Why Blockbuster Failed- Thanks Big Data

In 2000, Reed Hastings, the founder of a little company you may know as Netflix, flew to Dallas to propose a deal with Blockbuster. He wanted to run Blockbuster’s online brand, and in exchange Blockbuster would promote Netflix in their thousands of retail locations. But, he was laughed out of the room. Blockbuster was at the top of the world, with millions of customers, uninterested in a little online company.

But, we all know what happened ten years later: Blockbuster went bankrupt, and now Netflix is on top of the world.

How did such a big, successful company fail? It’s simple really, they didn’t use data analysis (while someone else did), and they refused change.

Blockbuster made most of their revenue through late fees (we all still shudder at the thought of missing the due date). But customers hated the late fees.

They had thousands of retail locations, but certainly not in every neighborhood; creating an inconvenience for customers.

The rental agents made recommendations to customers based on what they said they liked. Their recommendations were based on opinion.

It is possible that the executives at Blockbuster knew all of this, and chose to ignore it. As consumers, we typically think that these insights are obvious. They may have been inclined to ignore this information because late fees earned them a profit, fewer locations kept costs down, and rental agents simply made recommendations because that’s how it has always been done.

However, there is also a possibility that they simply did not know these things. Or, they may have had an idea, but did not whole-heartedly trust the reports that declared this. When data comes from disparate sources, it does not give you a complete and accurate picture. Furthermore, the compilation of reports from various systems is prone to manipulation. But this was how they always did it, and they were very successful thus far.

But little did they know that data analysis was the new competitive advantage. Netflix knew this. They gathered data that gave them insights about the consumer and the market. They discovered that people didn’t like paying late fees. And people didn’t like the inconvenience of driving all the way to Blockbuster.

The only downside to the Netflix alternative was that some customers really enjoyed going to the retail store to browse through movies. As the widespread use of the internet grew and grew, people took their browsing online.

Netflix successfully used data analysis to identify what customers want. They did this so well that Blockbuster simply could not keep up. This makes us wonder, what if Blockbuster had taken Hastings up on his offer back in 2000?