Netflix Instant Video Streaming: A Disruptive Innovation That’s Disrupting Netflix

A stack of old film reels on a case

For an update on this 2011 post be sure to read our latest analysis of Netflix’s disruptive innovations.

Will its second disruptive product be as successful as its first?

Netflix is a great example of disruptive innovation. Its DVD-by-mail model turned the video rental business on its head and helped push an industry titan, Blockbuster, into bankruptcy. As a start-up and outsider, Netflix was able to see that Blockbuster underserved many users. In response, Netflix created a business that offered more affordability, accessibility and availability to these under-served customers.

But ten years in, video streaming threatens to disrupt Netflix’ business model. I’m pretty sure that Reed Hastings, Netflix’ Co-founder, was aware of this from the outset and thus has been trying very hard to transition the business to streaming. He’s done a pretty good job, but recent setbacks such as Netflix’ loss of the Starz contract and the backlash over price increases are demonstrating that disrupting your own business is a lot harder than disrupting someone else’s. This week, Netflix announced its most serious step yet in managing this effort: it is dividing DVD and streaming into two totally separate businesses. Reed wrote a great blog post on Netflix website that describes this decision and the overall challenge in more detail. If you want to understand the dynamics and challenges of disruption, keep watching the Netflix story play out.

To learn more about how Altitude develops disruptive products check out our innovative design work.

Dan Ostrower

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Dan Ostrower