Why Does Everyone Underestimate Netflix?

from the innovator's-paradox dept

Following the news that Blockbuster was about to declare bankruptcy, we had a nice discussion here about all the big companies that were supposed to kill Netflix, but didn't. With a bit of a spin on that idea, James Ledbetter, over at Slate, recently wondered why so many analysts and commentators have underestimated Netflix over the years, repeatedly predicting the company's demise, such as each time one of the bigger companies threatened Netflix. Ledbetter makes an interesting suggestion midway through the article:

What is it about Netflix that causes critics to misread it so badly? Call it the innovator's paradox: Netflix forged an identity by building a simple business--DVD delivery by mail--that had never been done before. The very fact that this DVD-by-mail idea connected so deeply with consumers led many observers to think that was all that Netflix could or would ever do. Instead, the DVD delivery service--while still vital to Netflix's revenue--looks more like the Trojan horse of a much wider strategy designed to change how Americans watch filmed entertainment.

I think this actually brings up (yet again), a wider point that we've been making here repeatedly, of late. It's the explanation of why it's really just not that easy to simply go and copy an innovator. What happens is that you get that cargo cult copying of just the superficial elements. Netflix's success wasn't just because it shipped people DVDs, but because it actually had a much better understanding of how consumers wanted to watch movies. The copycats just copied the basic "DVD-by-mail" aspect, and while they each tried to add their own twist, playing up their own strengths, none were able to establish that same sort of connection with customers that Netflix was able to.

This doesn't mean, of course, that Netflix will continue to dominate. I agree that it still has a number of long-term challenges, and needs to continue to outperform the many competitors who are willing to keep trying. But, to date, Netflix appears to have done a much better job really, deeply understanding how to improve the movie rental experience in a way that others in the space (and some observers and commenters) just didn't grasp.

Filed Under: competition, innovation, innovator's paradox