The big mistake Quibi made

Quibi is shutting down.

In an announcement posted last month, Jeffery Katzenberg and Meg Whitman write that they’ve “come to the difficult decision to wind down the business, return cash to our shareholders, and say goodbye to our colleagues with grace.”

If you missed what it was, don’t worry. The new ‘quick bites’ streaming service was only around for the last six months.

Their proposition was that subscribers would watch a TV series divided into much shorter length episodes than normal streaming sites. Episodes were, on average, 5–7 minutes long each, rather than 25–45 minutes. The app had an innovative gimmick: every show could seamlessly be viewed both in portrait and in landscape. You could switch continuously while watching an episode; the crop would intelligently focus on characters’ faces and titles on screen would rearrange to fit. (And actually, the app’s design and UX was generally really slick, well-designed and well-thought-out.) The platform boasted big name stars on launch: Christoph Waltz, Sophie Turner, Liam Hemsworth, Chrissy Teigen.

They also raised $2.5 billion.

Yet despite all that, it failed.

The post-mortems are coming in thick and fast. TechCrunch explores whether it was a good kind of startup failure. The Wall Street Journal describes its shuttering as a “crash landing.” Vulture has labelled it the New Coke of the Streaming Era.

These articles all present various reasons for why Quibi failed. Julia Alexander’s analysis in The Verge is the best in my opinion; it succinctly dissects Quibi’s failure, distinguishing 11 distinct reasons. (You can read it here.)

The Big Mistake #

However, I think there’s one specific reason above all that they failed so spectacularly.

They didn’t validate their pricing strategy.

Everything done during the early stage (first 12–18 months) of a startup needs to be about validation. Validating that the startup is solving a real problem. Validating that it’s the right time to solve that problem. Validating that the product or service is capable of solving the problem. Validating that there are enough users to warrant the existence of that product or service.

Validation is, in general, the most important thing for a startup.

(This is why moving fast, iterating quickly, and running ‘lean’ are so highly espoused: a startup can change direction and pivot if they discover issues when validating.)

Streaming platforms clearly do answer a user’s need. There’s enough of them around to prove that. And, although there’s a tough competition, Quibi had the investment and backing to challenge it head-on.

Moreover, the specific solution that Quibi presented, namely a solution for users who were commuting, waiting in line, or had short moments of ‘free time,’ did sound like a good offering. Sure, they’d be competing with Instagram, TikTok, and other social media apps, but it’s reasonable to assume that, if they could get the content to a high standard where it dominated popular conversation (a la Tiger King and Mandalorian), then users would want to consume their content.

Where they failed was the pricing strategy.

Here’s why. If you missed it, when Quibi was first announced, they gave out a generous 3-month free trial.

This is something that was (and still is) unheard of. Three months is soooo long. But it worked in getting people to sign up. Lots and lots of people took advantage of the great offer. Hell, even I signed up. (And this was a big deal: I don’t subscribe to any streaming services. I use my parent’s Netflix account, my sister’s Prime, and my friendship group’s Disney+.)

But, like with lots of free trials, people cancelled before they had to pay. (I set a calendar event to remind me.)

Cancellations aren’t unusual. For Quibi, the disappointment was simply the sheer quantity of people who chose not to renew after their free trial ended.

Vulture reported, based on data from mobile analytics firm Sensor Tower, that only about 72,000 of Quibi’s initial users stuck around and turned into paying subscribers. That’s a conversion rate of only 8 percent.

The pricing team at Quibi probably predicted that there would be a sizeable drop-off. But an 8 percent conversion rate is truly atrocious. It’s less than half the average 20% conversion rate for free trial users on a streaming service (source: Muvi Insights) – and, given all the fanfare, Quibi should have been converting well above-average.

Hindsight is, of course, 20/20, but their generous free trial prevented them from validating that users would value the service at $8 / month (or $5 with adverts). If the free trial had been shorter, the team at Quibi may have realised that they weren’t converting enough users. They may have been able to experiment with different price points, or a new pricing model altogether.

The lesson to be learnt here isn’t to scrap free trials. (Although, with that being said, competitor Netflix has since scrapped free trials altogether.)

The lesson is that validation comes above everything, especially validating your pricing strategy. A startup needs to justify that there are users who not only will use a product, but will pay for that product.

Without starting there, a startup is bound to fail.

Thanks for reading!

Read more articles tagged Startup, or check out everything.