The Netflix Effect and the New Era of Speed

“When you’re finished changing, you’re finished.” – Benjamin Franklin

In 2000, John Antioco was riding high. The CEO of Blockbuster was the undisputed king of the massive home video rental market, doubling the company’s profits in his five years at the helm. That same year, Netflix, a niche mail order DVD company, pitched a partnership with the video rental giant.

Antioco and his team reportedly laughed CEO Reed Hastings out of the room. In 2007, they rebuffed Hastings’ entreaties again. One year later, Antioco was out as CEO of Blockbuster, and by 2010, the company was bankrupt. Today, Netflix holds a market cap of $44.3 billion.

The anecdote is just one high profile example of an increasingly common storyline; upstart company with disruptive technology takes on slow-moving industry giant and wins.

Adapt or die

How established companies react to this disruption – we call it the Netflix Effect – is the largest single indicator of their long term survival.  In the new era of speed, competitive advantage is no longer the product of market position or scalability – but as the Harvard Business Review wrote, being “really good at learning new things.”

Markets and the opportunities they present change and disappear faster than ever. Market leadership, typically a crown, may now be a poisoned chalice. The once strong relationship between market share and profitability no longer even exists in some sectors.

Driving these changes are globalization and increased computing power.  Yes, the shifting tectonic plates of business have reduced some companies unable to adapt to rubble. But among the rubble, lies opportunity.

Data centers, past, present and future

Few industries have seen faster changes than the data center industry. That’s why the Netflix Effect effectively illustrates how next-gen DCs are able to outmanoeuvre bigger, well established rivals.

To put things in perspective, consider how quickly the DC landscape has evolved. Five years ago, tech pundits were gleefully calling cloud the death of the data center industry. Today, Gartner calls DCs and the cloud “natural allies.”

Meanwhile, demand is growing exponentially. According to IBM, more data was created in the last two years than in all other previous years combined. In the world of the Internet of Things and big data, the modern DC is the heart pumping blood through the digital economy.

To stay at the front of the pack, next-gen DCs can never stop. That means faster customer deployments, greater energy efficiency and high-density advanced computing that guarantees scalability and long-term growth. In short, don’t rest on your laurels. .

Don’t be Blockbuster

We love to celebrate the scrappy start-ups that take on industry giants with superior technology and greater adaptability – think Uber, AirBNB and of course Netflix. Their stories remind us of our own. But it’s also useful to look at how established players are able to adapt to pressure from destabilizing new market entrants.

On New Year’s Day, 2013, Richard Plepler took the reins of HBO as its new CEO. That same month, Netflix’s chief content officer, Ted Sarandos, launched the first salvo in its campaign to unseat HBO, declaring the company’s goal to “become HBO faster than HBO can become us.”

Netflix made good on its word, unleashing previously unheard of budgets for original content. But, Plepler, unfazed, boosted spending on content in turn, while launching HBO Go, the company’s own over the top streaming service. While few question Netflix’s rise, HBO quietly added more subscribers than ever and last year reported profits of $519 million, seven times that of Netflix.

Applying Charles Darwin’s theory of evolution to the business world, this blog found that the maxim of adapt or die is more applicable than ever. Not convinced? Just ask John Antioco.