Blockbuster Case Essay

Alex Garrett
3/12/15
Blockbuster Case Write-up

David Cook, the founder of Blockbuster began his venture with the idea that through advanced IT supporting speedy customer transactions and a high number of available “hot” titles, a video store would be able to provide an enhanced service while simultaneously creating a smarter business model. In order to create this upgraded video store, Cook decided firstly that real estate would be a key differentiator from his competitors. The real estate he had in mind was stand-alone, large structures with bright yellow and blue signs that created high visibility for his brand. Cook also implemented a new store layout that catered to the needs of specific target segments and their preferences. Rather than stocking video on top of one another, Cook separated by video by genre and popularity. Despite these innovations, Blockbuster’s competitive advantage was in in advanced IT systems. These systems computed late fees and supported a 3-day rental period, which allowed customers to get in and out of the stores quickly, while not having to hassle with negotiations over late fees. The resources that Blockbuster owned far surpassed their “mom and pop” competitors, which directly fed into their distinctive competencies as a company. While IT resource capabilities and real estate resources compiled, distinctive competencies of Blockbuster began to emerge. Once Huizinga took the position as CEO of Blockbuster, updates to their IT infrastructure become common practice. The business knew that IT was one of their most important competencies, which they continually innovated in order to stay ahead of their competition. In the 1990s, a new threat came to Blockbuster, the Pay-per-view or video on demand systems. Fortunately for Blockbuster, this new model didn’t have the infrastructure needed for rapid growth. Video-on-demand systems were expensive, and were not widely adopted until the late 1990s. Huizinga understood that although this new technology could be a potentially large disrupter down the road, it currently wasn’t costing Blockbuster much sales. Huizinga decided that Blockbuster was in a good position to be bought, so he sold the company to Viacom. Over the next 20 years Blockbuster faced the bulk of it’s problems and challenges. In order to combat these challenges, Blockbuster changed their business model and negotiated a revenue sharing strategy with their suppliers, which allowed Blockbuster the opportunity to stock each store with more tapes. Along with this new revenue sharing strategy, Blockbuster introduced video game rentals to their stores, which proved very profitable for the business. In 2002, movie studios began to sell DVD’s straight to the public, ignoring middlemen like Blockbuster. To combat this industry shift, Blockbuster changed their cost per purchase model to a subscription-based model. Blockbuster also removed late fees, which

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