Why Did Quibi Shut Down?

On the afternoon of 21 October 2020, an open letter signed by Jeffrey Katzenberg and Meg Whitman was published. Its key sentence was short: "Quibi is not succeeding." The service was six months old that day and had raised a total of $1.75 billion since 2018.

The letter gave two possible reasons. Either the idea was not strong enough to carry a stand-alone streaming service, or the timing was wrong. Katzenberg and Whitman wrote that they would never know for sure, but suspected it was a combination of the two. PBS reported one more detail: the company had enough capital to keep running for a long time. The decision to close was not taken because the money had run out, but because carrying on was not expected to change the outcome.

Startups usually close when the bank account is empty. Quibi still had money in the bank. What it lacked was something money cannot buy: enough people who wanted the product.

What did it do?

The company was founded in Los Angeles in August 2018 under the name NewTV. The idea was Katzenberg’s, the man who had grown DreamWorks’ animation arm, and Meg Whitman took the CEO’s chair. In October 2018 it was renamed Quibi, short for "quick bites". Around $1 billion was raised that year, followed by another $750 million between January and June 2020. Its investors included Disney, NBCUniversal, WarnerMedia, Sony Pictures and Alibaba.

The product took Hollywood-quality series, cut them into episodes of no more than ten minutes and offered them to be watched on phones only. Whether you held your phone upright or sideways, the picture fitted the screen seamlessly. It cost $4.99 a month with ads or $7.99 without, and the first 90 days were free. According to Tubefilter in October 2020, the company was prepared to pay up to $100,000 per minute of content, or up to $6 million an hour.

All that investment rested on a single assumption: that people will pay to watch something short but high quality in the small gaps in their day, on the move, over lunch, while queueing.

What went wrong?

The assumption was tested the moment it met the real world. Here is the timeline, based on published data:

• 6 April 2020: Quibi launched in the US and Canada. Pandemic lockdowns had largely wiped out the commutes and waiting moments the product set out to fill.
• 14 April 2020: The company announced 1.7 million downloads in its first week.
• May 2020: According to Sensor Tower data, the app had dropped to 125th in the free iPhone app chart. Katzenberg told the New York Times that he attributed everything that had gone wrong to the coronavirus.
• June 2020: Support for casting to a TV arrived. According to the Wall Street Journal, the service was on track for about 2 million subscribers instead of the 7.4 million forecast for its first year.
• July 2020: Sensor Tower estimated that about 8 per cent of early users had converted to paid subscriptions. Quibi disputed the figures.
• October 2020: According to Variety, the Apple TV, Fire TV and Android TV apps came out just two days before the closure was announced. When the decision was made public on 21 October, Quibi had about 500,000 subscribers.
• 1 December 2020: The app stopped working. Variety reported that the company had told its investors it would return $350 million of its remaining cash.
• 8 January 2021: Roku bought the rights to more than 75 Quibi programmes for well under $100 million.

The pandemic was a real blow. But Variety’s assessment goes deeper: people mostly wanted to watch expensive productions on the television in the living room. And short video on the phone was not an empty space. TikTok, Instagram, Snapchat and YouTube were already filling it with a free, endless feed. What Katzenberg saw as an "empty space" was in fact a crowded square.

Lessons for founders

• A budget does not change behaviour. If you are proposing a new viewing or usage habit, first show with a small group that the habit really exists. Star names and lavish production do not create a need that is not there.
• Define your competitor by time, not by category. Quibi compared itself with other subscription services. But what was really competing for the user’s five minutes was free apps.
• Do not tie the product to a single context. Once the commute disappeared, so did much of the product’s reason to exist. Think ahead about what happens if your use case breaks.
• Offer what users are used to at launch. Sharing and watching on TV were added later. The last app arrived two days before the closure.
• Conversion rate matters more than downloads. The 1.7 million downloads of April 2020 make a headline. How many people enter their card details after the free trial is what decides a company’s fate. To run those numbers early, you can use the unit economics calculator.

Premature scaling: grow first, ask later

The startup world has a name for this mistake: premature scaling. In 2011 the Startup Genome team examined data from 3,200 startups. According to the findings reported by Steve Blank, 74 per cent of fast-growing internet startups failed because of premature scaling. Those that scaled at the right time grew about 20 times faster than those that scaled too early.

Premature scaling is when a company grows one of its dimensions, customers, product, team or spending, before the others are ready. Pouring money into advertising, hiring and inventory before demand has been proven is its most familiar form. Quibi’s story is an extreme example: scale did not come later, it was designed in from day one. Shows were shot, ad slots were sold, a big launch went ahead. Nobody ran a small pilot to ask, "Will people really pay for this?"

This is where the value of starting small becomes clear. A small experiment lets you be wrong cheaply. A big launch is the most expensive way to find out you were wrong. Our piece on how to plan an MVP looks at how to ask that question much earlier.

A fast tool, an unclear destination

In the "Economy" chapter of Walden (1854), Henry David Thoreau takes a sceptical view of the exciting inventions of his age:

"Our inventions are wont to be pretty toys, which distract our attention from serious things. They are but improved means to an unimproved end... We are in great haste to construct a magnetic telegraph from Maine to Texas; but Maine and Texas, it may be, have nothing important to communicate."

In plain terms: our inventions are often pretty toys that pull us away from serious things. They are improved means to an unimproved end. We rush to build a telegraph line from Maine to Texas, but perhaps Maine and Texas have nothing important to say to each other.

Quibi’s tool was flawless: the rotating screen, famous directors, a billion-dollar budget. There just were not enough people waiting at the other end of the line. Who is at the end of the line you are building, and how do you know you have something important to tell them?

You can find Quibi’s record and sources on its page in the Startup Graveyard, and read the stories of other startups that closed in the Startup Graveyard archive.