All Global News on One Page

The recent capitulation of Blockbuster video to Netflix has engendered a lot of ink. Most business writers seem to be getting no end of schadenfreude at the sight of the king of the late fees (Blockbuster collected half a billion dollars in late fees in its heyday) getting its comeuppance at the hands of an organization that seems to get the concept of customer service.
So the story we’re hearing is that Netflix’s ascendancy is the triumph of online retailing and technology over traditional retail stores and physical product. And sure, the facts are compelling. Netflix understood the revolution taking place in the global supply chain, particularly in the field of logistics which obviated the need to carry large inventories. While Blockbuster hung its hat on 5,000 stores nationally, Netflix operated 37 shipping centers located throughout the United States reaching nearly 92 percent of subscribers with generally one-day delivery. That’s one million DVDs each day. And, like Zappo’s, Netflix chased the good conduct medal, winning numerous customer satisfaction awards from places like ForeSee and Fast Company.
But the more interesting story, in my mind, is told through a socio-cultural lens. Some have described Netflix as a category killer but this seems wrong. It didn’t make its fortune on bargain prices and stocking commodity products. Netflix actually did the opposite — it gave the consumer more and better. A typical Blockbuster has 8,000 tapes covering 6,500 titles in its stores (a neighborhood video store generally has less than 3,000 titles); Netflix offers a collection of 100,000 titles on DVD. The mistake that business case-study scribes make is in thinking that films or music operate the way laundry detergent does. Netflix didn’t win because it had more titles at cheaper prices but because its catalog reflected the growing reach of the American and worldwide consumer.
The top rental at Netflix when I last checked was Crash, a searing Robert Altman-esque film from 5 years ago about race relations in California. This is a powerful indicator of what’s at play in the Netflix model. Clearly, Crash did not rise to the top of the charts because of advertising or the elephantine point-of-purchase displays one is accustomed to in a video store. Instead, the engine driving viewing tastes at places like Netflix is the Amazon-style customer-review model that has done more to break the stranglehold of advertising over buyer behavior than anything I can think of. Amazon, as we all know, sticks a cookie on your hard drive, so that you’re on the receiving end of all sorts of useful features like recommendations based on past purchases and lists of reviews and guides written by users who purchased the products you’re viewing. Netflix has now amassed more than 1 billion movie ratings from customers, and members select approximately 60 percent of their movies based on movie recommendations tailored to their individual tastes. For example, my recent browse of the description of the Werckmesiter Harmonies, an austerely beautiful black and white film by the Hungarian director, Bela Tarr led me via Netflix’s Cinematch recommendation system to the Devil’s Backbone by the Mexican filmmaker, Guillermo del Toro; a look at the terrifically exciting 60s thriller Blow Up led me to Nicholas Roeg’s 70s thriller Don’t Look Now. It’s hard to imagine this skein of sound recommendations happening in a storefront. And that’s what Netflix did — it led us away from the 50 copies of The Hangover or Transformers along an associative path informed by all of our past choices. It wrote a database for serendipity.
Perhaps the company that’s expanded on the customer-review idea in the most stunning way is the internet music service, Pandora. Started as a recommendation technology company, it was re-purposed in Fall 2005 as web radio service and today has more than 60 million registered users. Pandora’s model is the next iteration of Netflix and Amazon. Called the Music Genome Project, it offers listeners a prompt to enter an artist or song and then constructs a playlist based on the song’s distinguishing features. The difference is that Pandora has hired trained music analysts to categorize its entire inventory of music using up to 400 distinct musical characteristics, including melody, harmony, instrumentation, rhythm, vocals, lyrics (the typical music analyst has a four-year degree in music theory, composition or performance). My recent trip to Pandora on my iPhone which began with the 90s grunge heroes, the Pixies, led me to the French super group Phoenix and the even more obscure Edward Sharpe and the Magnetic Zeros, a buoyant California retro act which caught me by surprise. Again, I can’t imagine being able to deep dive into the indie music scene that way on terrestrial radio. Pandora took off when it began offering apps for smartphones and other mobile devices and turned its first profit in the first quarter of 2009. With half of all radio-listening occurring in the car, Ford, GM and Mercedes have all expressed plans to put Pandora into their dashboards.
In the end Pandora and Netflix are winning because they reflect their customers in a way that old-line firms with their hegemonic ad campaigns and totalizing distribution channels never could. Time Magazine put it rather well: they “are attempting to second-guess a mysterious, perverse and profoundly human form of behavior: the personal response to a work of art.” Pandora and Netflix know that customers today are smarter. And that roving appetite even for the obscure and the interesting is a function of how we’ve changed. By 2050, the world’s urban population will be 6 billion, 300 million inside US cities. 2 billion people will enter the middle class by 2050 mostly in Africa and Asia. We’re better educated and more curious about the world than big business gives us credit. And that’s the lesson of Netflix. When given the choice of something interesting and exciting that sidesteps the mainstream, we will take it.

Follow Tom Silva on Twitter:
www.twitter.com/thealtergroup

Source:www.huffingtonpost.com

The Beatles are arguably one of the most successful bands of all time, but their foray into the digital music space has long been frustrated. In their first week on the iTunes store, however, the Beatles amassed a staggering2 million individual song downloads and over 450,000 in albums sales. Not bad for a band who stopped recording music 30 years before the iPod was even invented. Their success is evidence of something else entirely, and it should terrify banks mired in physical methods of banking.
Apple versus The Beatles (also Apple)
The fact that The Beatles held out on launching their ‘content’ into the digital space for so long is sadly typical of many very traditional businesses confronted with changing modality and business models. The Beatles conflict intellectually with the digital space actually commenced as a legal battle between Apple Computers and Apple Corps (The Beatles Holding Company) that started more than 30 years ago in 1978. At that time The Beatles filed a lawsuit against Apple Computers for trademark infringement. In 1981 the initialcase was settled for just $80,000. Conditions of the settlement were that the two “Apples” would not infringe on each other’s businesses, i.e. Apple Computers would not enter the music business, and Apple Corps would refrain from selling computers. Thus, in 1986 when Apple allowed users to record songs to their computers, it was perceived they were in breach of that agreement. The legal jostling continued until February 2007, when a reported settlement of some $500 million was reached over the trademark dispute in favor of Apple Corps.
Modality shift kills physical music distribution
Confronted with the digital age most of the recording industry bristled. They saw changing modality, a shift to digital music as a threat to their entrenched distribution channels. Rather than embrace digital distribution the likes of the RIAA, when confronted with innovation in their sector, lashed out with lawsuit after lawsuit, starting with the famous case against Napster. The RIAA’s strategy was built on the sole premise of trying to prevent people from using file sharing networks so their existing distribution networks could be propped up indefinitely, and they celebrated Napster’s decline into bankruptcy as a sign of success for this strategy.
Clearly most saw the writing on the wall, but rather than change, the RIAA and the industry as a whole buried their head in the sand, hoping to limp along till change was absolutely inevitable, or worse thinking that they were immune to change. By all accounts, the RIAA was woefully unsuccessful in this strategy. Today, new artists live or die based on their ability to move product in the digital space, and The Beatles move at long last into the digital space singles that the last bastions of support for traditional, physical music distribution is crumbling. In fact, physical “record” sales peaked in 1999 at $14.65 Bn. By 2007 Physical sales of music content were already less than in 1993 having reduced to around $10 Bn, and by then end of 2010 it is expected digital music sales will finally overtake physical sales all together. Clearly the sector was in massive trouble with its decision to resist digital sales and the hundreds of millions spent by the RIAA on legal bills were largely a complete and utter waste of money. Those precious funds should have instead been put into revitalizing the industry digitally. The RIAAs actions in this light were reprehensible.
It’s not just ‘physical’ music that’s at threat
Others have faced similar battles in recent times, including Blockbuster who filled for Chapter 11 in September of this year, clearly signaling the near death of physical distribution of DVDs. Encyclopedia Britannica faced the same type of troubles when Microsoft introduced Encarta to show Windows’ multimedia capability in the mid-90s. This almost spelled the end of Britannica’s 300 year old business overnight.
What is under attack here is not DVDs, it’s not The Beatles, RIAA, Books or CDs and vinyl — what is under attack is physical distribution of goods that can easily be digitized. In that sense, the bank sector is in massive trouble because almost everything a bank does can be digitized.
Much of what our banking “experience” today means is wrapped up in the banking sector’s love of physical distribution. The centre of retail banking from an organization structure perspective in most cases remains the branch, which started life arguably as a physical distribution point for cash. Branch P&Ls exceed ‘digital’ by a factor of 50-100 times in most retail banks of today — an inequity that speaks volumes to ghastly outmoded thinking in bank boardrooms. Cash, Cheques, Plastic Cards, Branches themselves are all inevitable victims of this modality shift.
The Financial Times reported last week the following sentiment in the banking sector:
Physical banking is dead (at best dying)
This strategy is massively flawed. While improvements in customer service should be applauded, the fact is, based on distribution metrics, take up of mobile banking, internet banking, mobile payments, and other such indicators, the investment should be going into improving customer journeys, experience and service in the digital space. Most banks need to increase their investment in the digital space ten fold in the next 3 years at a minimum.
Like The Beatles, most banks when threatened with this modality shift, will find it extremely uncomfortable. The reality is, though, if they embrace the change revenues will follow. To give you some indication of the vast gap between shifting modality and the reality of bank distribution strategy, most banks still classify Internet Banking as a ‘transactional platform’ for saving distribution costs. For most customers today, though, they are 30-50 times more likely to visit your bank by logging in to Internet or Mobile Banking than visiting a physical branch. The problem with bank strategy in this respect is, if you come to a branch a core strategy is to try to sell you a new product. Today, most banks don’t sell anything through Internet Banking. If they did, most banks would be shocked to find out that they’d be actually selling more product online than through their entire branch network today.
It’s not branches that is under threat today — it is physical distribution. Banks can take the music industry approach and stick their head in the sand until things are absolutely inevitable, or they can adapt.

This Blogger’s Books from
Bank 2.0: How Customer Behavior and Technology Will Change the Future of Financial Services
by Brett King

Follow Brett King on Twitter:
www.twitter.com/brettking

Source:www.huffingtonpost.com