Netflix and Disruptive Innovation

I’m an avid Harvard Business Review reader. I believe in the quality of that content and it’s relevance to organizations today. Despite my support, I couldn’t help but call out a recent article. Yesterday HBR ran a blog post pointing to the reasons Netflix will ultimately fail to grow and be aquired. Really?! We are already predicting the failure or decline of Netflix? Even though its disruptive innovation has changed entire markets? I think that is a bit brash.

The HBR article basically states that Netflix will eventually loose out to the control of studios or Internet Service Providers. Sounds like the jabs people took at Steve Jobs and iTunes to me. How did that work out? It is possible to change and disrupt any industry, as we have seen before. Blockbuster was very successful, yes, but Blockbuster was not working in disruptive innovation by any means. They hardly invented the home movie rental business. While they may have been a headache for studios at times, it wasn’t challenging the entire model of content delivery. Blockbuster was simply creating an additional avenue. Netflix is a disruptive innovator and is challenging the entire delivery model – and they’re doing it with a lot of success. They aren’t simply creating another avenue to deliver content, they are quickly becoming THE avenue for delivering content. Netflix boasts over 20 million subscribers and doesn’t just beat out the traditional media companies in streaming, it absolutely dominates with 60% of the market! Media giant Comcast comes in third… with a lousy 8%.  Here is what Nielsen recently reported in Fox business:

Overall, Nielsen reported that time spent watching online video rose 45% from a year ago, while the number of viewers only increased by 3.1%. Viewers streamed 28% more video and spent 45% more time watching video online.

Last quarter Netflix experienced almost 52% growth with very strong financials. I am hard pressed to find a weakness in the business model or the opportunity.

Every disruptive innovation faces a challenging landscape. It wouldn’t be innovation if the landscape was paved in gold. Of course the traditional media companies and studios will start throwing punches and circling the wagons. That was the response to Radio, CD’s, MP3’s, and iTunes. Yet all of these disruptive innovations found massive success because it is what consumers wanted. Joshua Gans, the author who wrote the HBR post, also points out that Netflix is dependent on ISP providers pricing and data caps to continue its success. This is true, but is also simply part of the landscape. It’s like saying the automobile wouldn’t ever catch on because it is dependent on other counties oil pricing. How is THAT working out?

People will get behind innovation, and put their money there as well, if it’s what we want. Squashing Napster didn’t change the fact that people wanted to download music, and Steve Jobs realized people wanted it so bad we would pay for it. Is Netflix so different? It would seem more likely to me that ISP companies and media outlets will either attempt to eat into the market share of Netflix (i.e. Hulu), or simply look at new ways to profit off of the Netflix platform. Killing Netflix won’t change that fact that Americans are moving online for our media in droves. Maybe the “death of Netflix” guys can go hang on with the “Facebook will never last” guys. Oh, and one more final thing: content creation hardly matters as much as it used to. Traditional companies like Blockbuster had to be completely dependent on studios and media companies to create content. Netflix is not. Just ask innovators like Gary Vaynerchuk or Ben Huh. People are creating massive amounts of content – and some if it is pretty good (like this or this ) . The future isn’t even in platform anymore as much as it is in context, which is just one more place where Netflix wins. In my humble opinion the scoreboard seems to be favoring Netflix way too much at this point to be predicting anything short of continued growth and success.

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3 thoughts on “Netflix and Disruptive Innovation

  1. decisionscience says:

    I agree with the Harvard missing big time on this one, but for somewhat different reasons.
    http://linkd.in/mU12RR

    • micahyost says:

      Rick,
      I very much agree with your point that DI is much less dependent on the individual organization. I intended to at least touch on that point here in this post, but I didn’t do very well. You explained this very in your response!

      Thanks so much for sharing that link and leaving a comment. I’ll reach out on LinkedIn to connect. I look forward to reading more from you!

      • decisionscience says:

        Thanks Micah, for providing this opportunity to discuss and for your prompt and positive reply thereafter.

        We look forward to your visiting and participating in the Disruptive Innovation group at LinkedIn.

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