Thinking Space

Existing businesses have always been disrupted by new entrants having better business models and flexibility to change faster. some of my favourite case studies include Blockbuster,Borders, Kodak and Knickerbocker Ice company.

I’ll try to cover them in parts
BLOCKBUSTER

Year 2004 – $6bn turnover. 60,000 employees,  operations in 25 countries.

Year 2010 – Filed for bankruptcy.

Business model – Video rentals

Introduced in the US in the late 1970s. Film studios had set the price of tapes so high that many consumers were unable to purchase a film on videotape and so the rental store format was created to fill the gap. It was a very profitable model, once a tape had been rented enough times to cover the purchase cost it generated 100% profit.

Business model weakness–
Customers had to visit a store to collect and return the tape, they often had to wait for a copy of popular films to be in stock, and they were charged fees if they returned a tape late. Since there was no alternative, Blockbuster remained the dominant player in 1980s and most of the 1990s.

Disrupter- Netflix
Launched in 1997 it offered customers a new way of accessing entertainment: via their PCs a customer could order a DVD which would be delivered to their home by post and, once they had viewed the film, they just had to mail it back. Initially, customers paid per DVD and were charged a fee for late returns.

In 1999 Netflix moved to a subscription based model with no late fees. Customers preferred this new model; they had a much wider range of titles to choose from, they could keep a DVD for as long as they wanted without penalty, and the price they paid was fixed and offered better value than rental stores. So they started to switch in large numbers – Blockbuster and the wider video rental market was being disrupted.

Blockbuster fightback –
Under CEO John Antioco Blockbuster launched an online service and abolished the much disliked late fees. It also started providing Blockbuster branded on-demand services via cable companies. Antioco understood that Blockbuster’s core business was providing an entertainment experience through whatever channel the customer preferred. However, in an unfortunate consequence of events Antioco resigned. Blockbuster’s new leadership team changed the strategy, its online services were discontinued.

In 2007 Blockbuster board decided to focus on retail, it was also the year in which Netflix introduced its streaming service, which gave customers instant access to films via a PC at no extra cost. Streaming proved to be very popular with customers and they switched to this new way of meeting their needs in significant numbers prompting a second disruption of the market. Blockbuster meanwhile continued to focus on being a retailer and even reintroduced late fees in a desperate attempt to shore up its rapidly declining store revenues.

But the market had moved on. Customers had moved on.

Blockbuster paid the ultimate price as a result of not changing its business model in response to disruption.