Enter your search terms Submit search form   Web www.filmclips.be  film tips Visit Blockbusters official site   Special Offer - 50% of Blockbuster.com Rent Movies from Blockbuster.com. Delivered Direct To Your Mailbox. Click here to start today. www.Blockbuster.com

Is Blockbuster Back?

Scott D. Anthony 05.03.08, found at forbes

Blockbuster (nyse: BBI ) has had its hands full fighting against Netflix (nasdaq: NFLX , whose subscription-based online DVD rental offering is highly disruptive to Blockbuster's core offering of renting individual DVDs in physical stores. One key difference: Blockbuster made the most of its profits by charging late fees. Netflix has no late fees.

Netflix has been a shining success story. It fended off advances from Wal-Mart (nyse: WMT ) and Amazon (nasdaq: AMZN ) and took a mere eight years to reach $1 billion in revenue.

In 2004, Blockbuster began fighting back in earnest. After a couple of turns, in 2006 it introduced what appeared to be a compelling counter-attack--its "Total Access" package, which let consumers get DVDs in stores or via the mail.

There's just one problem with Blockbuster's response: It doesn't appear to have figured out how to make its online offerings as compelling or as profitable as Netflix's online offering. Blockbuster's surging profits came not from growth in its new business, but from cutting costs (including advertising), raising prices and generating more sales in Blockbuster's retail locations. While the company continues to play in the online arena, its strategic focus seems to be to try to squeeze as much life out of its core model as possible.

In February, Netflix raised its annual subscriber and revenue projections. All in all, it looks like another victory for Netflix. While Netflix and Blockbuster both still need to figure out how to win as the battle shifts to video on demand, Netflix appears to have decisively fended off Blockbuster's advances.

The reason why Netflix won this battle is that its disruption is rooted in a different business model than Blockbuster's. Business models are powerful sources of competitive advantage because they are very difficult to copy. You can't simply mimic superficial features and functionalities; you have to find ways to replicate structures, operational processes and relationships.

Netflix has optimized around its online model. It has been experimenting and fine-tuning this model for more than a decade. Blockbuster is trying to stand astride two distinct business models. It's hard to optimize what appears financially to be secondary to the core.

That's not to say it can't be done. Charles Schwab (nasdaq: SCHW), for example, became a viable player in the online brokerage business even though that business model had distinct differences from its core model. Similarly, Dow Corning mastered a low-cost model with its Xiameter distribution channel.

In both cases, however, the incumbent gave the new venture substantial autonomy, which improved the venture's ability to optimize around the new, instead of being weighed down by the need to please two masters.

It always appears logical to leverage what you have. But the quick path isn't always the best path. Incumbents fighting back against attackers with different business models have to be willing to "forget" critical pieces of their core business. If not, they'll end up with a quick but ultimately unsatisfying response.

Scott D. Anthony is president of Innosight and co-author of The Innovator's Guide to Growth (to be published in May 2008 by Harvard Business School Press).

read also  blockbusters_review |  Indiana Jones and indiana jones lego