Wednesday, April 15, 2015

Disruptive Technology and Netflix

Christensen states that disruptive technologies are overlooked by leading companies because these new technologies do not initially meet the needs of mainstream consumers. These technologies present a different package of performance attributes that are not valued by existing customers at the outset. In addition, these technologies look financially unattractive to the established companies. However, the attributes of the new technologies that consumers do value improve so rapidly that the new technologies can overtake the established technologies.

This pattern can be seen in the technological innovations that are occurring in the Television Industry. Companies, such as Netflix, are now offering consumers a subscription fee, in order to stream to television shows from established networks and their own original content anywhere the consumer can access the internet. In the past, this business model was ignored because established networks would have had to make a huge capital investment to create such a service, and the download speed of consumers was far too slow to stream whole television shows over the internet. In addition, as high definition formats became more popular, the idea of streaming these even larger file formats seemed unrealistic. The established companies believed there was no market for such a service.

However, as technology has advanced, the capital required to house large amounts of data has decreased and download speeds have increased. Although high definition video is still not offered by streaming services much of the time, consumers decided standard definition video was good enough, in light of the increase in convenience they were receiving. In addition, this new viewing platform has allowed Netflix to release an entire season at once so that consumers could view it at their own pace. In the past, networks had to release a new episode of a show every week so that the networks had time to broadcast their full catalogue of shows. With Netflix consumers can now pick and choose what they want to watch and how much to watch at once. This technology has created a whole new way to watch content, and it is beginning to gain the preference of new consumers over the old technology.
In order for established networks to compete with these new technologies, they need to create an independent organization to develop the new technology. For example, Comcast created Xfinity, which streams content that has already played during its normal broadcast time. Creating an independent organization will allow managers to take more risks and experiment with different distribution models, without taking away resources from the main organization. In this way, the new company is not held back by the established business and the biases that it carries with it. This will also allow established companies to begin creating their own data bank of consumer preferences, while viewers are still loyal to their service. If these companies continue to wait, then their viewers will leave for other channels and the data that could have been capturing will not be recoverable.

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