The VCR Just Died A Sad, Lonely Death. The Product Era Is Next.

Last month, Funai Electric, a Japanese consumer electronics company, announced that it will cease manufacturing VCRs. That’s more than 30 years after Funai began making them, and some 40 years after the first VHS was manufactured. During its heyday, the company was selling 15 million of them a year, but with demand fading and parts becoming harder to source, Funai decided to halt production altogether.

While I was surprised to learn that VCRs were still being manufactured, the news brought back memories from my childhood of movies watched (and re-watched!), and all the weekend trips to my neighborhood video store. Contrast this with my daughter’s experience as she grows up in the streaming era: thousands of shows and movies, old and new from all over the world, are all a single click away.

It makes you wonder about the short life spans of products and long-term business sustainability. Could VCR companies have taken a different course and still be relevant today? Could Funai have been today’s Netflix? We’ll never know. What I do know, however, is that the death of the VCR is a reminder for all companies still stuck in the product era to wake up.

Today we live in the Subscription Economy, and are witnessing a profound, systemic commercial shift — perhaps the biggest economic transformation since the Industrial Revolution — from products to services, inventory to outcomes. In this new world, companies have to move beyond static products into services that can learn and adapt based on consumer behavior. Services that can improve themselves autonomously. Services that can be truly customized.

Consumers want you to know them and their needs and build your service around it — they want you to be customer-centric rather than product-centric. And the only way to build a sustainable, customer-centric business is to nurture and grow a mutually beneficial customer relationship.

This is really what’s behind the success of streaming companies, as well as all the new digitally native, vertically integrated brands selling everything from toothbrushes to underwear to mattresses — they are built on the customer-first (or subscriber -first) premise. In the case of the streaming services, the value proposition is pretty straightforward — You decide what you watch, when you watch and which device you watch it on- and we’ll provide you the service to do so.

Today we take that kind of service for granted, but eight or nine years ago only a few savvy companies recognized the huge inefficiencies in media consumption, and decided to offer an alternative. Case in point — Netflix. The company started off essentially as a sophisticated DVD rental company that could have easily gone the Blockbuster way (in fact they almost did go away, when they shot themselves in the foot with the Quikster debacle). But Netflix chose to focus on its customers, develop a long-term relationship with them and evolve with them.

Today, Netflix uses data to learn about what customers want and anticipate what they might want. The company launched its streaming services even as their DVD business was going strong. And with streaming, they now have the ability to gather a lot more information about customer preferences than with the DVD business.

Jonathan Friedland, Netflix’s Chief Communications Officer, said it best: “Because we have a direct relationship with consumers, we know what people like to watch, and that helps us understand how big the interest is going to be for a given show.Is it any surprise that Netflix leads 2016’s Emmy’s with 54 nominations, and is investing a whopping $6 billion on new programming this year?

This “direct relationship with consumers” is what’s missing in a product-centric business. There’s no interaction between the company and its customers after the sale. Stand-alone products can’t be personalized (okay, you can probably pick a color!), can’t learn your preferences and they certainly can’t be instantly upgraded as technology evolves. Instead, like your old VCR, they get obsolete and simply gather dust. Watch out, GameStop!

To be fair, the VCR was truly revolutionary when it first came out. Look at how The New York Times describes it in an article from 1981 — “a VCR makes you independent of television schedules. It lets you create your own prime time. You set the timer and let the machine automatically record the programs you want to watch but can’t. Later you can play the tape at your convenience. Or you can tape one show while watching another, thus missing neither. And with a fast-growing repertory of feature films and movie classics available on prerecorded video cassette, you can lay in your own video library tailored to your tastes.”

But like most products, the VCR manufacturers didn’t evolve with the times. According to a recent study from Deloitte, nearly half (46%) of Americans now subscribe to streaming video services. Now, imagine if a VCR company had the foresight to think beyond its revolutionary new product? What if they had offered value-add services? What if they had grown and adapted to meet viewers’ changing demands and expectations? Would they own today’s streaming video customers and all those valuable commercial relationships?

We’ll never know.