Netflix vs Blockbuster: The Rise and Fall of Two Video Giants

25 years ago on April 14, 1997 Netflix was launched🎂

In the late 1990s, Blockbuster was the king of the video rental industry with its ubiquitous blue-and-yellow stores scattered throughout the United States. Netflix, on the other hand, was just a small start-up trying to find its way. But within a decade, the tables had turned, and Blockbuster was gone while Netflix became a household name. What happened?

The story of Netflix’s rise and Blockbuster’s fall is a classic example of the “innovator’s dilemma.” Established companies often have a hard time adapting to new technologies that disrupt their existing business models. In Blockbuster’s case, it was slow to embrace the idea of DVDs by mail, which Netflix pioneered. By the time Blockbuster decided to launch its own DVD rental service, it was too late. Netflix had already captured a large share of the market and had an established brand and customer base.

Netflix’s success can be traced back to a few key innovations.

  • First, it offered a larger selection of movies than any physical store could offer.
  • Second, it allowed customers to keep the DVDs for as long as they wanted, with no late fees.
  • Third, it offered a subscription model that provided stable and predictable revenue.
  • Finally, it used data to personalize recommendations for each user.

Blockbuster, by contrast, relied on its brick-and-mortar stores and late fees for revenue. When Netflix started gaining market share, Blockbuster tried to imitate its competitor by launching its own DVD-by-mail service. But Blockbuster was burdened by billions of dollars in debt, and its attempts to pivot were reactive and rushed.

Ultimately, Blockbuster couldn’t decide on the role it wanted to play when video rental stores became a thing of the past. It waited so long to accept the undeniable truth of its own fading relevance that its efforts to pivot were too little, too late. In 2010, Blockbuster was delisted from the New York Stock Exchange, and its remaining stores closed over the next few years.

Netflix, meanwhile, faced its own innovator’s dilemma when online video threatened to disrupt its business. But the company was nimble and visionary, launching its own streaming service and capturing a dominant position in a new battleground even as it continued to offer its original DVD subscription service.

The lessons of the Netflix vs Blockbuster saga are clear. Established companies must be willing to cannibalize their existing business models to adapt to new technologies. They must also have visionary leadership that is willing to take risks and make bold moves early, before a more nimble upstart robs them of the chance. Blockbuster’s failure to adapt and innovate ultimately led to its downfall, while Netflix’s willingness to embrace change and take risks has made it one of the most successful companies in the world.

Netflix website screenshot from August 1999.
Newsletter

Dawid Adach

Co-Founder @ MDBootstrap.com / Forbes 30 under 30 / EO'er

For years I've been working as an IT Consultant in countries like Netherlands, Belgium, Poland or India developing enterprise class systems for the biggest companies within domain.

Since 2016 I'm co-founder of MDBotstrap.com - world class UI Framework used by NASA, Amazon, Nike, Airbus, Samsung, Apple and many other Fortune 500 Companies.

All author posts
Related Posts
  • Why do IT projects (almost) always fail?

    Back in 2008-10, during my Computer Science studies at university, one of our professors shared startling statistics: more than 50% of IT projects historically failed, either partially or entirely. What was even more surprising was that, thirty years on, this ratio remained almost unchanged. Over half of the IT projects were still failing – failing […]

  • Monthly Book Bites: June 2023

    Life at Full Throttle Author: Jan KaczkowskiMy rating: 7.5/10 The book is a fantastic read. It’s an open conversation with Priest Jan Kaczkowski, who is sadly no longer with us. He does not shy away from addressing challenging and often controversial topics. Priests who are a bit unconventional fascinate me. On one hand, I admire […]

  • Failures are just lessons. Sometimes costly, though….

    What would you do if your employee caused a significant damage costing $20,000? 💰 This is what happened to us a few years ago… There’s a well-known urban legend in the business world about a manager who makes a mistake and loses an impressive $10 million. 😱 He dejectedly goes into the office the next […]