• Notes from Netflix – Never Stop Innovating

    Posted on July 24th, 2007 by and currently 3 commenting.

    blockbuster.jpgI was, for an Austin resident, relatively late to the Netflix phenomenon. We’ve been loyal subscribers for the last 3-4 years and even bought a second subscription for my parents. I originally thought Netflix would be inconvenient, but after hearing raves from so many other folks, we gave it a shot and never looked back. This was about the time brick & mortar video stores started disappearing and feeling the pain of online services and entertainment fragmentation.

    How did Blockbuster respond? On Jan 1, 2005, they fought back by announcing “no more late fees”. Huh? This message played in store and in ads to deaf ears as it only addressed a fraction of the complaints that customers had with the $4 in-store rental model. Meanwhile, quietly, Blockbuster was in the midst of a complete overhaul of their back office operations to allow them to combine the advantages of all-you-can-eat online services with the convenience and instant gratification of their 8,000 stores. They fought back by addressing dissatisfactions with Netflix and exploiting their pre-existing assets. If a Blockbuster online disc arrives scratched, you can just send someone to the store to switch it out instead of waiting days for Netflix to receive it and mail a new one. Or, you can be fickle and change your mind about what you want to see. The launch and subsequent promotion of their true “Bricks & Clicks” program has begun to slow Netflix in its tracks. While Netflix had a profitable quarter thanks to a cash pay off from Blockbuster for patent infringement, they are having a difficult time acquiring customers now that they have to compete with the hybrid model.
    So, what’s Netflix’ next move? They are cutting prices to match Blockbuster, but like “no more late fees”, I don’t think anyone cares.  They have a great selection. They continue to update their recommendation software – last October they ran a $1Million contest to the customer who could create the biggest innovation to their recommendation engine. Downloadable movies? Not sure what % of homes would be ready for that. How does the innovator stay ahead when the sleeping incumbent giant has awakened?

  • Donnie

    What prevents Netflix from seeking the Hybrid model? Perhaps a partnership with a Brick-based rental shop that is hurting from Netflix?

  • http://brainsonfire.com/blog VeeDub

    That’s an interesting idea, but who would have the level of distribution & selection to compete? I just looked and there are still 2000 Hollywood Videos out there – maybe them? Or maybe a general retailer who also sells DVD’s or a grocery store chain with a side rental business? Thoughts?

  • http://www.orangeyeti.com Bear

    I read the greatest quote by the Netflix founder a couple of months ago. When asked if he was worried about Blockbusters store and online model he said (paraphrased of course)

    If you like the experience of going to Blockbuster then maybe you should sign up for the Blockbuster deal. If you prefer getting movies delivered to you, we are your best bet.

    Subtle way of saying, no one likes going to the actual store. That’s why we started Netflix to begin with.