Innovation waits for no man
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.