Monday, November 7, 2011

Technology Dreaming

Dreaming about technology can be extremely seductive, because it can make the impossible suddenly very possible.  I'm not even talking about the big dreams like healing the sick, or feeding the hungry.  I'm talking about the very mundane details of how to run a business, which are anything but mundane if it happens to be your business.

Imagine if we could deliver a package anywhere in the world overnight.
Imagine if customers could withdraw money from the bank without needing a teller.
Imagine if we could order inventory just in time and massively shrink our warehouse.

The trouble with dreaming about technology is we forget that it is not always possible to achieve the impossible.  History is littered with failed ideas that seemed just within our reach.

Imagine if we could achieve a paperless office.
Imagine if we could predict the stock market.
Imagine if we could automatically deliver baggage in the Denver International Airport.

Netflix is a great example of a company that was swept up by the promises and perils of technology dreaming.  It started with a brilliant idea.

Imagine if we could rent videos without video stores.

This is a killer concept.  I've never reviewed the financial statements of Blockbuster (remember them?), but I'm pretty confident that if I had, I would have found the vast majority of their capital was tied up in real estate.  Other than a couple big warehouses and data centers, Netflix has no real estate.

Netflix combined this killer idea with superb execution, and became a juggernaut in an insanely short period of time.  David Pogue raved about their service even after he'd given up his membership.  They attracted global attention when they offered a ten million dollar bounty for an algorithm to improve their video recommendations, saving themselves many times that in R&D costs.  It was almost a perfect business.  They had almost no need for capital, except for their inventory of DVD disks.

Those pesky, irritating disks.

Imagine if we could get rid of the disks.

It's such a fine line between stupid and clever.

But let's get things straight.  Starting a movie streaming business to give your customers better and faster options is clever.  Positioning yourself for a future when disks may go out of fashion is clever.

Jettisoning a popular business because you like the idea of streamlining your operations, without regard to how you're enraging your customers, is stupid.

Many customers registered their displeasure, and cancelled their subscriptions.  Many investors registered their displeasure, and sold their stock, wiping out roughly $8 Billion in market capitalization. (It has since regained a bit of ground, but nothing close to what it lost.) The fact is that technology isn't yet ready for totally disk free viewing for everybody.  Movie studios aren't yet willing to license all their content for streaming.  Broadband connectivity can be flaky.  And even when it's reliable, many people are still on DSL, which provides image quality about equivalent to a VHS - not as good as DVD, and a long shot from Blu-Ray.  And sometimes you're not completely done when the movie is over, and want to see some of the specials, which are not yet available on streaming.

It's interesting to ask why Netflix is still in the doghouse.  They've cancelled their unpopular plan to spin off the DVD business.  And their prices are still competitive to where they were before the streaming business ever existed, and Netflix was still wildly popular.  The problem is that customers also dream.  They dream about a company that treats them right, and puts their interests over short term profits.  For a while, Netflix seemed to be that company.  Then the dream was shattered.  It will take a long time to rebuild that dream.

So go ahead and dream about technology.  Dream up the next killer idea that will transfer your business.   Transcend the impossible.

Just try not to cross that fine line that separates stupid and clever.

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