Lessons Learned from Blockbuster’s Demise: Stay Ahead of Technology

It’s a wrap for video stores. Blockbuster Inc., a business phenomenon just a few years ago, filed for bankruptcy a few weeks ago.

The video-rental store, a hub of activity in virtually every community during the 1990s, went the way of luncheon counters in local drug stores. Technology, the catalyst that gave Blockbuster life, also caused its death.

The fact that Blockbuster and its competitors came and went, however, isn’t as noteworthy as the pace at which it grew …and then failed.

The first video-rental shops emerged in the late 1970s. The shops made high quality films of all genres, from days past to current releases, accessible to almost anyone at anytime.  Instead of having to wait for a TV premiere scheduled at a time most likely to boost a network’s rating, consumers were finally able to buy, rent and share videos at an affordable cost and at a time convenient to the viewer.

But Blockbuster, once the darling of Wall Street and an anchor on Main Street, fell victim to complacency and real estate.  Built around bricks-and-mortar stores, Blockbuster couldn’t compete with Netflix, which started shipping DVDs to consumers at home as early as 1998. Instead of looking ahead at how consumers would want to view movies, they focused on buying up the competition…including expensive real estate.  When Netflix offered to deliver movies at home, Blockbuster believed customers would give up this convenience because they still preferred to touch-and-feel the video before renting. Besides, they believed renting movies was an impulse buy; customers wanted a video when they wanted it, not a few days later.  When Netflix allowed customers to keep a video as long as they wanted, Blockbuster imposed late fees. Blockbuster drank their own Kool-Aid and lost.

At one time Blockbuster had more than 5,800 stores.  In 2010 they had fewer than 3,000 and that number is expected to be halved shortly.  Movie Gallery, a major competitor to Blockbuster, liquidated in February.  Video-rental stores in 1997 in the United States exceeded 23,000.  By 2007, there were 16,237 stores. In 2010, physical rentals from U.S. video shops are expected to be down 56% to $3.65 billion, from the 2001 peak, according to SNL Kagan.

The rise and demise of Blockbuster offers several valuable lessons for every business owner and management.

1. Time is no longer on your side. Just a few decades ago, the biggest threat to a business was a new competitor eroding market share in the same industry.  Today, thanks to technology, the pace of change has significantly and dramatically decreased the life cycle of a product, service, or business model. The problem isn’t market share but relevance.   For instance, take the radio – it took 38 years to attract 50 million listeners.  The television attracted 50 million viewers in only 13 years. It only took 3 years to get 50 million people plugged into their iPods.  But in 2009, Facebook signed up over 175 million members. Each new technology has not only eroded market share faster than ever before but eradicated entire industries within a generation, not over a lifetime. Staying relevant and convenient is no longer defined by sellers.  Buyers are now in control.

Question: Do you have employees who can keep pace with rapid change?

2.  Don’t dismiss social media.  The CFO of a local business told me the other day that he thought “social media was a complete waste of time. In fact, I think the Internet is a waste of time.  I don’t want my employees wasting time using it.” Like it or not, social media is changing the way people do business. It’s changing how people buy, sell, get jobs, and make decisions. Facebook, Twitter, LinkedIn and the hundreds of other social networking sites may change and evolve over time. But the way people communicate, engage, and interact has forever been altered by their inextricable presence in our daily lives. If an individual chooses to detach himself, the consequences are limited.  But if a business ignores how information is now distributed and collected as a result of technology and in particular social media, it may become irrelevant much faster than its strategic plan prescribed.

Question: Do you have employees who can keep up with the data deluge?

3.  Size is irrelevant.  The Internet has leveled the competitive field.  Big companies are not too big to fail, as we painfully learned over the past few years. Likewise, despite limited resources and small staffs, small business can now compete on a global scale with the biggest of the big.  Armed with only a computer and an Internet connection, the small business “David” can take on any “Goliath.”

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