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Netflix and Buggy Whips

Aug 14, 2010 • Businesses, Economic Thinkers, Innovation, Tech • 229 Views    1 Comment

After reading this NY Times article about Netflix, you might begin to think about buggy whips. I know it sounds distant but here is the connection.

Entrepreneurs make an existing product or process obsolete. Netflix and Blockbuster. Amazon and Barnes & Noble. The Model-T Ford and buggy whips.

Aware that someone else’s innovation could lead to their own demise, Netflix is creating its own DVD obsolescence by encouraging us to stream movies from them. Also though, through innovation, they have guaranteed their survival.

Any other examples of this type of “creative destruction”?

The Economic Lesson

According to Joseph Schumpeter, economists should focus more on entrepreneurs and less on demand and supply.To Schumpeter, the entrepreneur, as an innovator, is the source of progress, change, and creative destruction. But also, by upsetting the status quo, entrepreneurs create conflict between the new and the old.

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  • zavodnys11

    Our world is always changing and advancing, companies are always creating newer and more innovative products, and consumers are always willing to upgrade. Some other examples of “creative destruction” are computers and typewriters, cell phones and landlines, digital cameras and film, and Blu-Ray and DVD (I’m sure we all remember the confusing war between Sony’s Blu-Ray and Toshiba’s HD DVD). I find it fascinating how Netflix recognized from the start the possible competition between streaming and DVDs and used innovation to protect themselves from destruction. This kind of innovation is crucial for companies operating in a capitalist economy. The threat of competition and creative destruction is present at all times, and not all companies can adjust with the constant advancements.

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