It always amazes me when an industry that makes a lot of money, out of fear of loss of market share, profit, or, in most cases, simply the unknown, absolutely refuses to change its business model to one that satisfies its customers more.
The purpose of a business, any business, is not to enrich management, although that is nice; it isn’t to create jobs, which are an important byproduct; it isn’t to maximize shareholder return, that too is an effect. The purpose of a business, to quote Peter Drucker, is “to create and keep a customer.”
- Create a customer: By selling something they want at a price they can afford
- Keep a customer: By continually improving the offering and price and providing real service
Monopolies, of course, violate these rules. They use their position to force people into staying with them or going without the service (which is hard to do with a phone but nearly impossible with electricity).
In many ways, “keep a customer” is the more important of the two parts of the purpose, especially with regards to longevity. Once you create a customer, other competitors will arrive. Even if you fend them off, by hook or by crook (or politician, which is much the same), the ideas as to how your service could be provided in a better fashion will stay with customers. Many customers will come up with new ideas on their own.
The entertainment industry has been stuck in largely the same business model for many years. Before the days of wireless connections, data pipes, cheap, varied and plentiful devices, that model did made sense. But even then, customers dreamed of watching what they want, when they want, where they want, and how they want; look at the science fiction books, films and television series from the second half of the 20th century. And yet, studios, broadcasters and cable companies insist on controlling the what, when, where and how of the content.
These companies are fighting their own customers. That is what we call a bad strategy.
Netflix, built entirely around delivering what you want, where you want, when you want and how you want – first via DVD and then streaming – has launched its own studio. But it really isn’t about taking on the existing channels as another competitor; it is about creating a content owner that will provide customers exactly what they want, when they want, where they want and how they want.
And sometimes, actors get it right. Kevin Spacey, the star of House of Cards, gave a short speech about exactly this issue, and why they went to Netflix – including the cost efficiencies – just recently. It is well worth 5 minutes to listen to the talented Mr. Spacey.
The one who can provide customers what they want at a higher efficiency, i.e. lower cost, you can be more profitable than the incumbents at a lower customer price.