Netflix (see case study in the case study portion of our web site) did a great job of capitalizing on the dissatisfiers/enragers in competing offerings. Blockbuster, for instance, drove good customers crazy with their practice of charging late fees. Netflix has created a business with over 5 million subscribers, who list the movies they want to watch, get them in the mail, and return them when they are done. No late fees -- when the movie is returned, Netflix sends the next one on the list. So it seems that this idea (that customers might actually prefer to have their choices unaffected by late fees) was so compelling that it started to eat into Blockbusters' business.
How to respond? Better innovation? Better customer service? No -- what about complete and total imitation of the Netflix model? Blockbuster has started to offer the same type of service. How to respond if you're Netflix? The company (founded in 1999) has taken out patents on its business model. Now, it finds itself in the position of having to defend those patents against an aggressive competitor who wants to imitate what they are doing. How will it end? We don't know.
I'm willing to make one bet though -- both Blockbuster and Netflix are not going to know what hit them when video-on-demand becomes a reality. Think about it - as soon as broadband pipes become widely available, you won't even have to deal with postage or a trip to the video store (or late fees). Just dial in the codes, pop your popcorn and you are THERE.
Honestly, if I were Blockbuster, I'd be a lot more worried about that model than I am about the Netflix model. So now, instead of coming up with something that gets customers to want to come to the stores (better service? Store experience? Games? Personalized shopping advice? Mocha latte's with your choices?) they are imitating a business model that is clearly going to be threatened in the not so distant future.
Where is the imagination out there, guys????
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- Posted Admin on April 06, 2006
I've probably spent a solid 6 hours with Apple people on the phone, trying to figure out why my shiny new iPod with video and photos won't sync properly. They told me it was my computer. They told me it was the physical memory. They sent me an incomprehensivel 'knowledge base' article which was so vague that it didn't say to do anything.
Then, I downloaded the most recent update to iTunes and voila! Everything works swimmingly. Which might be a problem because I am now feeding my "Daily Show" addiction. Here's hoping Apple gets its act together so we don't collectively face these frustrations in the future.
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- Posted Admin on March 28, 2006
I was recently asked to comment on Internet selling of software:
Internet sales of software has obvious advantages: it is vastly less expensive than shipping physical products; allows a company to develop direct relationships with its end-users (as opposed to those relationships being filtered through distributors) and can (when done right) provide the capability to custom-tailor solutions to specific target segments. For these reasons, I think we can expect to see those companies that can figure out a profitable business model for internet software sales move aggressively into this area.
The challenges of Internet sales are also daunting. Protecting one’s intellectual property will become increasingly challenging, since the cost of duplicating digital products is virtually zero, creating a huge incentive to illegally copy software.
The model for Internet selling is also different than the classic product to distributor to customer model. The would-be Internet software firm has to now perform the functions – marketing, branding, and creation of awareness – that distributors conventionally handled, which can require entirely new skills. This can make the sales force in place obsolete.
Internet selling also has to compete with the problem that firms that ‘grew up’ as Internet-based retailers tend to offer lower pricing than their more conventional competitors.
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- Posted Admin on March 28, 2006
I was recently asked about the emerging practice of replacing payment for services with watching ads. Here are some thoughts:
The practice of trading ad-watching for bill payments has been tried before, without very good results (remember
e-machines in its first incarnation?).
Nonetheless, entrepreneurs continue to try. Some recent experiments are with the free phone lookup service that promises to replace the $1.50 fee charged by operators with a free lookup, provided that the caller is prepared to sit through an ad first.
The advantage to a company is obvious: they can obtain a bigger footprint and more users by offering services that can be used without an out-of-pocket cost.
The big disadvantage of this approach is that the people you will tend to attract are those with more time than money, when the people advertisers tend to want to reach are the ones with more money than time. So you actually create a self-selected group of particularly undesirable users for many offerings if you offer this to the general public.
If you could conceive of a way to target the segments, however, you might have a winning formula. Say that your prime targets are people with a certain interest – say, women who enjoy needlepoint. If you could convince the needlepointers that the ads they will hear will be targeted to their specific interest, and the advertisers that they are targeting desirable customers only, then an operator might have a winner, because the service adds value to both parties. So yes, if there were enough of such targeted niches, it might work.
The big dilemma is that for many extremely desirable customers, sitting through ads, no matter how targeted, is considered a waste of time.
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- Posted Admin on March 28, 2006
While we're on the subject of complexity, a pretty grim 'early warning' appeared in the weekend's New York Times for Apple. The author recounted terrible service experiences he had had with the iconic iPod, which I can share. My beloved husband bought me a video iPod for Christmas and I can't get it to synchronize the way the manual says it should. I've called twice, been emailed, tried all the suggested remedies and am on the verge of sending it back.
Meanwhile, mp3 players are starting to catch up in functionality, creating a big opportunity.
Although nobody yet has cracked 'cool' the way Apple has, the battle is forming on two fronts. On the one hand, more and more of the attributes that gave Apple its wow factor can be replicated with more pedestrian players. On the other, Apple's failure to properly support a mass-market consumer product with excellent service is going to create rage, making an opening for an aggressive new entrant. This is problem when you have made your name on the basis of a superior customer experience. I mean, people expect poor service from many providers in the information business. We thought Apple was going to be different. A customer scorned will look elsewhere.
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- Posted Admin on February 07, 2006
