Thursday, June 05, 2008

Innovation waits for no man

There's simply no time to rest as an innovator. This was brought home to me yesterday when I purchased my first Flexplay DVD at an airport. Stuck, with little internet access, I purchased a movie and watched it on my PC. Nothing unusual about that, except that the DVD I purchased cost only six dollars and is a one-time use DVD. After 48 hours of opening the package, the DVD is no longer readable.

So, if you are Blockbuster or Netflix, two innovators in the movie rental space, you must be scratching your head right about now. No matter how innovative your products and services, there is always another firm seeking to disrupt your market or open up a completely new one. There also seems to be some rule at play here, in which an industry is very stable for a long period of time, then experiences not just one disruption, but a consistent series of disruptions over a short period of time. Stick with me on this for just a little while.

Using the movie rental business as a model, if we go back to the dark ages of movie rentals (Mid/late 80s and early 90s), Blockbuster was considered an innovator because it scaled the movie rental business. Formerly movie rental firms were small and had a very limited selection. Blockbuster was the first national "chain". It scaled the original rental model but did not disrupt the model. Then, along comes Netflix. They retained the rental model (less the late fees that were a big part of Blockbuster's profits) but changed the distribution - now the movies are mailed to you, rather than you going to get them at the neighborhood Blockbuster. Once the Netflix model took off, Blockbuster was doomed. Note that Netflix only changed two things about the model - they eliminated late fees and changed how the movies were distributed. This is something that Blockbuster could have done if they were interested in consistent innovation in their own space, but they defined their business as a distributed chain with physical locations, so they were probably unwilling to cannibalize their own market, and Netflix did that for them.

Now, there are several other distribution models - on demand to your PC from Netflix, which demonstrates that Netflix is trying to innovate consistently, and the time limited, throw away innovation from Flexplay. What Flexplay is doing is returning to the point of sale model - but the point of sale can be literally anywhere, since the DVD are watched once or twice then discarded. Now as a consumer I don't have to manage my movies or even worry about returning them. In point of fact, while I personally enjoy watching a lot of movies, I don't need to own them or worry about returning them. Why didn't Netflix innovate in this part of the distribution channel? And why is there suddenly, within the last 10 years or so, so much innovation in this space? It seems like there are a number of different ways to acquire and watch movies, whereas only a few years ago there were not nearly this number of range of options.

Netflix missed this business opportunity because it is still in the "rental" model business -sending and receiving the DVDs. It is a membership model business as well. I have no relationship with Flexplay - they are selling a one time product that I can use and discard. Again, an innovation around the business model for this industry.

Another interesting question - why does an industry sit pat for many years, then suddenly go through a broad and consistent range of innovation over a relatively short period of time? The movie rental market was relatively stable through the 90s until digital cable, Netflix and now Flexplay have all entered and disrupted a piece of the market. Netflix recognized a distribution model opportunity and capitalized on it. Flexplay introduced a new technology and created a different relationship with the customer and capitalized on it. Next, I predict, will be a streaming video opportunity to handhelds and cell phones that will include digital rights management, so I can download and watch movies on my cell phone.

At one point in the early 90s, Blockbuster looked indestructible and king of the movie rental business. Now it is closing stores so quickly that it can be hard to find a local place to rent a movie. Blockbuster and Wal-Mart both tried and failed to mimic the Netflix service, but I suspect that some retail giants may be able to copy the Flexplay model. The point here is that change is coming to your industry or market. No matter how defensible your market or position may be, innovators are seeking to dislodge or disrupt you.
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posted by Jeffrey Phillips at 5:51 AM

7 Comments:

Blogger halfnuts said...

Isn't this exactly what Circuit City tried with divx (not the new DivX)? That failed miserably. Call me foolish, or narrow minded, but why would I spend six dollars for a DVD, when I can rent them much cheaper today, plus not get that nasty sense of adding to landfill? Also, the innovation that Netflix brought was that you are not paying a per movie fee. IF they had simply charged the same as Blockbuster, and had them delivered, they would have had serious adoption issues.

What's next? No DVD's. Just beam stuff to your house. Broadband distribution.

2:35 PM  
Anonymous Jon Foulkes said...

I'm guessing that serial disruption occurs because once a seemingly unassailable business is attacked successfully once, generating lots income for the disruptor, it draws attention to the market space / customer need from lots of other potential disruptors.

This leads to lots of ideas about how to fill the same need differently - some succeed, others fail, to differing extents.

You hit on an important point in the post - Blockbuster failed to identify the business they were really in and didn't want to cannibalise themselves. Two fantastic warning signs that someone else is probably poised to come along apull the rug out from under you.

1:36 AM  
Anonymous Melissa Martin said...

Hi Jeffrey-

I’ve enjoyed reading your blog, and just wanted to send you some news about a great entrepreneurial opportunity I thought you’d be interested in and perhaps share with your audience.

I want to make you aware of Everyday Edisons, a nationally televised PBS reality show that documents the product development process (from start to finish) of approximately 12-14 inventions and the parallel stories of the inventors who created the original idea.

Everyday Edisons is holding one last casting call to select new product concepts for Season Three. Instead of visiting another city, this casting call will be hosted online through www.EdisonNation.com. At least one of the online submissions will be selected for the show. Participants can upload as many idea submissions as they like now through Monday, June 23 .

If selected, you will have your invention/new product concept commercialized by Everyday Edisons and enjoy a 20-year annuity on future product sales. The television show takes care of all expenses involved in bringing the product to market.

Everyday Edisons is looking for inventions in all stages of the production and development process, from rough ideas to refined prototypes and manufactured products.

In order to be considered, all you need to do is log onto Edison Nation (www.EdisonNation.com) and create a profile. Look for the Everyday Edisons logo to submit to the sixth, virtual casting call. Register to become a Gold Member and enjoy many benefits, including the opportunity to submit your invention for the virtual Everyday Edisons casting call. The Web site will walk you through the submission process step-by-step and you can follow the status of your submission with the "idea review timeline," which will appear on your Edison Nation home page when you log in with your user name and password.

If you haven't had a chance to catch an episode of Everyday Edisons on your local PBS affiliate, you can check out a clip or two on www.youtube.com by simply searching "Everyday Edisons." There are several fun things to view, including a behind-the-scenes clip; interviews with our engineers and Season One inventors; a Season One series recap and product "commercials."

I just thought you and your readers would be interested in this opportunity. I hope you will encourage them to take advantage of it. Best of luck in all that you do!

Melissa

7:55 AM  
Blogger Mary Popins said...

Your blog is very interesting and informative. Blockbuster, Inc. is an international company providing in-home entertainment. It is the largest video rental chain in the world. Blockbuster has been of great frustration to me. I never got the ordered items. However, my friends are rather satisfied with the company. I have posted my comments and reviews to www.pissedconsumer.com. Hope others will not be tricked in.

2:29 AM  
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9:24 PM  
Blogger felicity said...

Fascinating article- I must say. So nice to find somebody with some original thoughts on this subject.
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7:43 PM  

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