The of Blockbuster’s revenuemodel, Netflix offered prepaid subscription system

The term of “disruptive innovation” used by Christensen (1997) in his book “TheInnovator’s Dilemma” refers to innovations which changed the dynamics of the market and as theresult existing incumbents struggle to respond to modifications. Furthermore, Dyer, Gregerson andChristensen (2009) point out that disruptive innovations usually have three facilitators: asimplifying technology, a new value network and a business model innovation. Netflix can beidentified as a notable example of the term of disruptive innovation because it changed the existingmarket and integrated innovative business model. This essay concentrates on Netflix startupcompany as a presenter of disruptive business model by offering DVD-by-mail and streamingservices to the video rental industry.Before the integration of Netflix, Blockbuster Video Entertainment company dominated inproviding home movie and video game rental services through rental shops. While Blockbusterconcentrated on conventional ways of consumers renting the physical DVD, in 1997 Netflix startedtheir venture company with the idea of posting a DVD through the United States Postal Services(USPS) to a customer, “movie-by-mail services” (Gandel, 2010). This was the first simpleinnovative idea with which Netflix came to the video rental industry. According to Christensen(1997), disruptive technologies are “innovations that result in worse product performance, at least inthe near term”, but “cheaper, simpler, smaller, and, frequently, more convenient to use.” A productand a service that Netflix offered fit the description of “disruptive technology”, because despitesome drawbacks such as slow delivery and absence of rental locations, Netflix offered cheap andconvenient way of DVDs renting for customers (Satell, 2014). When Blockbuster earned moneyfrom charging customers for late return and it was an important part of Blockbuster’s revenuemodel, Netflix offered prepaid subscription system (Aksuyek, Hacklin and Sidhu, 2013). Satell(2014) assumes that this concept allowed consumers to watch a video at a cheaper price for a longerperiod and also provided access to new products. Netflix established a partnership with DVD playermanufactures like Sony, Toshiba, Panasonic and other computer manufacturers (Culp et al, 2013).This allowed Netflix to distribute their promotional goods directly to customers (Culp et al, 2013).Another important decision that Netflix made were the accusation of the content by makingagreement with studios and also creation partnership with USPS to improve delivery services (Culpet al, 2013). The effective collaboration between Netflix and DVD player manufacture companiesand mail company strengthened the Netflix position. This business model with the focus onsubscribers, delivering and content possessing stayed without significant change almost decade.However, in order to overcome the demand “at the high end of the market” (Christensen,1997) Netflix adapted their business system. In 2007, Netflix introduced streaming as an addedfeature to DVD subscription (Allen, Feils and Disbrow, 2014). Furthermore, they collaborated withelectronics company to expand the scope of devices with streaming system, which provides instantaccess to TV programs and movies over the Internet. In mid 2000, the quality of streaming was notbetter than DVDs, but Netflix had the vision that DVD-by-mail services will be replaced by videostreaming, that is “the next disruptive technology in video rentals” (Aksuyek et al, 2013). TheNetflix Company Timeline shows that initially streaming was available for personalised computer,but by 2008, Xbox 360, Blu-ray disc players, TV set-top boxes and the Macintosh computer alsocould stream (Netflix Company Timeline, n.d.). Later devices such as PS3, TVs, Apple’s computersand other devices which had internet access were able to stream.(Netflix Company Timeline, n.d.).As the result by the end of 2010, amount of Netflix members raised from 6.3 million (end of 2006)to almost 20 million (Allen et al, 2014). The Economist (2015, 25th January) maintains thatNetflix’s decision to switch the business model from sending out rental DVDs by post to streamingon-demand video to its customers was a “radical move”. Tidd and Bessant (2014) underline thedisruption as a situation when the conditions of the market are changing dramatically withappealing of “new winners and losers”. This description also matches with Netflix , because aspractice shows, Netflix settled as “winner” by the series of radical and incremental business modelinnovations, while Blockbuster was bankrupted in 2010 (Satell, 2014).To conclude, Netflix experienced several stages of innovating the business model. Firstly,Netflix entered into the market with a simple idea of video distribution by mail. Then, they came upwith a disruptive business model by establishing a necessary network with other industry-relatedcompanies and integrating technological changes like streaming to their business model. Thesesuccessful managing innovations led Netflix to “winners” in movie rental and distribution industry.