A short lecture-style YouTube talk by Clegg about the dangers of 'finite' or incumbent thinking: firms often focus narrowly on familiar competitors and ignore disruptive threats (examples: MySpace/Facebook, publishers/Amazon, TV networks/Netflix). The chunk centers on Blockbuster as a case study — executives resisted adopting a subscription/streaming model because late fees made up 12% of revenue, a short-term fixation that contributed to the company's collapse.
Questions this video answers
12%
The funny thing is, the competitors that you select, it's an arbitrary list, right? Because none of the big competitors are the companies that take you down. Like MySpace didn't even know Facebook existed. You know.
All the publishing houses didn't. They ignored Amazon. They turned down investing in Amazon. You know, all the movie companies and all the television stations thought Netflix was cute, right? They were. NBC, CBS and ABC and Fox were so focused on each other, they literally were ignorant to the threats coming from outside. And it's because old thinking with old players, and again, it's only because they're doing what's familiar. You're taking somebody who's a senior executive at a company, who's come up through an industry, who's been doing the same thing for 20 or 30 years, and now you're gonna say, stop all of that. There's new ways of thinking. I need you to completely unlearn everything. And it's not that that can't be done. But as human beings, we say to ourselves, well, what I've been doing has worked perfectly fine for 30 years. I think I know what I'm doing. I'm okay, thanks very much. Netflix is such a great example because the then CEO of Blockbuster, remember them?
And Blockbuster was the 800 pound gorilla. I mean, it was the only significant national video rental chain in the country, right? Huge company.
And we knew this new technology called streaming was available and it wasn't quite good enough yet. Which is why Netflix was experimenting with a new pricing model, if you remember, with subscription. And you could get the DVDs, keep them for as long as you want, send it back, and then they'd replace them. And then eventually they knew, they knew eventually that would become streaming. And the CEO back then.
Saw that this was significant and he went to the board and said, I think we should experiment with a subscription model. And the board would not allow him to make that change. You want to know the reason? Because 12% of their revenues came from late fees. Oh, wow. And they were too afraid to lose 12% of their revenues, so instead they lost the whole company.
And that's the problem, which is sometimes you have to take a short term hit to innovate, especially when it comes with experimenting with new models. And the joke was it wasn't an experiment because another company had already proved that it had validity. It was working. That's the folly. The folly was there was no risk. They were just short term finite thinkers that were thinking about. All they could think about was losing that 12%.
