Blockbuster Vs. Netflix

A business model is the way a supplier transacts business with its customers. Business model innovation focuses on addressing unmet needs on the part of consumers who dislike some aspect of an existing business model for an existing category. So with that said what is Blockbuster’s business model? Blockbuster business model back in the early 2000 was to pay-per-rental. Blockbuster’s customers were frustrated by late fees and not being able to find their movie of choice when they wanted it. Blockbuster’s brick and mortar business model was the only video rental chain that could offer the product that customers wanted. Its biggest strength was their sheer size. However, with customers’ busier lifestyles, demands, and the advancement in technology, Blockbuster was left behind and needed to explore the uncharted waters of the Internet.

Blockbuster focused on market niche when they started decades ago renting VHS tapes. They used information systems to enable a focused strategy on a single market niche (Laudon & Laudon, 2007 p.100). Blockbuster targeted a specialized market which included a specific type of customer and provided a specified product to that customer. They focus primarily on renting out movies and games to people who like both.

Michael Porter’s Competitive Forces Model is probably one of the most often used business strategy tools and has proven its usefulness on numerous occasions. The five forces consist of traditional competitors, new entrants, customers, suppliers, and substitute products and services (Laudon & Laudon, 2007 p. 96-97). When you look at Blockbuster's industry it has many different aspects to it when considering the dimensions of its industry. First of the Five forces is Buyer Power which is high when buyers have many choices. Hollywood Video is probably Blockbuster's main competitor when you consider a company that rents both movies and games. However, Netflix has become a video rental leader and customer's can easily go online and rent. Buyer Power is relatively high as far as renting movies is concerned. Second of the five forces is Supplier Power which is high when buyers do not have many alternative choices. Blockbuster's supplier power used to be high up until Netflix entered the market. Third is the threat of substitute products. Substitute products include Hollywood Video, Satellite, Cable, and Netflix. Fourth is the threat of new entrants. In order for a new entrant to enter the market they would have to be ready to compete with the thousands of stores that Blockbuster has in place and they would need to warehouse some how the huge product selection they would need to compete. Not only in videos but in games they would need a presence because Blockbuster is generating revenue from both angles. Finally there is rivalry among competitors. This is high when competition among existing competitors is fierce.

I would say that on-line video rental and the Internet have defiantly challenged their business model. Blockbuster was immensely successful in the past because of their size and prevalence, but has found themselves under attack from the double whammy of Netflix, which offers a wider range, no cancellation fees, and lower subscription fees. Netflix took the new emerging technology of the Internet to create a niche market for movie rental, which has allowed them to have lower cost