Quibi And Its Classic Mistakes

Quibi is a new company, formed in 2018, which is the brainchild of its chairman Jeffrey Katzenberg. He hired Meg Whitman as Quibi's CEO. Both Katzenberg (Disney) and Whitman (eBay) are well known names in American business. Because of these high profile names, the company has raised $1.75B in investment capital. 

Quibi

What does Quibi do? 

Quibi (Quick bites) is a subscription-based mobile app that provides short-form (less than ten minutes), professionally-produced videos (episodes as parts of shows). New episodes are released everyday as parts of different shows. Quibi has produced a lot of these shows. The intended watch-time is when people are out and about, like standing in line for coffee or commuting on the train. Another unique feature (under a lawsuit) is called Turnstyle which basically makes the video appealing (no black bars) both in portrait and landscape modes. 

Quibi offers two subscription plans: $4.99 per month with ads and $7.99 per month without ads. 

Quibi's Hypothesis 

All businesses start with ideas and assumptions. We know what Quibi's idea is. Let's see what assumptions are behind the idea: 

1. There is a market for professionally produced short-form (ten minutes or less) video content to be consumed on phones. 

2. People are willing to watch approximately ten minute videos as episodes of a show and wait for a day for the next episode. 

3. When people are out and about they prefer consuming a different type of content than when they are at home. 

4. People are willing to pay for professionally-produced short-form content created specifically to be consumed on the mobile phone when people are out and about. 

5. Quibi does not compete with user-generated content apps like TikTok, Snapchat, YouTube, etc. 

In a Silicon Valley startup with an idea similar to Quibi, you would raise seed capital, generally less than $2M, and validate your assumptions by launching a basic version of the product (MVP) to a small audience and then iterate the product/target market as you learn more. After you have some traction, you raise more capital. However, Quibi chose a different route and spent a lot of capital before any consumer used the app. Having created a startup at the intersection of Hollywood and Silicon Valley (EVER), I have strong views on Quibi. 

Quibi's Classic Execution Errors 

Quibi is operating like a big company with no innovation experience and not like a Silicon Valley startup. Following are the three classic  "old-school" innovation errors Quibi is making: 

1. Not validating assumptions: Quibi seems to follow the "build and they will come" strategy. It spent $500M before the product launch. No Beta but straight General Availability (GA) launch. The spending will continue to total over $1B by YE2020. This is unbelievable! 

How do you know that people would pay for the content that is specifically made to be consumed when people are on the go? If I like to watch something while sitting on the train, why wouldn't I watch the same thing at home and vice versa? You can easily figure out that people are watching Netflix and streaming shows on their phones. 

Something ironic about Quibi's plan is that they want to make your wait time in a coffee line less painful by entertaining you with professionally produced content and at the same time they want you to wait for a day for the next episode of the show you like. 

Shouldn't we validate the assumptions before we spend $1B? 

A better way would have been to validate assumptions without spending a lot of money. For example, testing the content engagement with a small audience and test if people are willing to give up using scores of apps on their phones to use Quibi. 

2. Making decisions based on a business plan: The company plans to have 7M subscribers in the first year and 16M subscribers in three years. Revenue is planned to be $400M in the first year - $250M from subscribers and $150M from advertising. That means they also know the split between $4.99/month plan and $7.99/month plan. How would you know? This is laughable! 

I don't know for sure how they came up with these numbers. Knowing how big companies operate, I think that, most likely, it is some function of customer acquisition cost i.e. if the company spends $x in marketing then it can get y subscribers. When you start with a business plan you are saying that you know. Since this is a new product, you don't know. 

A better way would have been to acknowledge that you don't know and have a learning plan i.e. what can we learn, that can not be learned without doing, about the customers, market, content value, by spending a little money and iterating (rapid prototyping). 

3. Inability to focus: Quibi has two products - one with ads and one without ads. Watching videos with ads is a different experience for consumers and the product has added complexity of working with advertisers and ad exchanges. You can watch Quibi in landscape mode or portrait mode. How many people want to go back and forth between portrait and landscape mode while watching a ten minute video? The company can't seem to decide what to focus on. This is sad! 

Is it necessary to go-to-market with two products at launch and create complexity and cause consumer anxiety about choosing a plan when they don't even know what it is that they are signing up for?

Do you think that people are buying your product because they want to watch the videos in landscape and portrait mode? If so, do A/B testing to find out.

A better way would have been to simplify things. Understand why consumers like your product. Let people try the product without committing to a plan. 

Quibi has many product issues like not "handholding" people to watch something based on their tastes (it seems like they are not using any Artificial Intelligence to guide people) and not getting feedback on every episode people watch. However, they can be fixed with product iterations so they are not limited to big company errors. 

Quibi has a lot of money and smart people. I hope they realize that creating a new business with an innovation is different than running a business, and adapt to working with the unknowns. However, the most likely scenario is that everything will be blamed on the coronavirus.