“Creative Destruction and Netflix”: Part Two

I wrote a while ago in admiring terms about how Reed Hastings was trying to disrupt his own business before others did it to him.  As in, splitting the mail-order DVD business from the online streaming business at Netflix.

The backlash to this announcement was pretty huge.  To the point that Netflix had to “undo” the announcement.  Talk about a black eye.

The timing of the decision is certainly up for debate given how customers reacted.  So let’s say it was premature.  But how premature?

I still contend this is the right decision.  Eventually.  Just like the Pony Express was rendered obsolete by the telegraph, so too will mail-order media delivery be made obsolete by streaming delivery.  Who would believe otherwise?

It’s darned hard to time such changes, however.  Most companies never make the leap at all, hence books like The Innovator’s Dilemma.  For those who have the bravery to do so like Netflix, the timing is a perilous choice.  Too soon?  Investors punish you for cannibalizing current revenue and alienating happy, paying customers.  Too late?  You’ll probably never catch up.

If I knew the answer, I’d be a rich man.  My sense is that it’s impossible to make a formula.  Instead, it’s about getting the whole set of stakeholders on the same page.  So when it’s time to jump off the cliff, everyone is holding hands.  CEO, executive team, Board of Directors, large investors.  Not a small task.  At least you’re trying, Reed.

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