How Amazon’s Battle with Netflix is Teaching us to Rethink Competition

For many years now we’ve seen the dangers of defining your business too narrowly. Think about Borders, which pioneered the book megastore model. Rather than using the Internet’s rise to consider how new technologies or business models could allow it to better satisfy customers’ jobs to be done, it defined itself as a bookseller. When times got tough, it doubled down on trying to sell more of the items its customers happened to be buying — books, CDs, and DVDs. It last turned a profit in 2006 before ultimately declaring bankruptcy and closing its doors in 2011. Online retailer Amazon now reigns supreme in the space.

Defining your competition narrowly creates the same results. Blockbuster focused its attention on what it deemed to be the real competition — companies like Hollywood Video. It was certainly aware of the company that ultimately disrupted the industry; it turned down an opportunity to buy Netflix for a mere $50 million back in 2000. Blockbuster determined that Netflix was a “very small niche business” occupying a small corner of the market that mattered little to the giant. Over time, Netflix’s offering improved, the company moved up-market, and it redefined the way customers thought about video rentals. In addition to stealing market share, Netflix essentially mooted one of Blockbuster’s primary forms of revenue. In the very year that Blockbuster decided not to acquire Netflix, the company made a staggering 16% of its revenues from late fees — a concept that ceased to exist as Netflix changed the game.

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​Story by Dave Farber.

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