We all believed that Blockbuster and Hollywood Video had vastly improved our lives during the 1990s—and we admired the phenomenal business models they used to do so. Watching movies at home gave birth to the home theater revolution that allowed us to rent the latest box office movies as VHS tapes without having to buy the $99 video. But then something interesting happened. The digitization of movies radically decreased the size of the movie box, making it possible for a new company (enter Netflix) to mail the DVDs directly to us. We watched the DVD and sent it back, postage paid. We didn't even have to leave our homes!
The next thing we knew, Hollywood Video filed for bankruptcy, and Blockbuster, with over a billion dollars in debt, followed suit soon after. Was Netflix so small it was able to fly under the radar—and sneak up on Blockbuster and Hollywood Video?
Nope.
Netflix started in 1999 because the founder was a guy like you and me who was tired of being charged late fees by video rental stores. He created a company that allowed us to stay in our jammies and order videos that came in the mail. Then in 2000, Netflix changed to a flat-fee subscription service that gave users the chance for unlimited rentals without due dates, late fees, shipping or handling fees, or per-title rental fees.
Today, Netflix offers DVDs both by snail mail and by streaming movies online to (are you ready?) more than 14 million subscribers!
This trend didn't sneak up on anybody. The Netflix business model wasn't a secret. The collective public consciousness (i.e., everyone) was talking about it. By 2002, Netflix was mailing 190,000 discs a day and had almost 700,000 loyal subscribers. This trend was so blatantly obvious that apparently only the two giants in the industry where it was occurring chose to ignore it. Anyone who ever rented a movie saw the proverbial writing on the wall. The traditional video store was entering the Ice Age. Still, it took almost a decade to turn Blockbuster and Hollywood Video into dinosaurs. In October 2007, Hollywood Video's parent company (Movie Gallery, Inc.) filed for Chapter 11 bankruptcy. By September 2010, Blockbuster was bankrupt as well.
Netflix owes its success to a culture that was essentially begging for a change. Before Netflix, everyone complained about late fees; we just didn't know what to do about it. When a company that offered an alternative came along, we all jumped at the chance to use it.
Second, the public consciousness saw the improved picture quality of the DVD and began buying the machines by the millions. The smaller size of a DVD allowed for easy mailing. Next, the digital format (instead of VHS tapes) made it possible to convert movies to binary code, making it possible to deliver movies via online streaming. This process eliminated postage, handling, and the potential for physical theft for both the consumer and Netflix. It's critical to note that, in the end, consumers voted Netflix into office with their wallets.
Your organization can learn this from the Netflix example: It doesn't matter how big, experienced, and successful your company is. If the public thinks your competitor's offering is better than yours, the public—and therefore, your competitor—will win.