Push the Positive for Customers

How did Blockbuster (BBI) make money from the fact that your car broke down, the dog got sick, the kids had a soccer tournament, and your boss called to tell you to be on the next flight to Philly? By charging you $20 and more when you finally got around to returning that overdue DVD.

Our laptops are mobile, our cell phones are a ringtone away, and the Internet is global, but the Blockbuster business model demanded that you be in town and on time. As if your life worked that way. In truth, it's eerily akin to the public library of our youth, which featured a disapproving librarian tallying up 35 cents in overdue fines while floating the unspoken accusation you were irresponsible on top of everything else. Truth be told, you probably didn't read the books, just as you didn't watch the DVDs you just paid so dearly for.


  Lives are messy. Modern life is even messier. So in an era when you can be anywhere, anytime, anyplace on the planet and do business, you have to be in town and promise to watch the rented DVD and get it back to Blockbuster within hours. Or pay the price. Which, like the library fine, reminds you -- rationally or irrationally -- that you don't have a simple and squared-away life, that the to-do list you make in the morning never ever gets completed by the end of the day, and that like all of us, you're not perfect.

Surely someone could create a better business model, one that honors the innovation of DVDs, takes advantage of all the technology that has come to saturate American lives since Andrew Carnegie got excited and started building libraries at every crossroad, one that provides a positive customer experience.

Enter Netflix (NFLX).

In truth, the first Netflix business model didn't exactly get it right, but by continuous, agile adjustment, the company has now reshaped the DVD rental business, so much so that Blockbuster has had to forego late fees and is rooting around for something to do with all those hard-fought real estate leases.


  The concept is this: You pay $17.95 each month, for which three DVDs are mailed to you. Keep them as long as you like. Mail back just one, or all of them. Whenever you want. Watch one on a flight across the country, and drop it in the mail at your hotel at the other end.

And you don't have to keep choosing. Netflix will automatically go through your preselected list of movies you want to see, and as soon as it receives your returned film, it sends you the next one on your list.

There are parallel lists, as well. You can keep one going for your kids, one going for your significant other, and one going just for you. Run into another Netflix customer, and you can share your lists -- even more fun! And as an added feature, Netflix sends out gifts in the mail -- gifts you chose yourself, based on your taste, the taste of your friends, or the hordes of others out there that are somewhat like you.


  But the real point is, where's the guilt? Where's the revenue built on the fact that people forget, people get busy, people have stuff happen in their lives that's far more important than getting in the car and driving down to the DVD rental store? Where is the customer who comes away with a bad experience?

And that's the key.

No matter who ultimately wins the DVD rental wars, no matter what business models for any venture are being shaped at this moment in boardrooms and venture-capital conclaves around the world, the new customer doesn't need hassle and negativity.

So if your business proposition is based on the failings of humans, you're vulnerable -- not to innovation, not to big business, not to any of the standard market forces. You're vulnerable to the upstart or longtime competitor who delivers a positive customer experience.

Before it's here, it's on the Bloomberg Terminal.