Verizon reported its Q2 ’18 earnings this morning, which included a whopping $658 million pre-tax charge for shutting down its GO90 mobile video service (previously announced) that it launched less than 3 years ago, in October, 2015. If you combine the Q2 charge with the operating expenses, capital Verizon invested in GO90 plus the OnCue acquisition from Intel, it’s highly likely that the company lost well over $1 billion on the failed initiative.
For a behemoth like Verizon, a $1 billion loss barely registers. However, it’s almost certainly the biggest single investment any company has made to try to start a mobile video service from scratch (though former DreamWorks executive Jeffrey Katzenberg, whose NewTV startup has raised over $800 million could well take the crown from Verizon).
Given the magnitude of Verizon’s loss, it’s worth trying to understand how the GO90 bet went so wrong, so quickly. From my vantage point, there are 3 key lessons to be learned:
1. Genuine product differentiation is needed
GO90 launched into a highly-competitive market for short-form video. Target users already had well-entrenched behaviors with YouTube, Facebook and many other services where they watched video from many of the same producers GO90 contracted with. GO90 did little to differentiate itself from these services other than the proposition of turning your phone 90 degrees. But that’s a tagline, not a genuine product differentiator. To be fair, given how crowded the video market already is, coming up with a meaningful differentiator is really hard. But if Verizon had realized this, it may have decided not to go forward with GO90 at all.
2. Throwing money at a problem doesn’t deliver quick success
Verizon invested gobs of money in original content to quickly achieve critical mass. But the reality is that in the content business, organic, evolutionary development tends to win. Netflix is a perfect example; it started with “House of Cards,” building on a large library of licensed content users could access. Then over the years it ramped up originals. Like Verizon, Apple is also trying for the “quick success” model with original content. But Apple hasn’t even articulated a clear business model yet.
3. Focus on core competencies
“Stick to your knitting” is a well-worn adage, yet all manner of companies still seek to expand beyond their core competencies. Telcos have sought to be in the content business for over 20 years, and it never ends well (AT&T will be the next test case). Content is a fundamentally different business, with different executives, culture, business models, etc. There’s little real synergy, but lots of real financial loss to learning the lesson. Ultimately most telco teams realize what Verizon’s management now has - that focusing resources on building and running the best network is the correct focus.
Verizon, AT&T and other telcos recognize that a lot of traffic is flowing through their mobile networks, much of it video. And they justifiably want to get a bigger piece of the revenue associated with that traffic. Finding smart ways to partner, rather than being in the content business directly, is the more appropriate path for telcos to pursue.