Commentary by Jack Hipple

They Could Have Owned It!

We have all watched as the "book" industry has restructured itself. Two key things are in the news. Blockbuster has gone into "chapter 11" and is closing a large fraction of its stores. Just recently it was announced that books downloaded on to electronic book readers outsold hard cover books. Why does a company like Barnes and Noble now "own" this business, and Blockbuster doesn't? What kept Blockbuster from getting into the wireless book business? Did someone pass a law that said they couldn't? Or was it just that they actually thought that people enjoyed trudging down to the store, standing in line, and hope that their movie was in stock? Or was it that the snacks you could buy there were so much better and cheaper than at your local grocery store? Was it that they thought the movie was different than the one which came via satellite?

I have discussed many times the importance of looking at the "super-structure" around your product and business and recognizing that, sooner or later, your product or service is going to get "absorbed" into that super-sttructure. What's the super-structure in this case? It's satellites, the Internet, the cable system into your house, etc. Any movie or book at any time can be viewed and downloaded wirelessly without the sub-structure of a store, the car driving to the store, your wallet and the need to hand the credit card to the clerk, etc. In an interview I heard today, the comment was made that "Blockbuster could have owned that business". How true!

What keeps companies like Blockbuster from seeing this and making the appropriate business decisions? It's because they are focused only on competing with their direct competitors, not the organizations and systems which provide the FUNCTION being provided. They forgot that people were not going to their local Blockbuster store for the opportunity to stand in line and get frustrated--they were going there to rent a movie. Or was that the real purpose? No, it was to SEE a movie. Going to a retail store to enable this was a necessary evil. The first clink in this armor was Netflix(R), which eliminated the need to get in the car. Soon after, the rental on demand through satellite and cable systems came along. The same thing has now happened in the book industry as we highlighted in a column a short while ago. What's important and what seems to be impossible for many companies to think about is what FUNCTION their product is providing. This needs to be constantly revisited in the context of asking what the customer is really buying. Maybe Barnes and Noble and the Kindle(R) will co-exist for a while. There's still something about sitting in a bookstore (that also happens to serve coffee and desserts and plays soft music in the background!), but there's also something about reading the words of a book on the beach or on one's patio. It's the function of reading words, not reading a book.

This same story can be repeated for the airline business, classroom teaching, and encylcopedias. Never stop thinking about what function you are providing to your customer. Never stop thinking about how else that function (not product!) could be provided. Never stop thinking about new resources could be used to deliver that function. Use these thoughts to drive your strategi planning, not competitive intelligence about your most serious direct competitor.

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