Rajesh Jayaraman

Branches, Online & Blockbuster's cautionary tale

Blockbuster has been on death watch for a while now, while their nemesis Netflix has been making huge inroads. There is clearly no doubt that digital distribution of content is here to stay, but the question is - could Blockbuster have done anything different? I think that Blockbuster came close to getting the formula right, but then threw it away.

The moment Netflix entered the market in the late 90s, it was clear that they had structurally lower costs compared to Blockbuster's video store model. Blockbuster struggled for a few years to respond to this threat, while the upstart took market share from the incumbent. They launched their online rental offering in 2004, but could not match the online selection that Netflix provided, and the service lagged Netflix by a wide margin.

However, around 2006, Blockbuster came up with a very smart idea of in-store exchanges. This married the ease of use for ordering movies regularly online with the convenience of "picking up a movie for the weekend" from the store. I signed up with Blockbuster because of this feature, and loved it. So did 3 million others!

Then, in 2007, they decided to throw it all away. Between 2007 and 2009, they did a number of flip-flops on their in-store exchange policy - they removed it, they added it with extra fees, they added weird limits - every time you went into the store, there were new rules. The whole idea of a convenient in-store exchange was replaced by the pain of showing up in the store and being surprised by a new fee.

So, what does this have to do with financial services? Banking is a digital good, and increasingly banking services are distributed online (including mobile devices). But, if you have a branch network, you can take advantage of this if you can offer services that take advantage of the unique strengths of both the web and the branch. There are not a lot of banks and credit unions that do this well - the experience between online and the branch is still disjointed, and that presents an opportunity to a resourceful player.

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