Will Cisco, Netflix Make History?

You know the observation about the history of the computing industry, which is that no industry leader in one phase ever has managed to lead the industry in its next phase. Where IBM ruled the mainframe business, but Digital Equipment Corp. ruled the minicomputer business and then others such as Microsoft and Intel ruled the personal computer business.

 

That actually is a recurrent theme in business history. The leaders in the era of vacuum tube technology were replaced by new and different leaders in the era of transistor technology, and those in turn were replaced when semiconductor platforms replaced transistors.

 

The point is that it is nearly impossible to maintain industry leadership if the business model or technology shifts. In the media business, note simply how leadership evolved from stage to radio to movie theaters to broadcast TV to cable TV, time-shifted consumption and now Web-based video.

 

Every now and then a company manages to get a huge industry transition right, though most follow the example of the railroad industry, which lost supremacy to ground freight and airfreight when it thought it was in the railroad business rather than the transportation business.

 

Cisco, of all the companies I can think of in technology, understands the challenge, which is why CEO John Chambers (News - Alert) always talks about "managing transitions."

 

Netflix might be a contender, though most think it is "toast" as the video rental business moves toward a network delivery model.

 

If you want an example of a company that looks like it doesn't have the DNA to manage a transition, it is Blockbuster, the company Netflix surprised with its "DVD by mail" strategy. You would be very hard pressed to name a single transition move Blockbuster successfully has made.

 

It failed to see the shift to a distribution strategy not based on physical retail locations. When it finally did launch a rival "by mail" effort, it seemed to fizzle. Then, as Netflix shifted towards digital distribution over the Internet with its "Watch Instantly" content, Blockbuster seemed not able to monetize its "Movielink" acquisition with stellar success.

 

Now, as Netflix is busy striking deals to put its Watch Instantly content on devices like the Roku box, the Xbox 360 and TiVo, Blockbuster seems to be rushing to deploy its own box as well, but with an arguably weaker online distribution capability overall.

 

Perhaps Blockbuster can turn things around. But nobody presently a leader in an industry segment can take anything for granted: history is against a successful transition. That's why Cisco and Netflix hope they might someday be business school case studies.