3/11/14

The Myth of Disruptive Technology

This post originally appeared on the LexisNexis Future of Law Blog under the title, Lessons from Blockbuster: re-engineer, don't disappear

http://dealbook.nytimes.com/2011/02/24/blockbusters-fall-and-netflixs-rise-in-pictures/?_php=true&_type=blogs&_php=true&_type=blogs&_r=1
In a recent session at LegalTech NY, I spoke about what I consider to be the great myth of disruptive technology; that we need to be on the hunt for the next big thing to set our firms apart and leave our competition in the dust. This is a fool’s errand. As I said in my talk, there is no technology that you can buy, build, or even imagine that you can simply drop into your existing workflow and reasonably expect it to disrupt anything other than your existing workflow.

To illustrate my point I presented the old war-horse of disruptive technology fables, Netflix vs. Blockbuster. At the height of their success Blockbuster Video had 9,000 stores, 60,000 employees, and nearly 6 Billion US Dollars in revenue. Six years later they filed for bankruptcy, and in January of this year they finally closed the last of their US stores. Meanwhile, Netflix video streaming today accounts for more than a third of all US internet traffic during prime time hours, and Netflix is the darling of Wall Street. The moral of this story, as it is generally told, is that streaming video is a disruptive technology that brought down Blockbuster, catapulted Netflix to success, and up-ended the entire video rental industry.

But like most fables, that’s just a little too simplistic. In fact, far from being a primary disruptive force, streaming video was just the last piece of a large disruptive puzzle that Netflix had been putting together for years. The primary disruption actually took place long before streaming video across the internet was even a viable distribution method.

When Netflix burst on the scene in the late 90s they had a DVD rental by mail business. You went to their website and signed up for a monthly subscription that entitled you to a number of simultaneous movie rentals. Then you looked through their catalog of available movies, selected those you’d like to see and the order you’d like to see them in, and they mailed you the first few DVDs on your list. When you were done watching one, you slid it back into the envelope, mailed it back to Netflix, and they’d send the next movie on your list. The best part was that you could keep movies for as long as you wanted and there were never any late fees.

This was a huge departure from Blockbuster’s model of 9,000 stores and 60,000 employees, charging a fee at the point of rental, and collecting massive late fees when you forgot to return the movie by the time you promised you would. In fact, a substantial portion of that $6 billion in revenue was directly attributable to those late fees.

It was common knowledge in the late 90s that streaming video would one day be the norm, even if it wasn’t entirely clear exactly how it would work or what it would look like. The technology was out there; it was just waiting for bandwidth and computing power to catch up. While they were waiting, Netflix built a video rental engine that could accommodate a faster distribution method, or indeed, any distribution method that came along. And Blockbuster just kept raking in the dough with the old model that had served them so well for decades. That model continued to work beautifully, right up until it didn’t and Blockbuster went out of business.

The moral of the story is not to go out and find the next big thing before anyone else does, but to re-engineer your business now to accommodate what you already know is coming. We know what the next great innovations in legal service delivery are, even if we don’t know exactly how they are going to work or what they are going to look like. Now is the time to build a legal service delivery engine that can accommodate project management, automation, artificial intelligence, and extreme transparency to clients.

The sad truth of the Blockbuster tale is that despite their market dominance, and their vast resources, they had no way to adopt streaming video without completely undermining the rest of their business. Sometimes I wonder how many law firms are in the same position now.

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6 comments:

Anonymous said...

Nice insight. If memory serves, there was also a massive class-action lawsuit that curbed blockbuster's late fee appetite in the mid-00's.

Steven B. Levy, author of Legal Project Management said...

What's missing in this fable is the chasm. There was no clear way, even in retrospect, for Blockbuster to move to the new model without undercutting the old, clouding the picture, and presumably going out of business sooner. It is extremely difficult for single-line-of-business company to change to a competing business model without destroying the old business, with the attending exodus of good employees, the stock collapse, etc. Cisco, Google, etc. can make these kinds of changes at time because they're ripping into only one part of the business. Kodak and Polaroid could not. As soon as the Blockbuster model became dependent on late fees, they were stuck. Change models, and see the current business collapse quickly. Stick with it, and see the business collapse slowly. Huizenga took his money and ran at the right time, I suppose.

What does this mean for BigLaw? Hard to say, but the lessons of Blockbuster and Kodak don't offer a clear path forward. (Nor do they guarantee the current model will fail.) The level of price elasticity in corporate law remains unclear, despite five years of predicting collapse.

Anonymous said...

You mention that "We know what the next great innovations in legal service delivery are". As a newcomer to this space, what would these be exactly?

Thanks.

Steven B. Levy, author of Legal Project Management said...

I have a much longer and more detailed response here: http://lexician.com/lexblog/2014/03/netflix-blockbuster-and-the-law-firm-model/

Byron Warnken said...

I'm not suggesting this post is without value. It made me think, which is always a good thing. That said, the comparison is not correct. Simply stating:

"Now is the time to build a legal service delivery engine that can accommodate project management, automation, artificial intelligence, and extreme transparency to clients."

is completely insufficient to complete the comparison.

You're right, I, and many others, knew exactly what the current Netflix was going to look like while Blockbuster was still profitably doing 9 figures in revenue.

In the quote above, I don't know what you're talking about. I don't know what it looks like. And when I was at Reinvent in New York, it seemed like no one else did either. There were some folks on to some decent things, such as Shake, to name one. However, to compare to streaming simply isn't apt.

Jeffrey Buckley said...

Idea for law firms: Outlook (everyone still uses Outlook) could be made to require a client matter number (drawn from the firm's timekeeping database) for every email that anyone sends. Those sent emails could be fed into a client file database accessible via the firm's intranet. Users with sufficient permissions should be able to search/view the database for all email tied to any particular client/matter. It would make a one stop shop for all emails related to a particular matter. Also, it would be a quick way for attorneys newly assigned to a matter to get up to speed. It's a KM solution that I'm surprised hasn't happened yet.

 

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