Every year hardware prices drop, heck a DVD player was once a $1,000 and now you can get one for around $20. The trend of falling hardware prices combined with broadband explosion and digital convergence has some, including myself wondering if we are heading toward a world where most hardware will be free and consumers will pay for services. Apparently the people at Napster have been thinking about this as well and they have announced a program to give away an MP3 player as long as the consumer signs up for a year of their music service. While some may view this as a signal of desperation from Napster, I view this as a potential strong business model. Almost any digital media company needs to strongly consider giving away hardware to support online media services that will in the long run provide greater margins and smoother revenue streams.
While I don't know what the unit cost of a TiVo 40 hour DVR is, I do know that TiVo should seriously consider giving away the hardware in favor of the recurring $12.95 month service fee. I believe I heard the CEO of TiVo mention that each subscriber that TiVo signed on had a lifetime customer value of around $150... given the large margins on the service, the small unit costs, and huge need to grow the subscriber base to achieve the companies long term objectives, I believe that TiVo should start giving away their 40 hour unit free!
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