The 800-Lb. Copycat Set-top box maker Scientific-Atlanta has been outselling TiVo with its cheaper, simpler DVRs.
By Owen Thomas

(Business 2.0) – When TiVo began developing its first digital video recorder, engineers spent countless hours designing the ultimate user-friendly device. They redesigned the remote control dozens of times before settling on the final version with a green thumbs-up, red thumbs-down, and big, yellow pause button. The onscreen menus went through similar laborious tweaking--all to please TiVo's television-watching customers.

What TiVo didn't recognize is that the real customers for set-top boxes are cable companies, not TV watchers. Cable operators buy hundreds of thousands of boxes at a time from a small set of manufacturers, renting them to their subscribers as part of their monthly fees. Motorola and Scientific-Atlanta have long dominated that market. And for the past six months, Scientific-Atlanta, with $1.7 billion in revenue and a 31-year history of making equipment for cable operators, has been shipping more DVRs than TiVo--almost 400,000 in the most recent quarter.

TiVo's software still beats the pants off Scientific-Atlanta's, which lacks a decent search function, let alone the ability to record any program featuring your favorite actor. Users have also reported some cases of Scientific-Atlanta's DVRs crashing unpredictably--a flaw you expect on your PC but not on your TV. Yet Scientific-Atlanta has out-innovated TiVo with dual tuners that let viewers watch one cable show live while recording another. (Only TiVo's DirecTV set-tops sport dual tuners.) And the price is hard to beat: While the cheapest TiVo sells for $150, cable operators pick up the entire cost of a Scientific-Atlanta box and still charge a lower monthly fee than TiVo.

So far, however, Scientific-Atlanta's devices don't provide Internet connectivity and a DVR in one set-top box. Strangeberry's technology could give TiVo an edge with cable providers eager to sell more high-speed Internet connections. But taking back the lead won't be easy. When it comes to television, cheap and simple has long been a winning formula. -- OWEN THOMAS