“Creative destruction”: Netflix gets it

About 15 years ago (!) I worked for Reed Hastings.  He was not one for sitting pat.  At the time, he realized that the software category of Software Quality Assurance (SQA) was going to consolidate.  And that you could either embrace that eventuality,  or hold on to the past.

He embraced it, by seeking a merger between his baby Pure Software (he was the founder) and Atria.  Soon thereafter, the combined company was part of Rational and is now a product suite at IBM.

Reed is at it again.  Netflix is separating its DVD-by-mail service from its live streaming service.  I loved the quote from Engadget today:

What really happened here is quite simple: Reed Hastings just put a gun to the side of his DVD-by-mail business and pulled the trigger. Given that he aimed for the ankle, though, it’ll probably take a while for it to completely bleed out. But hey — proactively putting a fading business out of its misery sure beats bleeding for it on the balance sheet.

Joseph Schumpeter and more recently Clayton Christensen have written about creative destruction and disruptive technologies.  Reed is one a few high tech leaders that has the courage to implement what the rest of us know: do unto oneself before it’s done to you.

Here’s the bit that stops others from doing the same: Netflix’s share price, and perhaps even near-term revenue, could suffer.  For most of the industry, one can’t tolerate the thought of taking a step back to take two forward.  And hence the balk at such bold moves, fearing the reaction of others.  Like shareholders or pundits.

Perhaps the definition of “courage” is not fearing the reaction of others?  Game on, Reed.

4 thoughts on ““Creative destruction”: Netflix gets it

  1. Courageous…or pre-mature? I think the jury may still be out on whether he needlessly sacrificed stock price and consumer good will (not to mention short term revenue loss for lost subscribers) for a move that could have been more elegantly and patiently organized. He’s still got millions of subscribers who are paying for DVD by mail and he owns that market.
    The streaming biz is small and will quickly become more crowded with competitors because the barriers to entry are so much lower that the mail business….
    I agree he made a good move…I’m not convinced he didn’t rush it, though….

  2. Points for courage, but deductions for the way he went about doing it. I received my apology email from Reed this morning (seriously). In it he says they are done with price hikes, but they shouldn’t be. Why should DVD by mail, with shipping and inventory costs (of mostly scratched DVDs) cost the same as a streaming service that must be less expensive to run given the absence of the aforementioned DVD costs. Paying the same for a much thinner library only makes it worse. The real question, I suppose, is will I do something about it – will I switch? If you look at my streaming history over the last half-year, the evidence suggests I probably should given I usually end up with something from iTunes because it’s not available on Netflix. Classic cartoons for the kids are about the only thing propping Netflix streaming up at this point.

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