and innovative product can still be a total dud. See the Apple Newton.

The industry analysts at Forrester Research now say they know why this happens.

Forrester's new research method says TiVo's superior design is trumped by cable DVRs' convenience.

(Credit: TiVo)

In a new report released Friday, Forrester analyst James McQuivey zeroes in on what makes seemingly good products fall flat once they reach store shelves: lack of convenience. And he doesn't just mean "convenient" in that you can, for example, transfer a music device easily from your pocket to your car dashboard, but rather the entire experience using that music device--from buying the songs to putting them on that device, to having a battery that lasts long enough and can be easily recharged.

It's not enough to have simply the best design or be first to market, or have the best market researchers on your side to experience success in the electronics world. In the study, McQuivey uses TiVo as an example. Logically, TiVo should be the leader in the category it essentially invented. It was one of the first DVRs on the market, became the verb for recording a live TV show on a DVR, and has what is generally regarded as the best interface in its category. Yet the company has struggled from the beginning and has less than 2 million subscribers. Cable and satellite companies offer DVRs with far less functionality yet have 30 million DVR subscribers between them.

Lowest price doesn't necessarily mean guaranteed success either. Though the Eee PC from Asus and Acer's Aspire One Netbook are incredibly similar devices and the Eee PC is in some cases cheaper and was first to market, Acer is dominating the Netbook game.

The first Kindle was ugly and awkward, yet consumer still embraced it.

(Credit: Amazon.com)

Forrester says convenience is key. It defines the concept in this way: A "comprehensive measure that considers the total product experience." That includes researching the product, obtaining the device, using it, and eventually getting rid of it. The study also says that in successful products, convenience is not a benefit, but "a measure of how easy your product makes it for people to get the benefits your product promises."

The fewer things that stand in the way of using the product as it's intended (installation process, user interface, price, and availability at retail) the more convenient it is overall.

Think this all sounds rather obvious? Far more companies would release successful products if it were. (And then Forrester wouldn't be able to charge $750 for this report.)

A prime example of the convenience quotient in action is the Amazon Kindle, according to the study. The original version was downright ugly and awkward to use, but it's now judged to be an improbable success (moving what some analysts count as 500,000 units last year) considering how it was originally received, and the relatively high price of $399 and eventually $359.

But Forrester's new methodology would say it wasn't improbable at all, and in fact it was quite predictable. That's because of the convenience of accessing cheap, digital copies of books at the Kindle Store, and the ability to do it on the fly and wirelessly--without any need to sync up with a computer.

The same factor was likely at work with Apple's iPod success. The iPod is not as widely available at retail locations, or priced nearly as well as some of its competitors. Yet it's dominated the MP3 player market because of its convenient eco-system of iTunes software for organizing music files, iTunes Store, and the accompanying iPod.

It can also explain Acer's success in Netbooks. It wasn't first or lowest priced, but consumers have responded well to its decision to bundle its Aspire One Netbook with mobile broadband subscription services. A 3G contract subsidizes the price of the Netbook and enables customers to use Netbooks they way they're intended: accessing the Web quickly while on the go.

Forrester has just introduced this methodology and hasn't officially released its rating of products yet, but promises to do eight to 10 studies this year weighing gadgets by their convenience quotient.

Feel free to leave examples in the comments of gadgets you think this theory does or does not apply to.

This post was updated at 3 p.m. PST with information from the earnings call.

EchoStar's loss was TiVo's gain during the third quarter of 2008.

Alviso, Calif.-based TiVo on Tuesday announced it recorded profits of $100.6 million for the quarter, or 98 cents per share, compared with a loss of $8 million for the same quarter a year ago.

The staggering change in fortunes for the DVR maker was due to the patent litigation judgment it won against EchoStar. EchoStar paid TiVo $105 million in damages during the quarter--if it hadn't, TiVo would have reported a net loss of $900,000.

The company's core business continues to fall off.

TiVo signed up 44,000 new subscribers during the quarter, but that's 25 percent fewer than the 69,000 signed up during the third quarter last year. Overall, the company's subscriptions total 3.6 million, compared with the 3.7 million counted at the end of the second quarter of this year.

Money made this quarter from its subscription service, technology, and hardware decreased in each category. Total revenue came in at $64.5 million, down from $75.5 million a year ago.

And the company expects to feel the impact of the financial crisis.

"Though we are pleased with our results this quarter, we recognize that no business is immune to the challenges of the current economic climate, which we expect will adversely affect consumer electronics companies, including TiVo, during the holiday season," said TiVo CEO Tom Rogers on a conference call with investors Tuesday.

The company also addressed the impact of Circuit City's bankruptcy. TiVo won't be directly impacted by the bankruptcy filing, according to new CFO Anna Brunell.

"But the bad news is we'll see less contribution this holiday season from our second-largest retail partner," she said. "That makes what will be a difficult selling season even more difficult."

The company plans to look at more ways to decrease costs, including laying off 7 percent of its workforce, as announced last week.

Looking ahead, TiVo said it's expecting fourth-quarter revenue between $47 million and $49 million, and a net loss of between $10 million and $12 million.

TiVo shares rose more than 1.5 percent to reach $4.50 in after-hours trading Tuesday.