Thursday, January 31, 2008

Blockbuster: Too little too late

In 2006, Blockbuster, the world's leading in home rental service for movies and games, unleashed its online rental business Total Access with the hopes of using it's familiar name and branding to steal [away|back] some of the customers making Netflix so successful.

Needless to say, they failed. In their most recently reported earnings, Blockbuster reported a $35 million loss and a plan to shore up their 'core' business and focus on the retail side of rentals. Not only did this business plan fail, but it soiled the company's successful retail business.

But what went wrong? Certainly, the audience is out there, as reported by Netflix's Q4 earnings.
Not only has Netflix seen an increase in in subscriber numbers, but is has seen an increase in revenue and a decrease in churn, or the rate of turnover for subscribers, so surely this wasn't a Webvan-like failure. I think what we are seeing here is the solidifying of the web as a business platform.

Unlike the Web 1.0 bubble, companies can not just hop in and make money. In Web 2.0, the startups that survive bring to the table original ideas, original products and innovative ideas. I think Blockbuster serves as a case-in-point that you can't just take a successful business, plop it on the web and see the same success. Total Access was not new, offered nothing substantially different from Netflix, and was an overall failure due to a lack of planning and knowing the audience. Blockbuster will serve as a what not to do example for established business hoping to find a profit on the web.


Harry Chen said...

Online subscription-based DVD rental is a solid business model in today's world. But, how to run a profitable business on the top of that idea requires some careful planning.

I think Netflix succeed because:

1) It exploits the Long Tail theory to win customers from the local movie stores.

2) It follows a Web 2.0 development cycle -- frequently updating the site design and improving its functionality.

3) It brings "social" into the online movie rental experience. You can see what your friends have rented and suggest movies to them. Also, you can rate movie reviews written by other users.

4) Fast shipping.

Do you use Netflix? What do you like or dislike about Netflix?

Wes said...

I actually continue to use Blockbuster, because even though they've scaled back on the Total Access option, it is still available. My fiancee likes to rent movies from the store, especially the new releases, so we often end up taking an online rental in to the store and trading it in for the new release. Our 3/DVD a month plan is a dollar or two more than Netflix, but we figure that's worth the convenience of Total Access.