Concepts Described in 'disruptive Technologies' Apply to the Netflix Case

Concepts described in 'Disruptive Technologies' apply to the Netflix case in the following ways:

Online movie rental model introduced by Netflix represents disruptive innovation ('disruptive technology'). The attributes of the Netflix innovation were initially valued only in a new, smaller segment of the market. As opposed to Blockbuster's established customer base that valued latest content releases, Netflix's initial customers were those who valued older titles rented out without limit on a quantity and the duration of the rental time for a fixed monthly subscription fee.

In essence, Netflix's model sacrificed performance along dimension that was important to Blockbuster's customers - availability of new titles - and offered a very different attribute that was not valued by those customers - unlimited rental availability of older titles, which cost less for Netflix to offer to its customers. By developing proprietary technology, Netflix made movie rental much more personalized and customized experience through offering recommendations based on customers' preferences. Essential element of the system was the provision of customer feedback and reviews of the specific titles. Netflix created personalized user experience by the ratings and recommendations system.

The introduction of 'filter' that stood in between of the customers' preferences and company's available title inventory had a significant competitive implication for Netflix. The effect was twofold - it not only significantly increased customer satisfaction by recommending titles that were available for rental, but also significantly improved Netflix's inventory management efficiency.

Disruptive Technology's ideas are also relevant considering Blockbuster's initial response - incumbent downplayed the notion of online rental business by arguing that online rentals are 'serving niche markets'. As described in the article, 'disruptive technologies' initially succeed in niche markets and eventually destroy established players. By the time Blockbuster realized the potential of online rental model, it was extremely vulnerable to Netflix's power.

In retrospect, Blockbuster failed in two important ways. First, it failed to determine whether online rental was a disruptive model, or just a continuous innovation with marginal improvements, i.e. sustaining technology; and second, Blockbuster erred in assessing the strategic importance of online rental model to the content rental industry in general;

Another innovation that contains the potential of 'disruptive technology' is VOD - there is no obvious customer base for online viewing of movies, and apparent technological deficiencies such as connectivity of personal computer with the TV (in addition to legal issues associated with online content distribution) make VOD look unfeasible. However, unlike the online rental model innovation, and despite apparent absence of customer base, VOD opportunities are widely explored not only by Netflix, but also by movie studios and stand- alone sites such as Vongo and MovieLink. VOD services had limitations on technology and content availability.

Netflix software established a relationship with customers that was not matched by part time employees at retail video store. Netflix considered delivery time to be the key measure of customer satisfaction and continually sought to improve the operations. Used multiple truck routes to expedite return of DVD's on time.