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Netflix and Buggy Whips

by Elaine Schwartz    •    Aug 14, 2010    •    306 Views

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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