I just read Netflix demolishes own business model on John Caddell’s blog and I think it’s very much worth passing on. John is posting about Netflix now working with various (he just installed a Roku digital video player at his house) on-demand options that potentially cannibalize it’s main business of DVDs by mail.
It’s got to be a tough world in video media these days. Things change fast. That gap we used to fill by renting videotapes turned to DVDs and then DVR and now at our house we’ve also got video on demand from iTunes and Amazon Unbox and Comcast, as well as Netflix instant.
For a while there, Netflix was the only really competitive game in town. As far as I’m concerned, they blew Blockbuster out of the water. But then the whole world of DVD rental starts to go away, and what do you do?
What’s so impressive to me about this is that Netflix is investing in technology and partnerships expressly designed to make their old business model obsolete. When I think about how much they have spent, in dollars and time and thought, on the sending-videos-through the mail model, I wonder how they were able to make the leap to say, “We have this process optimized, but it’s not the future. Time to build a new model”–meaning internet streaming.
Netflix founder Reed Hastings recently said “We named the company Netflix, not DVDs by Mail, because we knew that eventually we would deliver movies directly over the Internet.” That’s in a post listing his 4 secrets of success: Target a niche, stay flexible, never underestimate the competition, and take no shortcuts. It speaks to flexibility, of course.
John has a more troublesome word for it: “cannibalization.”
One of the most repugnant terms in the English language – referring to one of the greatest human taboos – is used when a company’s new products take sales away from its older products.
So I propose the revisionist phrase “eating your own tail.” Because you’re eating yourself, in a way. But isn’t that also the best way to go in a fast-changing market? John concludes:
The problem is, the marketplace is a bit like the jungle. If you don’t eat your own, someone will eat them for you. And this has happened again and again. One example: GM’s abandonment of the EV1 electric car just a few years before Toyota introduced the Prius. To survive, companies will have to get rid of that taboo against cannibalization and act more like Netflix.
I have a suggestion for marketers. If you want to get approval to introduce a better product, instead of referring to “cannibalization,” call it “upselling.”
And I have a conclusion too. I’m in awe. Can you imagine what it takes to not spend all their time defending DVDs by mail? Can you imagine how hard it was, there in the Netflix headquarters, to really move into video on demand?
That’s so hard to do. There’s a lesson there for every business.
Thanks John. Interesting take on this too.
I was with a group of students today, an entrepreneurship class, undergrads, who seemed to take for granted that news in the future will be web-based, involving micropayments, and newspapers will die. None of them, however, pointed towards this kind of advantage with social media.
My favorite news outlet is Huffington Post, which goes to your point, but I'm biased because I post there.
But I have to admit that I also spend a lot of time with NYTimes, and there too, the comments are part of the medium. Look at the Freakonomics blog there, or David Pogue's areas, and you'll see conversation and dialog. And Paul Krug is often bringing and minding the conversation.
It's a new world. And I'm with you, I like it.
Tim, I'm a bit in awe as well. You took a partially-thought-through idea, probed it, refined it and added to it.
The result is kind of a diptych–two linked posts that form the basis of a dialog on an important subject (important to me, anyway).
This kind of collaboration is unique to social media. And that's one of the things that really annoys me when the MSM denigrates blogs as useful info sources.
Peer-to-peer, emerging dialog just doesn't happen in the MSM. It's one voice (with an editor in the background, perhaps). It's static.
Even when MSM outlets use blogs and other online capabilities, they enfeeble them. Newspapers put older articles (some as recent as 2 weeks old!) behind pay firewalls.
The New Yorker blogs, which are superbly written and insightful, as you'd expect, don't allow comments (!?!).
This to me is like purchasing a new car and refusing to use reverse gear. It's just crazy. (Perhaps fueled by fear of eating one's own tail, to bring it back to the subject of the dialog.)
Sorry to drag on, but I think your post highlighted one of the distinctive values of blogging & social media. It's one of the reasons fewer people buy newspapers, & more people are participating & creating their own information sources.