Quibi: A $2 Billion Lesson From Hollywood to Corporate Innovators

Photo by MARTINA ALBERTAZZI/BLOOMBERG NEWS

In the last couple of weeks, the main buzz going around the tech and innovation scene was the shutdown of Hollywood’s hyped entertainment/tech company Quibi. As I read through all the news and articles talking about what seems to be the innovation flop of the pandemic era, I couldn't help but notice so many patterns and similarities with the 2000s dot-com bubble.

To be fair, the last thing I want to do in this article is to sound like a nasty critic/hater, pointing out what went wrong in hindsight. That is very easy to do when you don't have skin in the game. I know from experience the hardship of having to make critical business decisions, knowing the impact it could have on the lives and money of other people, and lived the consequences of many not so great outcomes that came from them. So I respect and honor the boldness of going out there and trying to make it happen, no matter what. But I believe there were evident signs of previous, well-known, mistakes happening that could have been avoided. And I will try my best to bring here as much of a technical, critical, and, hopefully, thought-provoking analysis on them as I possibly can.

An Act of God

In Jeffrey Katzenberg and Meg Whitman's open letter to the employees, investors, and partners, they state that the failure of Quibi is “likely for one of two reasons: the idea itself was not strong enough to justify a standalone streaming service" — which throws the blame simplistically into a 'dumb idea nobody wanted' "or because of timing”, as they refer to launching a short-video streaming service, aimed mostly at commuters, during a pandemic lockdown where no one was really commuting.

They say it was a combination of both. I don't believe it was either. Well, maybe the former, if I had to pick one. But for sure this story is a lot more about a mix of product overconfidence and unvalidated assumptions, than a result of uncontrollable acts of God.

Illustration by Joe Darrow

Market Landscape: Hollywood vs. Netflix

The streaming market is already overcrowded. After Netflix establi­shed itself as a trailblazer and leader, quickly others like Amazon came along, followed by latecomers such as Disney+, HBO Max, etc. But entering a red ocean market wasn't one of the faults — Quibi was differentiated enough to do so. One starting problem was entering that market, fueled by the fury of Hollywood, to get back a piece of what Netflix had taken from them in the last decade. Let's remember that Katzenberg is Hollywood, so when this new, innovative idea came up, all studios were pilling up on top of each other to back it. And it didn’t even matter if the competition was in on it too. The FOMO on getting back a piece of the pie that the big-bad-tech-streaming company had stolen from under their feet was too high to let that get in the way.

But this thirsty pursuit of vengeance might have lavishly filled Katzenberg and Whitman’s pockets but it also short-sighted them to the real streaming industry they were stepping into. One predominantly dominated by Youtube, Facebook, and the new upcoming giant TikTok.

(The Guardian article published in April 2020)

High-Quality Hollywood vs. Garage-made content

Going after the movie streaming market like a target-locked missile doesn’t mean that they were not looking at the competition from Youtube. They were indeed and that’s where the first unvalidated assumption came to play.

Katzenberg's history and track record in Hollywood has positioned him as one of the greatest in the business. There is no doubt about that. It is like he has the treasure map on how to build successful film companies. And movie franchises is a very well known, validated, industry and product. For example, the business model is clear, as are the target audiences, the distribution channels, and so forth. So, the likelihood of a movie with names like Pitt, Scorcese, and Johansson, a good story, with great marketing and distribution, hit the box office targets is pretty high. A low risk, easy win. Kind of like core innovation, wouldn't you say? And that is what he leveraged on.

The same way TV viewers once were glad to pay for high-quality HBO content, the same would be true for Youtube viewers [paraphrasing Katzenberg]. The recipe for success seemed crystal clear: high-quality productions, thrown in with heavyweight names such as Idris Elba, Kevin Hart, Steven Spielberg (which was also in the “Netflix haters club”), and a new viewing technology would be enough to have an innovation box office hit. As great moviemakers, they were counting mostly on high-quality content and disregarding all else that affects consumer behavior in tech.

But this was not Hollywood. And not the rise of cable TV either. It was an entirely new (and bold!) venture, with plans and ambitions not only to take a part of Netflix's market share but do so with new, disruptive, unseen, and unvalidated innovations as:

  • a new content format (short "bites" of full-length shows and movies)
  • a new market (was it Hollywood quality content for the Youtube short-video market or short videos for the high-quality, full-length, Netflix streaming audience? 🤔)
  • and new tech

It had everything to disrupt all three innovations. They just forgot to ask if that was a problem the customers had in the first place.

Product-centric, not Customer-centric

Also in the open letter, Katzenberg and Whitman talk about all the great accomplishments that happened despite the outcomes. They praise the brilliant execution the team had, which I have no doubt was nothing short from it, and done by the best professionals money could buy. They mention how they brought “the most creative minds in Hollywood to innovate from script to screen” and how they “challenged engineers to build a platform for a new form of mobile storytelling”. But, if you didn't notice it, right from the start the letter gives away the tell of the demise: "… we were able to create and deliver the best version of what we imagined Quibi to be". Not the best version of what the customers needed, not the best version of what the market had validated, but the best version of what they imagined.

Product-centricity was one of the main reasons for the tech bubble in the 2000s. It was product-centricity that gave space to the rise of Eric Ries’ Lean Startup. And it is the antithesis of the famously known culture of customer-centricity evangelized by Jeff Bezos. So, yes, I am quite positive that their execution was brilliant indeed. They only brilliantly executed the wrong process.

These are some of the major assumptions I could see going unchecked:

  • 25–35 year-olds (Quibi's target audience) that consume short-length video content for free on Youtube and other platforms are unsatisfied with the quality of the shows;
  • People want to see Hollywoodian “award-winning” content in a "quick bite" format;
  • And are willing to pay for it;
  • People want to see not only Hollywoodian “award-winning” content but the entire $1 billion worth of productions made, and 8,500 pieces of content aimed for the first year alone, selected for them;
  • Some of which were entirely new concepts, i.e Spielberg's thriller After Dark that, using GPS technology, only allows viewers to watch the show between sundown and sunrise local time (yep, you can't even choose when to watch the show that you're paying for — just like good old TV, huh?);
  • All on a mobile-only platform, where a tiny phone screen is all you get;
  • With an entirely new technology that allows seamless switching between portrait and landscape while maintaining the visual aspect ratio (which is pretty cool, but think about all the production upgrades and cost increase necessary in terms of cameras, shooting processes, editing, etc, needed to put that in place)

My point here is, the idea is ingenious for sure, there's no denying that. But we all know you can't create disruptive innovation, where uncertainty is incredibly high, as you do with a franchise/core product. It needs to be deeply tested and validated with the market, with the appropriate processes for it. You are building a startup — no matter the size of your organization or how much funding you have. This doesn't mean that you have to shove your managers into a garage and bonus them with the 'struggling entrepreneur lifestyle' though. It can (and should) be done at a scale that fits your company, just not as business as usual.

If you want to really innovate as a large corporation, you need to think backwards, counter-intuitively to what we apply to core products. You don't just build — spend millions in marketing and distribution to hammer it in front of people's attention (just like a franchise movie) — and they will come. We are in an era where choice is probably the most valuable asset tech has provided us with. Think of crowdfunding. It's the other way around. So you ask first. "Do you actually need this?" Make sure you're solving a real problem and that the solution you have is the right one for it. And, even so, it will most likely change a lot during the process. So leverage your assets not to build "panacea-tech" that will solve it all, but to bring your customer close, almost into your process entirely, and for sure you'll come out not only with the best product possible but the right one.

Photo by R.D. Smith on Unsplash

Ego

But why would they get so focused on the product and not on the customer? With a hype this big and so many smart people involved, how would this pass unnoticed? Well, this is where it gets’ interesting. For starters, it is only natural that we fall in love with our own products. I’ve been guilty of this many times myself. And, once you have the vision, the ego starts to play a cruel role and it is hard to let go of your convictions, no matter what the data says. Add that to a flawless career in the Hollywood movie industry and you get quotes like:

or

~ Jeffrey Katzenberg

What neither Katzenberg nor Whitman understood is that it had never failed before because it had never been done before. And even Whitman, which was the “Silicon Valley” partner of the business, that should’ve known better, fell into the same trap, but from a slightly different standpoint.

Yes, she was the CEO that IPO'd eBay and led HP. There is a lot of knowledge and experience behind those feats. But despite leading the world’s top technology companies, they were far from being startups when she took the reins. eBay had already a proven model with revenues of $4.7 million to show for, and it was pre-dot-com bubble, an entirely different environment than the one we have today.

Together, they created the most expensive attention experiment the world has ever seen. Because that's what it was, or at least how it should be treated from an innovation perspective. Most decisions made were based on assumptions and market "experience" that came from Hollywood and Corporate America, not startups and innovation. Good evidence for this is that most backers were big studios, big banks like Goldman Sachs and JP Morgan, the billionaire Carlos Slim, and even Facebook and Google. But where were super Silicon Valley venture capitalists like Peter Thiel, Andreessen Horowitz, and company? If this was truly the next big thing in tech, weren't these guys supposed to be on that list as well?

Their execution was so off that in an interview, post-announcement of the company's shutdown and explaining the decision, Katzenberg says: "…in order to get to scale we would have to raise a lot more capital…" Wait, wait, wait… what?! How do you "get to scale" without a proven… anything??

COVID-19 and the TikTok Paradox

“Honestly, we don’t know what to expect,” said Meg Whitman after they decided to launch the platform in midst of the global pandemic in April.

One of the reasons they decided to move forward was because, since the product was designed to be an "on the go", and "in-between moments" thing, Whitman claimed: “…people still have their in-between moments to be entertained, whether after home schooling or Zoom meetings.”

Whether or not people want to be further entertained in those remaining free moments is, it appears, an[other] assumption Quibi has made for us.Very well put, in foresight, in this article in April by Adrian Horton from The Guardian.

Yes, COVID-19 has impacted our businesses and personal lives in a way no-one could have ever expected. Could we have mitigated that risk? I believe so, and authorities did not give the proper attention to it when the possibility of a virus came to light years ago, but… that's a whole other conversation.

What do we do in our everyday lives to increase our chances of achieving our expectations? Unless we have a crystal ball, we try our best to mitigate the risks that could take us off that path, right? That's is why I twist in my seat every time I read that “timing” was the cause of Quibi’s failure. No, it wasn’t. It was a series of unvalidated assumptions and risks, very poorly managed, that left them exposed to whatever the circumstances of the moment would be, if not coronavirus.

One might argue that a mobile-only platform, targeted mostly at commuters, is definitely affected when working from home becomes mandatory. Yes, true. But not the cause of the demise. Most of the risks and uncertainties described could have been mitigated simply by using a Lean approach rather than a full-blown pharaonic dot-com era spending spree. Even if I am entirely wrong in my approach and Covid-19 was indeed the villain that unrightfully killed white knight Quibi, then how would you explain the ascension of TikTok?

  • It is a mobile-only platform;
  • With short-video content;
  • "Garage-made" quality;
  • That not only got people's attention "between home schooling or Zoom meetings" but also got them creating content for the platform obsessively. And for free.

Conclusion

Unicorns are not born. You don't create disruptive innovation ready to scale. No matter how much money you have. If you think you have, either it's not disruptive or you're falling into the ego trap.

Unicorns are built. From the ground up.

Gary Vaynerchuk shared an incredibly insightful post about Quibi where he uses Tinder as an analogy. He explains that today, Tinder is losing its users because people are shifting to Instagram DMs (direct messages) to date. And that is how mass-adoption, consumer-focused innovation starts. When people slowly start to change their behavior towards something that solves their problem better than its predecessor.

Only when company leaders understand that the mindset and modus operandi are to always be validating assumptions, at scale, throughout the corporation, and with the customer as a completely integrated part of the process, only then it can start to shift into becoming a truly innovative company.

Otherwise, it will always be just buzzwords and Hollywood make-believe.

Some Numbers and Fun Facts

~Jimmy Kimmel at The Emmy Awards
(Quibi got 10 nominations and 2 awards)

  • $1 billion spent in content production;
  • $7.5 million per episode;
  • $125,000 per minute;
  • $250 million in expected revenues for the first year;
  • Achieved estimates: $7.7 million;
  • 1.7 million downloads in the first week;
  • Less than 30,000 people talking about it on launch day;
  • No immediate breakout content hits;
  • 175 original content and 8,500 episodes produced for the first year;
  • In Mid-October they tried to offer it's content in different formats to other platforms such as AppleTV and FireTV, but they got rejected

I help corporate innovators measure and improve innovation R&D performance.

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