I grew up in the 90s, which means I had front-row seats to the inexorable rise of the Internet. I saw how fast things went. I saw how things like numpad cellphones, DVD players, and floppy disks went from absolute necessities to outdated curiosities. And with those things went the companies that made them, the ones that used to dominate the world. What happened to them anyway? And what lessons can we learn from their fall?
Let’s take a trip down memory lane and explore how exactly those globe-spanning brands went from top dog to object lessons for businesses and MBA students.
Before the Internet, before the current so-called Streaming Wars, and before we were all spoiled with content choices, there was Blockbuster.
Blockbuster was a video rental store established in 1985 by David Cook. The company started out as a single shop in Dallas, Texas. During those times, the only way people could watch movies was in theaters or through heavily-censored versions on TV. Video rental stores were filling a market demand, and Blockbuster was just in time to capitalize on its growth.
With his data management background, Cook successfully leveraged his prior experience to innovate in the video rental business. He developed and used software to help increase his title offerings, using computerized checkout processes instead of manual recording. This increased his store’s capability of carrying movie titles, so the first Blockbuster opened with about 8,000 VHS and Betamax tapes. This was almost unheard of at the time when video rental stores could only carry a couple hundred titles each.
Soon, more stores followed. And then more stores in the U.S. and other countries. Then Blockbuster started acquiring direct competitors, international brands, and store chains. The company expanded into music, got into deals with major brands, and became a multi-billion dollar company by the early 90s, barely a decade into its inception.
Things were looking up for Blockbuster.
And so the fall begins
Despite starting strong with innovations, Blockbuster could not keep up with the changing demands in its target markets. The 90s and 00s saw the rise of video-on-demand, or VOD, services, allowing viewers to choose which content they wanted to watch through their televisions without traditional playback devices like VHS or DVD players. VOD was a product of rapid technological growth at the end of the 20th century. Specifically, advancements in video compression and the proliferation of ADSL data transmission made it possible to bring a whole video-rental store’s worth of media libraries to eager and waiting audiences at home.
Early VOD services ate away at Blockbuster’s market shares, which was a prime indication that things were changing. And yet the company doubled down on investing in its brick-and-mortar stores. Meanwhile, customer preference was slowly but surely shifting towards the new technology.
Another big issue with Blockbuster’s business model was its late fees. The company charged $1 per day until the rented DVD or tape was returned, and it was a great money-maker that it represented more than 15% of its revenue at one point. But customers absolutely hated the arrangement. It got so bad that some guy named Reed Hastings said, “Enough is enough,” and decided to make his own video rental company after paying $40 in late fees. And so Netflix was born.
It could have been “Blockbuster and Chill,” you know
During the late 1990s, Netflix was an up-and-comer in the video rental market. Its founders wanted to stick it to Blockbuster and stick it good. So, they offered a mail-order DVD rental service through their website that allowed customers to keep the movies for however long they wanted with absolutely no late fees. It was such an attractive business model that Blockbuster customers, sick of the $1 late fees, flocked to the then-little-known company. To this day, Hastings and other co-founder Marc Randolph credit Netflix’s early success to customers making the switch to them.
In 2000, Randolph and Hastings approached Blockbuster and offered to sell Netflix to Blockbuster for $50 million dollars. They proposed that they handle the giant company’s online DVD rental segment. But the dot-com bubble was starting up, and internet companies left and right were closing down. And while the subscriber count was growing, Netflix was spending more than it was making.
John Antioco, Blockbuster’s CEO, declined the offer to buy Netflix, saying that it was a “niche business”, and went back to their physical store model. The Netflix founders said they were ‘laughed out of the conference room.’ Left with no choice, they stuck with their company and brand and jumped into the streaming platform industry while it was starting up.
Blockbuster would try to enter online streaming in the coming years, but it was far too late.
Ten years later, Blockbuster would file for Chapter 11 Bankruptcy, and Netflix would become one of the world’s biggest streaming service providers.
While popular belief says that Netflix was the sole reason for Blockbuster’s demise, it was more like the final nail in the coffin, the straw that broke the camel’s back, or other similar sayings. Here are a few more reasons why Blockbuster failed:
- Overexpansion and over-investment – Although people were moving to internet-based rentals, Blockbuster stuck to its guns and spent precious resources on physical stores.
- Poor debt management – The company’s ability to make money failed to keep up with its aggressive expansion strategy.
- Customer dissatisfaction – The company famously had “dissatisfaction management” as its core customer service concept, which is not a good look. Meanwhile, Netflix offered a subscription model instead of per-rental fees to make customers happy. It also prioritized customer satisfaction through ways like personalizing video offerings and treating video subtitles, translations, and captions as primary assets.
- Inability to innovate with the times – This failure to keep up is mostly shown in how Blockbuster handled new technologies like DVD, VOD, and online streaming.
Nokia still exists — but make no mistake, it is a mere shadow of what it once was. Today, the company is focused on 5G network development, and its reputation in the mobile phone industry is mainly relegated to meme culture legend. We all know the nigh-indestructible 3310s and their unreasonably long battery life. Kids think that they’re exaggerations, and while they’re mostly right, there is a reason why people still remember the brand to this day — because the jokes were partly true.
During the 80s and 90s, Nokia was the go-to brand for everything cellular-phone related. In 1994, they launched their 2100 Series to huge international fanfare and nearly 20 million sales within the year. Four years later, the company cemented itself as the world leader in mobile phones, and by the end of the decade, the company was earning tens of billions in revenue.
Nokia developed the first phone with Internet access (Nokia 9000 Communicator) and one of the first with a built-in camera (Nokia 7650). Nokia phones were known for their reliability, efficient power consumption, customization options, replaceable parts, and sturdy builds. I’ve lost count of how many times I dropped my 3310, and yet it was still operational when I replaced it with a smartphone.
Things were looking up for Nokia.
And so the fall begins
Competition was tightening up in the mobile phone industry by the middle of the 2000s. Siemens, Sony Ericcson, Blackberry, and Motorolla ate away at Nokia’s market share. People were looking for new, exciting things in their mobile phone experience.
Google started breaking new ground with its Android mobile smartphone operating system. Meanwhile, in 2007, Apple entered the fray with its first-generation iPhone and iOS. Samsung followed suit two years later with its Samsung Galaxy series. Customers liked what they saw in these new smartphones and their intuitive mobile operating systems, so market preference shifted accordingly.
And while it’s not fair to say that Nokia was twiddling its collective thumbs while competitors pushed the boundaries of technology, the company did take its sweet, sweet time entering the smartphone market. Their mobile operating system, Symbian, fell far short of the competition. It initially didn’t support touchscreens, had very little developer support, and had fewer available apps than Android and iOS.
Failure in “Connecting [to] people”
Aside from missing the smartphone revolution by a couple of years, Nokia’s downfall as the world’s number 1 mobile phone manufacturer resulted from a series of unfortunate events and ill-timed business decisions. Here are the reasons why:
- Fragmented product offerings – Nokia had different operating systems at the same time, scattering its resources and marketing efforts. It also didn’t have a flagship product like Apple’s iPhone and Samsung’s Galaxy Series.
- Shuffling leadership and an ill-timed acquisition – The company changed hands during a time when it needed steady leadership on the steering wheel. Not only that, Nokia was acquired by Microsoft, which made it all the harder to focus on products.
- Design, marketing, and competitive missteps – While Apple and Samsung were going head-to-head in who gets to produce the best-looking phones with the newest features, Nokia struggled to produce a notable model with the same app environment as the two giants. It also failed to offer features that would make their phones stand out.
What do Blockbuster and Nokia have in common?
These two companies were undisputed giants in their respective fields and experienced very different pressures and circumstances. However, there are some similarities in how they handled — or failed to handle — their predicaments. So what can we learn from their failure?
Failure to adapt
It’s fair to say that both companies faced an oncoming technological revolution in their industries. The warning signs were there, but both failed to adapt to the changing times. Blockbuster saw what competitors were doing and stuck to its guns instead of joining in. Who could say what could have happened if the company leveraged its considerable resources to get into the streaming service right at the beginning? Nokia’s story was the same — smartphones were the future, but it failed to catch up and instead watched as its competitors took away loyal customers in a few short years.
Short-sightedness and acquisitions
Blockbuster had the chance to buy what would eventually become its biggest competitor, who was offering new, innovative ways of doing business at the time. Yahoo, another failed company, had a similar situation — it had not one but two separate chances of buying Google.
Nokia didn’t face the same issue, but it did get into a partnership with Microsoft during an unfortunate period. Instead of marshaling all its resources to compete with Apple, Samsung, and Google, it spent too much time getting absorbed by another tech giant.
Both companies had a string of unfit decision-makers during the time when they needed strong leadership. Blockbuster experienced something short of mutiny in Carl Icahn, who pushed for overly-aggressive financial strategies and a focus on digital expansion. To be fair, he had very good points, but the power struggle divided the company’s leadership during a time when — AGAIN — they needed a strong, unified front.
Nokia, meanwhile, had major personnel shuffles during the smartphone revolution to find the best strategy to keep its competitors at bay. The move got the exact opposite result instead, and the scattered and directionless company soon fell from grace.
Why do we need to learn from their mistakes?
Technology is growing at such a rapid pace that some people are having problems keeping up. We now have chatbots that can code and write blog posts, vehicles that eschew gas for a more environment-friendly operation, and computers that can calculate mind-boggling numbers faster than a human can take a deep breath. AI companies are positioned to take the world by storm and represent upheaval to almost every industry. Change happens fast, and any business that fails to adapt and keep pace with technology will likely suffer as a result.