What went wrong at Akimbo

After winning investment from AT&T and Cisco Systems, Akimbo Systems closed its doors this weekend. Though analysts were somewhat surprised that the video-on-demand vendor would fold so soon after an infusion of new money and new management, they weren’t overly surprised that the company itself ran aground. The warning signs weren’t hard to spot, they said.

To begin with, analysts said Akimbo started off on the wrong foot, asking consumers to pay $229 up front for a set-top box, then another $10 a month subscription fee.

“It’s not just Akimbo,” said Bruce Leichtman, president of Leichtman Research Group. “Any standalone box is heavily challenged from the start.”

The list of standalone set-top plays is long and fraught with disappointments, such as the much-hyped Apple TV. But it is attracting new entrants all the time, including Vudu and, this month, Sezmi. Only last week, Netflix announced a new $100 set-top from partner Roku that will allow subscribers to stream movies over their TVs.

With a ready-made subscriber base of 3 million users, Netflix has an edge, said Michael Wolf, research director at ABI Research. “If they could convert a third of those, they could have something.”

But most analysts predict a shakeout to eliminate some of the set-tops in the market today.

“I think [Akimbo was] too early to market,” Wolf said. “Hollywood is sitting back and waiting for this market to happen. Over the last year and a half, they’ve gone into ad-supported streaming and partnering with guys like Amazon and Apple. So guys like Akimbo -- a smaller, unestablished player -- were kind of left out in the cold.”

Akimbo saw the difficulty of the standalone set-top model and changed course, eventually ditching the STB altogether to become a purely online service. But even there, the company had trouble with its focus on so-called “long-tail” content, desired by small niches of users.

“I’ve yet to see anyone make a go of a pay model on long-tail content,” Wolf said. “If you do it right and you have 10,000 subscribers in the US who want access to Indian soccer leagues or something, you’d have to pile up a lot of niches to get any sort of large subscriber base.”

Filling libraries of long-tail content has its own challenges. To serve a lot of niches, it’s hard to fill any one niche very deeply. Early reviews of Akimbo’s gear faulted the thin library problem, and those criticisms never completely went away.

“Akimbo tried to be a niche content provider, the problem was the depth of any niche was 40 hours,” a blogger claiming to be a former Akimbo employee wrote on Saturday. “Once you had watched the equivalent of 2 seasons of ’24,’ you had nothing else to watch.”

“Akimbo would tend to put 100 hours from one content provider up one week and then nothing for months,” the blogger added. “The problem is, if I consume 10 hours the first week the content goes live and only like 20% of [it], I've got 2 weeks of content and then nothing for weeks. At which point I have forgotten about the service.”

Wolf said an STB model for niche content might work provided the right niches can be found -- for example, perhaps content in a particular foreign language. Or Christian-centric content. But with multiple shifts in strategy, Akimbo never found traction with any one direction.

“They never really caught fire with the right business model,” Wolf said. “And it’s a market where the content providers can go direct to the consumer. Or if it’s someone with a hardware and service play like Apple, you have to be like an Apple or a Microsoft or have something really compelling, and [Akimbo] never had that special something.”

Still, Leichtman said, Akimbo’s story, like that of several VOD hopefuls, illustrates how eager investors are to overlook flaws in startup business models based on the belief that drastic changes in consumer behavior are on the horizon.

“A lot of tech companies want to believe we’re in a new era,” Leichtman said. “And to some degree we are. But to some degree, consumer behavior doesn’t change. Investment analysts were saying Apple TV is going to add $10 billion of value to Apple. And now it’s Steve Jobs’ hobby. You never even hear the numbers. That wasn’t hard to predict.”