Frontiers of innovation - Netflix demolishes own business model

We've been Netflix customers for several years, and generally like the service. But we're like a lot of their busy customers. We don't turn DVDs over fast enough and end up having months go by with the same two movies sitting on the television.

But last week we bought the Roku box and now use it to view Netflix movies streaming over the web on our flat-screen TV. It's cool, easy, the quality is good and it's a great antidote for our laziness with the movies. Plus, you don't have to wait for the DVD to arrive in the post.

It's not perfect--there aren't enough titles yet. But it's a product that will only get better and more useful. And put Netflix in place as a contender to lead the integration of TV and the internet.

[Aside: I drove through Cerritos, California, today. In 1987 GTE, my former employer, trialed interactive television in Cerritos. Needless to say, they were too early--bandwidth issues, lack of content, and, frankly, the lack of a powerful vision of sharing and openness a la Tim Berners-Lee, doomed the project.]

What's so impressive to me about this is that Netflix is investing in technology and partnerships expressly designed to make their old business model obsolete. When I think about how much they have spent, in dollars and time and thought, on the sending-videos-through the mail model, I wonder how they were able to make the leap to say, "We have this process optimized, but it's not the future. Time to build a new model"--meaning internet streaming.

There's a word for this kind of behavior, and it's not a nice word: cannibalization.

One of the most repugnant terms in the language--referring to one of the greatest human taboos--is used when a company's new products take sales away from its older products. Perhaps this helps explain why companies go to such great lengths--even imperiling their long-term success--to avoid it.

The problem is, the marketplace is a bit like the jungle. If you don't eat your own, someone will eat them for you. And this has happened again and again. One example: GM's abandonment of the EV1 electric car just a few years before Toyota introduced the Prius. To survive, companies will have to get rid of that taboo against cannibalization and act more like Netflix.

[Another aside. I keep wondering if the Kindle is a similar eating-your-own innovation. But something tells me Bezos always knew he was going to get deep into distribution of electronic content, even back when he was just selling books.]

I have a suggestion for marketers. If you want to get approval to introduce a better product, instead of referring to "cannibalization," call it "upselling."

(Photo: crushed EV1s courtesy of EcoBlog)

Customers are talking: The Eureka Button

I was talking to Cynthia Kurtz once and she mentioned, "If I were developing a piece of software I would always want to put a Eureka Button on every page."

A Eureka button is this: if while using the system a user just figured something out that others might benefit from, he/she would click the button and be presented with a page where she could enter:

What Happened?

Where does this apply?

When should people read this story?

This input and information about where they were in the system (page & data) would be uploaded to a database. The database can be searched for patterns or browsed periodically, looking for bugs or unexpected uses of the system.

It's easiest for me to think about the Eureka Button in the context of enterprise software. Having worked a lot with CRM systems for telephony, I know that these systems have hundreds of user pages, with a virtually infinite number of paths through the system.

In these environments, product managers may know in theory how people should use the system. But their knowledge is quickly overtaken by experienced users, who learn how to apply the system to their jobs, often finding tricks or shortcuts to make the system work better for them. ("Eureka! I just figured out that if I dummy out some data items, I can capture information & save information from a prospect before they decide to make a product purchase. If they call back, I can look them up by their phone # and I don't have to start all over again.")

In this situation, a Eureka Button has great value for the product manager and the users. Product managers can learn about difficulties users have and how they overcome them. The tricks can be incorporated into the product, or deficiencies addressed. Users can learn from each other--perhaps Eureka Button entries can be blogged automatically and read by other users, dispersing tips and tricks and encouraging others to share their stories.

I can't even begin to catalog how a Eureka Button could benefit consumer sites, where (especially recent) products follow an emergent, iterative development approach and patterns of usage can affect the entire purpose of the product (e.g., Twitter). There are people much better suited than I to discuss some of these implications. If you're one of them, please let us know in the comments how the Eureka button could be used with these products.

(In searching for prior references to a "Eureka Button," I discovered this NY Times article from 2004. The article mentions that "'It's amazing how many people there are who find pleasure in sharing the little discoveries they make.'" The article focuses on undocumented features in PC software and in consumer electronics. The article references a site that publishes user stories of hidden Windows features.)