Posted by Adam Gordon on Apr 6, 2010 in all, horizon scanning, management, managing uncertainty, strategic foresight | 5 comments
As of writing, Blockbuster clings to business life, with $1 billion in debt, unprofitable stores and continued losses, and it looks inevitable that it will file for bankruptcy protection. In Q4 ’09 the company posted a loss of $434.9m on revenue of $1.08bn. The stock price has fallen is $0.26 per share, down from lofty levels of over $15 in the early part of the decade. That’s a lot of shareholder value down the drain. *
Reading analysis by John Tamny in Forbes, I lighted on the following paragraph — as perfect an encapsulation of why looking to the future in timely and in a high-quality way is essential, and how quality horizon scanning is integral to it:
“As often happens as companies grow, Blockbuster concentrated on perfecting its existing service while beating competitors offering the same instead of looking into ways that outsiders might destroy its business model altogether… For Blockbuster, the “disrupter” in question was Netflix. Indeed, popular as the Blockbuster brand was, getting to the video store in order to take advantage of its services was a hassle for customers–as was returning videos on time to avoid paying late fees. The rise of Netflix from well outside the traditional retail space meant these problems were solved in one fell swoop.” (my italics)
Change that matters, that is, relatively sudden and acutely disruptive to incumbent business-model success, always comes from outside an industry. Britannica wasn’t beaten by another encyclopedia. Eastman Kodak was beaten by digital photo startups, not by Fuji. And so on, and so on, through industry failure, whether it leads merely to value hemorrhage or all the way to Chapter 11.
Looking vs seeing
Sure there are companies that lose because they are simply outcompeted, that is, are less capable than the competition in doing the same thing. Hertz is currently in this category. But when a clear market leader, with brand and capital and customers galore comes totally unstuck, it is always new technology and/or new business model coming from the outside that has done it. In these cases, as with Blockbuster, companies fall to industry entrants that change ways of doing things, solving pain or trade-offs that buyers suffer, or otherwise provide consumers with more value.
These are always, theoretically, innovations incumbents could have done themselves if they were ready to think ahead (and brave enough, when required, to cannabalize existing products that stood in the way of important future steps) and therein lies a conundrum about looking at new, external competitors. It’s seldom that the incumbent can’t see the intruder, that is, is not looking. Often they are looking intensively. It is that they don’t see the absolute disruption in the new until it is too late. It is a problem of perception. This is why industry horizon scanning is a little about the easy task of looking, and a lot about the much harder job of seeing. And why putting one’s corporate head down and making an existing product or service ‘more perfect’ is part of not seeing.
* Interestingly, the Blockbuster demise was called exactly right in November 2007 by Don Reisinger on CNET.
Blockbuster was too slow to adapt to its competition and is even slower in realizing that its own bankruptcy is inevitable.
Empires are not necessarily brought down from outside forces, but rather from within. The company’s clueless management and employees brought this upon themselves by creating a poor customer experience and forcing customers to seek better alternatives.
Blockbuster showed no sympathy when it overcharged and underserviced its customers and that is why it is not receiving any sympathy in its most desperate hour. At this point, the company should file for bankruptcy, have itself removed from the New York Stock Exchange, and become a private company if it wants to keep on living. Even if it that were to happen though, the damage has already been done and Blockbuster will slowly but surely fade from the public eye.
Great comment, thanks. No doubt that BB created a poor customer experience and this contributed to its demise. But the question is, even if it provided an excellent customer experience, would that be enough in a world where its business model is obsolete? I doubt it.
I don’t think the experience of going to a Blockbuster store and dealing with late fees (yes, they are back) is worth $4.00, when Redbox only charges $1.00. Yes, Blockbuster lets you keep the movie for five days, but it only takes me three hours at most to watch the movie, what do I need it for five days for? Unless there is some type of emergency, typically when I decide to rent a movie I watch it that night, and I assume that’s fairly typical behavior. Using Netflix I don’t even have to worry about late fees to begin with and the price is moderate. Netflix and Redbox in tandem seems like the ultimate movie renting experience to me. Cheap, quick, and simple.
Blockbuster didn’t even need to have its eyes on the future, the deals that would have saved the company fell right into its lap. Both the idea of online renting (Netflix) and rental kiosks (Redbox) were right on their doorstep, before they became hugely successful, and they turned it down. If that doesn’t ring true as to why Blockbuster is in hot water I don’t know what does.
Blockbuster may exist as its online service (which changes its terms of service to the detriment of its customers every other month it seems) and rentail kiosks (I haven’t personally seen on myself yet) – but I’d wager big money that the brick and mortar stores will all be extinct in the next couple years. Thank God.
No late fees are not back. The price structur at Blockbuster is the same as at Redbox or Netflix. So if you claim the late fee at Blockbuster is back you also have to say that Redbox and Netflix have a late fee. But I know that would not help in bashing Blockbuster for past bad costumer service.
The problem was hyper-competition and the
concurrent strategies. All industries
are hyper-competitive and business
models are antiquated. Blockbuster,
is a case in point.