Networks Effects and the Failure of Quibi
Quibi was a video streaming service that initially launched in April 2020, after raising almost $2 billion in capital. They intended to differentiate themselves from competitors by producing short videos that could be watched on the go. Quibi was able to bring on two well-known executives in Jeffrey Katzenberg and Meg Whitman, however, they have already announced that they will be shutting down due to a lack of subscriptions. Tech analysts attributed its failure to poor content quality and a tough competitive landscape.
The model of network effects we discussed in class provides an excellent explanation for Quibi’s failure. Its poor content quality provides a reason that a person’s r(x), or instrinstic interest for a Quibi subscription would be low. The tough competition and nature the content creation industry suggest that f(z) is increasing with z as more subscriptions would give Quibi the ability to create more content and higher quality content. The poor public perception of Quibi’s content and the perception of analysts suggests that individuals would determine that z is relatively low.
Quibi charged $5 per month for access to its content with ads, and $8 for access without. Competing with Netflix, HBO, Prime Video, YouTube and TikTok, the price of Quibi was not abnormally high in comparison to some competitors. This p*, however when compared with the function r(z)f(z) for the public’s perception of Quibi, z, was too high. This caused downward pressure to not purchase the service and ultimately lead to p* being driven to zero. Quibi failed to reach its tipping point z’ of perceived adoption and thus those who had already subscribed wished that had not because they valued the service at less than $5 or $8 per month. Similarly, they failed to bring on new subscribers because they also did not value the service at p* = $5 or $8 per month.
https://qz.com/1907265/why-quibi-failed/
https://www.theverge.com/2020/10/22/21528404/quibi-shut-down-cost-subscribers-content-tv-movies-katzenberg-whitman-tiktok-netflix
https://www.wsj.com/articles/quibi-weighs-shutting-down-as-problems-mount-11603301946