1-1
internet
business models
text and cases
Geocast Network Systems Inc.
Steven Young COS498
© 2005 UMFK.
1-2
Geocast Network Systems Inc.
Examination of a Personalized
Broadband Network, and Rich Media
Delivery System
© 2005 UMFK.
1-3
Geocast Network Systems Inc.
Overview
•
•
•
•
•
Introduction
Company History
Goals and Strategies
GBF
Conclusion and 20-20 Hindsight
© 2005 UMFK.
1-4
Geocast Network Systems Inc.
Introduction
• Founded in 1999 by Joseph Horowitz, Geocast product architecture
resulted in an end-to-end solution for datacasting of a receiver which
enabled PCs to receive and manage data transmission from terrestrial
broadcasters, satellites, or cable TV including full-motion video, CD
quality audio, and software downloading.
• This product was designed to address the two fundamental limitations
of the Internet:
– Difficulty with delivery of high-quality audio-video, and
– The sorting of huge amounts of info to find desired resources.
• Designed to provide “intelligent caching” based on user preferences,
utilizing content tagging in which user-preferred content is tagged.
• Truly unique technology in a receiver which incorporated a true file
server with a large database
© 2005 UMFK.
1-5
Geocast Network Systems Inc.
History & Facts
• Founded in 1999 by Joe Horowitz (Chairman and CEO). Mr.
Horowitz, who has a MBA from Wharton University, had 20 years
experience in early-stage venture capitalism, and technology and
consumer ventures.
• Funded in January 1999 by 3 leading Venture Capitalist firms –
Mayfield fund, Kleiner Perkins Caufield & Byers, and Institutional
Venture Partners.
• A very strong management team was established including several
former high-level executives and technical experts in business,
communications, and technology.
• Received an additional $74M in financing in February 2000 from the
Venture Capitalist funders and broadcast media and consumer
electronics.
© 2005 UMFK.
1-6
Geocast Network Systems Inc. Goals
and Strategies
• Early strategic questions included:
– How the product should be distributed (retail,
bundled with other services (ISP, satellite,
cable)?
– Pricing?
– How to quickly gain market share and
profitability?
© 2005 UMFK.
1-7
Geocast Network Systems Inc. Goals
and Strategies
Original Plan
• Sell receivers for $300/each and offer the service
for free.
• Take advantage of hot capital markets to subsidize
equipment costs.
• Share ad revenue with content providers
• A projection of 70% of income to come from
advertising, and
• 30% of income from commerce providers fees.
© 2005 UMFK.
1-8
Geocast Network Systems Inc.
Events causing a re-examination of Strategies
• Three factors in year 2000 led to Geocast reevaluating its strategy in mid-year as follows:
– The NASDAQ market crash of April 2000 (which
tightened the belts of venture capitalists for the rest of
the year),
– FCC regulations regarding radio frequency modulation
relating to broadcast TV interference (which cast
uncertainty of interception of terrestrial-based signals
without a roof-mounted antennae), and
– The rapid improvement and price reduction of hard
drives, which led to a reduction in manufacturing costs.
© 2005 UMFK.
1-9
Geocast Network Systems Inc.
Revised Goals and Strategies
Revised Plan
•
Possible partnership with a satellite company which would provide spectrum (bandwidth) and share
in sales and service. Echostar (Dish) more likely than DirecTV as:
–
Dish had more bandwidth available, and
– were about to replace some dish hardware (when Geocast hardware could be installed a little extra cost).
– DirecTV already offered Internet service and would effectively be offering competing products.
Note: at that time DirccTV had 8.7 million customers, and Echostar had 4 million customers.
•
A dual launch of satellite and terrestrial service would be employed to:
–
–
–
•
achieve scale more quickly,
Get more ad support,
Beat competition (such as iBlast) to the punch.
What about cable?
–
–
–
Employing Geocast help alleviate network conjestion and free network bandwidth through caching, however,
Promotion of a superior solution would force cable companies to admit the limitations of their cable modems.
This constituted a major challenge as cable operators had a monopolistic view and attitude regarding potential
partnerships.
© 2005 UMFK.
1-10
Geocast Network Systems Inc.
Revised Goals and Strategies
Revised Plan (continued)
• Reposition Geocast as a personal server (potential for e-commerce) with the
ability to interconnect multiple PCs and other devices including TVs, cable
boxes, eBook readers, and audio equipment via a LAN.
• Must compete with other start-up products including from Sony, and Compac.
– TiVo announced investments from AOL, while Replay TV received investments
from Tome Warner.
•
Geocast had the option of marketing to online retailers in order to speed Web
connections and reduce resultant abandoned shopping carts.
– This posed a technical problem as the bulk of online catalogs could max-out the
capacity of the Geocast servers.
•
In addition to receiver sales, monthly fees for the service ($10/month) and/or
bundle of hardware and service ($20/month) were considered (2 year
payback).
– There was some concern about the potential effects of rentals on receiver sales.
•
A balance was sought where benefits of premiums for exclusive partnerships
could be reaped while avoiding a “walled garden” atmosphere.
© 2005 UMFK.
1-11
Geocast Network Systems Inc.
Revised Goals and Strategies
• Cost of receiver production in 1999: $500
– Initial planned selling price: $300
– Advertising/marketing support: $200
© 2005 UMFK.
1-12
Geocast Network Systems Inc.
Key Stakeholders
Customers
– Households with access to broadband
Regulatory
– FCC
© 2005 UMFK.
1-13
Geocast Network Systems Inc.
Key Stakeholders
Management – CEO, 17 VPs, 1 Chief Scientist!!
Person
Position at Geocast
Prior Experience
Joseph Horowitz
Chairman and CEO
20 years venture capitalism
Charles Jablonski
Senior VP – Network Engineering / Operations
Former VP NBC
Tom Paquin
Senior VP - Engineering
7th Netscape employee, Netscape fellow
Mark Simmer
Senior VP – Marketing / Programming
Former VP w/Lycos, editor and chief Point
Communications
John Abel
VP – Broadcast Development
Former VP National Association of
Broadcasters
Jerry Agresti
VP – Broadcast Engineering
Broadcast engineer
Jessica Algazi
VP – Content Partnerships
VP Business Affairs – Discovery
Communications
Edward Casaccia
VP – Content Operations and Planning
Sony Newsroom Marketing Manager
Reese Faucette
VP - Technology
CTO and CFO – The Kernel Group
Hillary Goodall
VP - Programming
former VP, Content Programming
Michael Gustafson
VP – Network Operations
Director of Engineering, CellNet Data
Systems
© 2005 UMFK.
1-14
Geocast Network Systems Inc.
Key Stakeholders
Management (continued)
Person
Position at Geocast
Prior Experience
Allison Hopkins
VP – Human Resources
CEO – Core Elements (consulting)
Jim Jackson
VP – Hardware Engineering
Computer architecture
Brian Klosterman
VP – Channel Distribution and Services
President, Starsight Telecast
Naresh Makhiani
VP – Program Management
VP, Product Engineering, Cyberstar
Charles Marker
VP - Engineering
Software Development, SGI
Jim Omura
Chief Scientist
UCLA Professor of E Engineering
Jim Plant
VP – Marketing Communications
Dirctor of Marketing and Corporate
Communications for Replay TV
Anita Wallgren
VP – Business Affairs
Legal advisor, FCC
© 2005 UMFK.
1-15
Geocast Network Systems Inc.
Key Stakeholders
Investors
• Television Broadcasters
– Hearst-Argile Television, Inc
– Belo Corporations
– Allbritton Communications
• Consumer Electronics Firms
– Thomson Multimedia
– Royal Phillips Electronics
• Media Firms
– Liberty Media Corporation
– Electronic Arts
• Venture Capital Firms
– Mayfield Fund
– Kleiner Perkins Caufield & Byers
– Institutional Venture Partners
© 2005 UMFK.
1-16
Geocast Network Systems Inc.
GBF
Geocast Network Systems Inc. followed a “get big
fast” strategy with significant commitment of $
and brainpower.
• Potential Payoff
– Rapid market infiltration
• Risks
– The scope of the business offering was very narrow,
though the company explored various different ways of
using and promoting the product.
– Very top-heavy management
– Rapidly changing technology environment
© 2005 UMFK.
1-17
Geocast Network Systems Inc.
GBF Metrics
• Network Effects were very low
• Scale economies are moderate. Per unit costs will
not be reduced significantly. Advertising dollars
may rise disproportionately, giving some scale
economy effects.
• Customer retention rates for this service may be
moderate to low if there is the perception of a onestop, one-box solution.
• Quick establishment in this developing market
was key, however, perhaps premature as
broadband connectivity was low at the time.
© 2005 UMFK.
1-18
Geocast Network Systems Inc.
GBF
•
This top-down organization reacted
quickly to market and environmental
changes in 2000. Strategic options were
well thought, however, strategies seemed
to be too spread out, and competition was
seemingly underestimated.
© 2005 UMFK.
1-19
Geocast Network Systems Inc.
What Happened?
• On March 1, 2001, Geocast cancelled all operations and
terminated over 190 employees.
• Matt Jacobson of iBlast said that “they [Geocast] just had a
lousy business model.”
• While Horowitz of Geocast stated “the market was simply
not conducive to our efforts.”
• Most analysts felt that failure was due either to the cost of
individual receivers, or because the product was offered
before its time (before most consumers had broadband
access).
© 2005 UMFK.
1-20
Geocast Network Systems Inc.
LESSONS
• “Top down” :
– “Bounded rationality.” A significant change of
strategies seemed to be inadequately focused.
– Opportunities may have been lost during the
period of strategy re-examination.
© 2005 UMFK.
1-21
Geocast Network Systems Inc.
Conclusion and 20-20 hindsight
•
•
•
•
•
•
•
•
Good product
Good people
Good backing
Bad timing (pre-dates ready access to applicable
technology)
Low product diversity = poor stability
Heavy competition
Strategy was spread-out
With 20-20 hindsight, more focus should have been placed
on actively pursuing partnerships with Satellite provider's).
© 2005 UMFK.