• Video retailer Blockbuster (and competitor Hollywood Video) are now bankrupt
  • Video rentals/sales are at an all time high – but via digital downloads not DVDs
  • Nokia, once the cell phone industry leader, is in deep trouble and risk of failure
  • Yet mobile use (calls, texts, internet access, email) is at an all time high
  • These companies are victims of locking-in to old business models, and missing a market shift
  • Commitment to defending your old business can cause failure, even when participating in high growth markets, if you don’t anticipate, embrace and participate in market shifts
  • Lock-in is deadly.  It can cause you to ignore a market shift. 

According to YahooNews,Blockbuster Video to File Chapter 11.”  In February, Movie Gallery – the owner of primary in-kind competitor Hollywood Video – filed for bankruptcy.  It’s now decided to liquidate.

The cause is market shift.  Netflix made it possible to rent DVDs without the cost of a store – as has the kiosk competitor Red Box.  But everyone knows that is just a stopgap, because Netflix and Hulu are leading us all toward a future where there is no physical product at all.  We’ll download the things we want to watch.  The market is shifting from physical items – video cassettes then DVDs – to downloads.  And both Blockbuster and Hollywood Video missed the shift. 

Blockbuster (or Hollywood) could have gotten into on-line renting, or kiosks, like its competition.  It even could have used profits to be an early developer of downloadable movies.  Nothing stopped Blockbuster from investing in YouTube.  Except it’s commitment to its Success Formula – as a brick-and-mortar retailer that rented or sold physically reproduced entertainment. Lock-in.  And for that commitment to its historical Success Formula the investors now will get a great big goose egg – and employees will get to be laid off – and the thousands of landlords will be left in the lurch, unprepared. 

As predictable as Blockbuster was, we can be equally sure about the future of former powerhouse Nokia.  Details are provided in the article “How Nokia Fell from Grace.” As the cell phone business exploded in the 1990s Nokia was a big winner.  Revenues grew fivefold between 1996 and 2001 as people around the globe gobbled up the new devices.  Another example of the fact that when you enter a high growth market you don’t have to be good – just in the right market at the right time.

But the cell phone business has become the mobile device business.  And Nokia didn’t anticipate, prepare for or participate in the market shift.  From market dominance, it has become an also-ran.  The article author blames the failure, and decline, on complacent management.  Weak explanation.  You can be sure the leadership and management at Nokia was doing all it possibly could to Defend & Extend its cell phone business.  The problem is that D&E management doesn’t work when customers simply walk away to a new technology.  It may take a few years, and government subsidies may extend Nokia’s life even longer, but Nokia has about as much chance of surviving its market shift as Blockbuster did.

When companies stumble management sees the problems.  They know results are faltering.  But for decades management has been trained to think that the proper response is to “knuckle down, cut costs, defend the current business at all cost.”  Yet, there are more movies rented now than ever – and Blockbuster is failing despite enormous market growth.  There are more mobile telephony minutes, text messages, remote emails and mobile internet searches than ever in history – yet Nokia is doing remarkably poorly.  It’s not a market problem, it’s a problem of Lock-in to a solution that is now outdated.  When the old supplier didn’t give the market what it wanted, the customers went elsewhere.  And unwillingness to go with them has left these companies in tatters.

These markets are growing, yet the purveyors of old solutions are failing primarily because they stuck to defending their old business too long. They did not embrace the market shift, and cannibalize historical product sales to enter the new, higher growth markets.  Because they chose to protect their “core,” they failed.  New victims of Lock-in.