In the mid 1980s, movie rental store Blockbuster began aggressively competing with other retail outlets for the movie rental market, and for more than a decade Blockbuster reigned as the top purveyor of at-home movie entertainment. For many households, Friday nights frequently included a stop at the local Blockbuster to peruse the thousands of titles and hundreds of new releases and snatch up the best videos before someone else did.
Today, however, Blockbuster is struggling to be a viable option. Instead of driving to one of the few remaining Blockbuster retail outlets, many movie watchers are picking up movies at one of the nearly 29,000 conveniently located Redbox kiosks, getting their rentals in the mail or increasingly, they are simply streaming at home with their Netflix account. After filing for Chapter 11 protection a year ago, Blockbuster has taken steps to transform their business model to compete with Redbox and Netflix, rolling out kiosks and a Total Access package to accommodate America’s changing media habits. But few think that Blockbuster will ever dominate the home entertainment industry like it once did, and many think they will become as obsolete as VCRs.
Meanwhile Netflix is the little engine that could, the David to Blockbuster’s Goliath, the disruptive innovation that is changing the way Americans watch movies.
Netflixed?
“Netflix has become a verb now,” affirms Saul Kaplan, chief catalyst at the Business Innovation Factory. “As a business leader, you are concerned that you’re going to be netflixed. But it isn’t as if Blockbuster didn’t see the technology coming. It isn’t as if they didn’t have the opportunity to distribute movies in a different way than the way they had been doing it—with bricks and mortar and video cassette recorders. Clearly they had a lot of smart people that saw the emerging technology for DVDs. The problem wasn’t that they didn’t see it coming. The problem was that they couldn’t mobilize fast enough to do it, because they were stuck in their current business model. And everybody in the organization was pedaling the bicycle in the current business model as hard as they could. So they had no capacity for trying to design and test a new business model in the real world.”
Kaplan emphasizes that all businesses need the capability to test new business models. “The half-life of a business model, the length of time it will last in the market, is shortening. In the 21st century, a leader will probably have to change their business model in significant ways several times over the course of their career. And they don’t teach you how to do that in business school. As technology has changed, the opportunities for new business models have accelerated…I’m not sure we’ve seen the full acceleration yet.”
Can Netflix Be Netflixed?
Netflix rivals have been growing in number with a host of companies ramping up their online content delivery services including: Walmart’s Vudu, Blockbuster, HBO Go, Amazon and Hulu, owned by News Corp. (which also owns The Post), Disney and Providence Equity.
Accordingly, Netflix has made some strategic but questionable moves lately—raising rates and creating a separate business (Qwikster) for their DVD rental service, and planning to expand its warehouse of 20,000 titles, giving customers even more streaming choices. But is this going to ensure ongoing success? Not necessarily.
“Netflix split to avoid being netflixed—it’s a good business model innovation move,” Kaplan tweeted when the news broke. “But all companies are vulnerable to disruptive innovation,” he insists. “So they have to be proactive and commit part of the organization’s resources to developing ideas and prototypes—test them in the real world, give personnel freedom and autonomy. That’s the biggest challenge for most large companies that I talk with. They do a lot in innovation space, but most of it is focused on how to make their current business model more effective—which is important—but a small part of your effort needs to be focused on potentially transformative new business models. And you need to make sure the resources are carved out to support those types of experiments as well.”
Kaplan says this is the key piece of work that never gets done. “It’s almost always about incremental improvement in today’s business model, and almost never about discovering what the new business model is—even if it might disrupt us. I want to know, understand, be in a position to be proactive and potentially migrate from the current business model to a new one.”
Blockbuster Printers
In the print industry today, there are still a lot of businesses with a Blockbuster mindset—pedaling the bicycle in the current business model as hard as they can with no capacity for exploring potential new business models.
Keith Bax, vice president of sales and marketing for Research Data Inc., a marketing and IT services provider, notes that the printing business is being squeezed from two different directions. “First of all, electronic communications have put tremendous pressure on print. The total number of printed pages produced by printing companies will continue to decline. Secondly, as an industry, print has not made the technological investments required to achieve maximum efficiency. I’m not just talking about faster presses, even though that has something to do with it. A vast majority of printing establishments are privately-held companies. Many owners elected to draw profits out of the business at the expense of reinvesting in technologies that would make their manufacturing and business processes more efficient. When the economy flattened, access to financing became difficult, and the investments required to stay ahead of the technology curve became very expensive. There is now a huge barrier to entry into things like data centers, highly-skilled technology workers, and specialized software that are needed to stay competitive.”
Invention or Innovation
Bax notes that business innovation needs to accompany technological innovation for companies to succeed. “When Apple introduced the iPod, it was a technical innovation within their product offerings. But tying the iPod to iTunes and completely changing the music business was a business innovation.”
“A lot of people confuse innovation with invention, and think that they just need new technology to solve a problem. But an innovation is not the same as an invention,” Kaplan stresses. “Inventions are important, and it’s nice to have new technology, but frankly we have more new technology that we can use. We’re not short on new technology, but we are short on the ability to use new technologies to solve problems and deliver value to customers.”
Written by Lorrie Bryan
Kaplan says that to him, an innovation is a better way to deliver value. “It is not an innovation until it solves a problem that a customer is having—it delivers value in the real world, solves a problem and helps get a job done that a customer is trying to do.”
Print Industry Innovation
How do you solve customers’ problems? You should look at things from your customer’s perspective and try to understand what their priorities and objectives are. Perhaps Blockbuster should have considered whether movie fans prefer to spend Friday evenings racing to a crowded store hoping to snag a new release movie before they are all gone…and racing back to return the movie before late fees are levied.
Kaplan says it is increasingly important for printers to put themselves in their customers’ shoes. “Look through their lens,” Kaplan suggest. “Develop new ways to deliver value that borrow from your current business model but also introduce new capabilities and technology. Most importantly, create a segment of your organization that has the capacity to experiment with different business models—ways to create, capture and deliver value.”
For some print service providers, innovation won’t happen soon enough. “Larger companies have more institutional inertia than smaller companies, and they typically have a hard time adjusting their processes and culture quickly enough to stay abreast of changing environments. It’s like the old saying ‘it takes a long time to turn an aircraft carrier,’” Bax explains. “The second impediment to innovation in large companies is the belief that new ideas are inherently risky, expensive to bring to market, and less profitable—at least for a while—than established lines of business. And some smaller innovative companies also tend to lack access to sources of capital. Unless they can find a way to sustain themselves until their disruptive idea becomes profitable, many of them will either disappear, or operate in the backwaters of the marketplace.”
However, for print industry leaders, innovation has become a continuous process—as it should be. Bob Radzis, chief customer officer at RT Associates, says that his company started out as a typesetting firm 29 years ago, and since then they have gone through seven business transformations. Today they are a leading marketing logistics provider.
“Several years ago, we looked hard at our capabilities and at emerging opportunities based on some pretty good data. We determined that marketers were reshifting their strategies from mass marketing to highly relevant personalized communications delivered though multiple channels utilizing a new set of tools. So we studied the technology and figured out how we could fit it all together—tie the channels together with triggers—and deliver value to our customers,” explains Radzis.
“Working with Océ has provided us insight into how connecting and coordinating responses of multiple channels can nurture leads,” he adds. “We can also see how important it is to have tracking and report tools that support marketing efforts as we help our clients execute all aspects of their marketing campaigns—print, web and mobile.”
“In the end, printers who are out experimenting with new ways to deliver value, investing in those that are working and integrating those with existing elements—or changing business models completely—are the ones that will win,” Kaplan affirms. “The ones that lose are the ones like Blockbuster that think they can just take their existing model, pedal harder and remain viable in the 21st century where new business models will become the norm.”