Silverado - Issues Recommendations

Silverado: Issues and Recommendations

In 2001, internet based company Silverado launched the Live Trivia Game Show to showcase its recently developed technology, the Event Matrix. This technology allowed millions of people to interact with each other simultaneously. To attract millions of people to its website, Silverado hired the advertising agency Holland Mark Edmund Ingalls (HMEI) to develop and implement a $15 million marketing campaign. To support a large audience in its website, Silverado bought and geographically distributed more than 100 servers throughout the US. As a result, about 500 000 people had visited Silverado’s website and registered with the company by the end of the third weekend (game took place on Sunday evenings). Since Silverado did not charge a subscription fee its primary source of revenue was advertisement. Advertisers wanted to be associated with a well known internet brand. The more people visiting the event and clicking on ads, the more advertisers would be willing to buy ad space. Silverado faced stiff competition when it came to using heavy advertising campaigns to attract consumers to their event portal. There were plenty of dot.com rivals such as WebMD.com, Kozmo.com, Hotjobs.com, Monster.com, Kforce.com who were using the Get Big Fast factor to draw more advertisers. The company was relying too much on advertising to increase their primary source of revenue. Expenditures in advertising and investments in infrastructure were high, After the initial success of their Event Matrix Technology, showcased by the Live Trivia application, Silverado faces the issue of what direction they should take. They have several options that they could take using their technology. They can continue promoting the Live Trivia Show, scale it back, or abandon it. The company is also trying to figure out if it should expand into other vertical opportunities such as online live auctions, iTV, and distance learning, all of which could be supported by the event matrix technology. From the Macro-Environment perspective, Silverado was among the many new firms that were funded by venture capitalists. Despite the NASDAQ composite index drop in April, venture capitalists’ confidence in new companies was sky rocketing as they were investing over $1Billion dollars a week in them. In addition, there were a lot of dot.com companies on the rise, as 95% of the competing business plans in the Harvard’s fourth annual plan contest were internet ventures. On the consumer side, individuals were making online transactions of over $7 billion worth of goods and services. Nevertheless, consumers were more aware and accepting of the non-traditional means of watching events and spending money. People were accessing the internet to watch online fashion shows and music concerts. In 1999, Victoria secret held an online fashion show in which it attracted 1.5 million people. Technology advancements were fueling such change. By 2000, approximately 110 million people in the US as well as 250 million world-wide had internet access. There were newer and faster internet services such as broadband. Although broadband was available to 30 million households, only 2.5 million used the service. This represents roughly 2.2% of the households with internet access, meaning that over 97% of households had low speed internet. (Refer to exhibit 1 for more detail). This clearly indicated that there was an opportunity for Silverado’s event matrix technology. People were interacting on the internet a lot more as technology advanced. Individuals were spending 13 hours per week online, and culturally, it was becoming increasingly acceptable to use the internet for entertainment, moving away from the traditional mass media. Moreover, the venture capitalist intense funding meant that competition was not too far away to internet related industries. Silverado’s primary vision was to provide an internet service to the consumers, like Ebay, Hotjobs, Monster.com, thus they were in the Internet Software & Service Industry. On one hand, the companies in this industry were providing ad space to advertisers, which meant that they were competing with all the other dot.com for advertisement deals. On the other hand, this industry was about using a software to provide service to consumers who could not participate in TV game shows or offsite auctions. This industry provides free or subscription based services to the consumers. The Internet Software & Services Industry motto at that time was to Get Big Fast. The key to long-term success was to quickly capture market share at the beginning. Aggressive marketing campaigns were the standard for internet site firms that were trying to attract customers. Many companies that were trying to get big fast relied on advertising as their main revenue stream. Therefore, in order to influence businesses into buying advertising space at their websites, they had to attract customers and build a strong brand with which businesses want to be associated with. The prices of online ads were determined by the cost per thousand impressions. Analysts also predicted that the demand for online ads for the rest of 2000 would be going down. Despite the fact that the NASDAQ stock index was down by 30% off its March Peak, the technology sector was still being fueled by venture capitalist who were attracted to new companies. New internet firms like Silverado’s were able to secure financing more than they expected. (Refer to exhibit 2 for more detail) After analyzing the industry using the Porter’s 5 forces framework, we concluded that the barrier to entry to this environment was high. First of all, brand awareness was very important in this industry because companies needed to attract both the users and the advertisers to earn revenue. Aggressive marketing campaigns were necessary to create that brand awareness which required a lot of resources. The software technology was a barrier to entry to this market because it took time to make and perfect them. R&D expenditures were high as the software needed to be constantly refined and improved. Also for interactive portals, investment in hardware infrastructures was important because it would improve the response time; not everyone had broadband service. (Refer to exhibit 2 for more detail) The primary substitutes for the users were the TV game shows such as Who Wants to be a Millionaire or Wheel of Fortune. For the users, they also had bargaining power because there were no switching cost and the product offered was free. On the other hand, Silverado’s event matrix was unique in the market so there were not any other event matrix sites except watching TV game shows. In terms of substitutes for online advertisers, there were readily available substitutes such as Yahoo, ESPN and other means of advertisements. Advertisers had a lot of bargaining power because they could shift to other popular websites if the turnout was low for a website. (Refer to exhibit 2 for more detail) Competition was fierce for attracting the advertisers because there were so many dot.coms. To attract users it was very competitive as well because everyone was investing in aggressive marketing campaigns. This industry was also competing with the same services being offered offline. Also it was extremely difficult to attract software developers because there was a low supply and a high demand for these developers. (Refer to exhibit 3 for more detail) Silverado’s vision is to develop an online event matrix that will allow people to interact with one another on a scale and in ways that were impossible with earlier web technology. In order to sustain their operations as a business, Silverado needed to strengthen their weak points. They lacked the ongoing concern on the operational front. They had only one successful event and seemed ill prepared to face the future. They did not have other ideas or proper strategic planning. They had planned to launch a new application, without knowing if the consumers grasped the idea or not, every 3 months which would cost about $1.5 million. Also the software they had developed would be hard to change. They had not invested enough in software technology, rather they spent 5 times the R&D amount in advertising campaigns. Nevertheless, Silverado had many strengths. Their employees were terrific and motivated. They were also the first company to launch an event matrix technology that could host a large audience. This exclusive software made the company unique in the market. In addition to having an alliance with Data Return Corporation, Silverado also had deals with Lava Soft, Microsoft, and Compaq. They were able to take full advantage of these alliances. (Refer to exhibit 1 for more detail) After carefully examining Silverado’s macro-environment, industry, and internal factors, we believe that the company should do the following. They should cut back on the heavy advertising campaign. Rather than wasting money there and competing with other websites for advertisers they should try to improve the software to be a product leader in the industry. In our opinion, the software is the unique attribute that will differentiate Silverado in the market. The application can also support or merge with other interactive opportunities like online auction, distance learning, and ITV. Also rather than developing new applications at the cost of $1.5 million, they should concentrate on perfecting their current software that can be customized to particular businesses needs. They should also focus in the Live Trivia application rather than launching a new application every 3 months. The game show serves as a showcase to attract businesses that are interested in engaging in online events that involve simultaneous interaction of people. Silverado needs to position itself in such a way that businesses see it as an event location on the web that could handle large audiences. This showcase can attract other businesses who would want online interactive events like Sports Illustrated or L’Oreal. Rather than doing the $1 million prize trivia event very frequently, they should do it on a monthly or weekly basis, like the traditional TV media, to attract more consumers and advertisers. However, they should continue to offer other trivia events during the week for smaller prizes that would help them retain consumers. Once it becomes habitual for the consumers to play the game, it will be easier for them to charge a subscription fee. This will definitely help their revenue stream along with the advertisement revenue. They should also start planning to go global by researching for partners in other locations. They could combine their technology with the infrastructure provided by companies in other countries. Lastly, they should pursue in the distance learning opportunity. E-learning is already on the rise with an annual growth rate of 83% since 1998. This is going to be an $11 billion dollar industry by 2003 in which web technology would be the main barrier to entry and the formation of alliances and partnerships would be the key success factor. Also, Over 70% of accredited colleges and university were offering online courses in 2000 and Merrill lynch predicted that online higher education would reach $7 billion by 2003. Silverado is already at an advantage. Silverado already has developed an interactive software that can handle large audiences simultaneously while they also have deals Data Return Corporation, LavaSoft, Microsoft, and Compaq. They also have the hardware infrastructure that will allow consumers to have a quicker response time. The deal with Lavasoft will keep the R&D expenditure low because LavaSoft will engineer the software. The current web technology does not offer this unique real time feature and supported interactive software were expensive to develop. They will need to make alliances with college educators and universities as soon as possible so they can expand into the distance learning application. By entering this new market with its unique interactive software, they would be the innovators. In addition, they would have greater bargaining power over both the consumers and suppliers since they are able to offer an unique service. Suppliers (in this case the educators) do not have substitute products besides using older web technology or spending a lot of capital to improve their existing technology or develop a new one. Consumers do not have strong substitute products online that can offer cheap real time interactive education. Silverado could charge the supplier or the institution for hosting a class on their technology or they could hire educators to host a class and charge the consumers. They could also start events with “star” lecturers in which interested people would pay to participate in the lesson. They should offer this service globally as it would make more sense since it is distance learning. Many people living abroad would appreciate the opportunity to take online courses.

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Exhibit 2

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Exhibit 3
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