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Tuesday, July 6, 2010

Creative destruction and the end of Blockbuster

Last week, the NYSE announced that Blockbuster Video shares were to be suspended and delisted from the NYSE, as reported in the WSJ on July 1, 2020.
http://online.wsj.com/article/BT-CO-20100701-712209.html

For those of us who grew up in the mid to late 20th century, we have an internal clock relating to technology change. We were the first television generation and witnessed steady improvements including increased screen size and color picture. Television may have disrupted radio to some degree but there always appeared to be plenty of room for both technologies. Cassette tapes and eight tracks helped up take music to where vinyl could not go, but they did not appear to threaten the existence of records. They were extending but not disruptive technologies.

However, something else is happening and the meteoritic rise and fall of Blockbuster is indicative of this new (or perhaps not so new) process. Using videotapes to distribute content to viewers was revolutionary. Using a rental network to facilitate this was also revolutionary and Blockbuster video was remarkably successful in deploying such a business model, swallowing up its competitors. Remarkably, the time frame for being able to exploit their model was incredibly short, peaking in the late 1990's and then losing money after 2002. The revolutionary technology at the center of the Blockbuster business plan became obsolete, being supplanted by online streaming, Redbox, and Netflix. Blockbuster's business model, as blockbuster as it might have appeared in the early 1990's, came and went.

Chart forBlockbuster Inc. (BBI)

This is actually an old story. Kodak film technology lasted for a century. Alfred Sloan's GM and Henry Ford's Ford had incredible runs before being displaced by competitors who could provide better and cheaper products. What is striking about Blockbuster is it appears that someone has sped up the clock. What used to take centuries now takes decades or less. We see this in the time lines for technology obsolescence. Yesterdays super computers and now today's commodity loss leaders. Yesterday's remarkable 20 MB thumb-drive for which people paid good money for has been replaced by the 1 GB thumb drive party favor.

I have to wonder about the timeline for obsolescence in medicine. We train physicians using basically the same model deployed basically a century ago after issuance of the Flexner Report. What part of what we do is timeless? What skills and knowledge which we acquire will be rendered obsolete before the end of our respective careers? Before the next decade? Before the end of the year?

The medical community has great fears as to the effect of  government driven health care reform. I would venture to guess that heavy handed state bureaucracy will serve more as a brake for change as opposed to a driver of revolutionary and disruptive change. State price controls and global budgets may cause a slow erosion of the power and wealth generating ability of current health entities but I suspect it will protect them from a Blockbuster flash in the pan phenomena. It will not matter whether what we know and do is obsolete, so long as what we do is still reimbursable. That will be driven by politics. What we view as the bane of our existence is in reality the savior of the current system.

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