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.