A requiem for the VCR: lessons in disruption

In case you missed it, the VCR is officially dead. On Friday, Japan’s Funai Electric, the last manufacturer of the devices, announced it will cease production later this month. This is nothing short of a cultural milestone and, not surprisingly, the news quickly went viral.

But the VCR has been with us for so long that revisiting its history does more than trigger nostalgia?—?it also offers insights for business leaders operating in today’s era of disruption. Here are three takeaways:

(1) Consumers want “good enough”. No discussion of the VCR would be complete without mentioning the format war between VHS and Betamax. I won’t repeat the (well documented) details here other than to highlight a key lesson from this early showdown: innovators need to understand what their customers consider “good enough.”

VHS had inferior image quality, but consumers still preferred it because VHS tapes could record longer programs (including movies), could fast forward through ads more quickly, and because the use of outlicensing made VHS players less expensive. Betamax may have been technically superior, but VHS was “good enough”?—?and good enough won the day.

Don’t underestimate the power of “good enough” innovation

Today, the same dynamic is at play in other platform battles. Consider digital SLRs vs. phone cameras. While DSLRs are technically superior, smartphone cameras are good enough for many consumers, who prefer features such as a smaller form factor and social media compatibility. Camera phones’ capabilities are improving rapidly, to the point where they are now taken seriously by many “real” photographers.

For business leaders grappling with new technologies and platforms, the message is clear: understand what your customers want and don’t underestimate the power of “good enough” innovation.

(2) Technologies don’t disrupt; business models do. In the early 1980s, the movie industry was terrified that VHS would disrupt its business. As detailed in Jack Valenti’s testimony before Congress in 1982, many thought that VCRs would destroy the profit base and kill the economics of the movie business.

Of course, nothing of the sort happened. More than three decades later, Hollywood hasn’t disappeared and movie theaters are doing just fine.

Why? The main reason is that technologies by themselves aren’t disruptive. They are only disruptive when they result in new business models that upend existing ways of doing business. In the case of the VCR, movie theaters survived because they had a couple of critical value propositions that VHS couldn’t match:

Timeliness. The VCR’s vaunted time-shifting capabilities couldn’t undermine a central pillar of movie theaters’ value proposition: the ability to see a film when it’s first released. Movies are cultural phenomena and for those who want to be part of the conversation, seeing the latest Star Wars movie six months after it comes out simply doesn’t cut it. 

Instead of undermining the economics of the movie business, VCRs expanded it: they added a new customer base by giving viewers who missed a movie in theatrical release the ability to see it later at home. Indeed, when DVD players emerged, the movie studios used the new platform to cement this value proposition: DVD players were made region-specific, allowing the studios to ensure that DVDs from North America didn’t dent box office sales in Europe and Asia.

Instead of undermining the economics of the movie business, VCRs expanded it

Customer experience. The VCR also couldn’t replicate the experience of seeing a movie in a movie theater. VHS may have been “good enough” compared to the slightly higher resolution of Betamax?—?particularly on the relatively primitive cathode ray tube TV screens of the era?—?but it was no match for the movie theater experience. Those early televisions were simply incapable of providing the image resolution, surround-sound capabilities and overall experience of the big screen. In the decades since, the video and audio fidelity of TV have improved vastly, but movie theaters are still thriving?—?in part by adding new elements to the customer experience, such as stadium seating, luxury seats and dinner service.

In other words, incumbents (studios and theaters) flourished because they had a value proposition that the new technology (VCRs) couldn’t match. This allowed them to coopt the technology and sustain their own business models.

The same dynamic is behind the disruption wrought by another technology: streaming music. The first business models that streaming music spawned (remember Napster?) were tremendously disruptive. Since then, Apple and others have created business models that coopt the technology in ways that uphold, rather than undermine, the economics of the music industry.

The takeaway for today’s business leaders? Don’t worry about digital technologies?—?focus instead on the new business models that digital innovation is enabling. How can you use business model innovation to coopt new technologies in ways that uphold, rather than challenge, your business?

(3) Disruption doesn’t always kill. For many readers, the biggest surprise in last week’s announcement wasn’t that the VCR was dying, but that it was still around in the first place. Streaming video?—?which, unlike DVD and Blu-ray, enabled disruptive business models?—?had already disrupted Blockbuster Video, and many likely assumed that it had taken a similar toll on the VCR industry.

But VCRs had been hanging on. While VCR sales have fallen to a small fraction of what they were in their heyday, the segment has been a steady niche business for Funai. Indeed, the company pulled the plug not because the market had become untenable, but because it could no longer source parts from a key supplier.

This is often the case with disruptive innovation. Disruption wounds, but it doesn’t always kill.

Some companies facing disruption might even view this as a potential strategy: reduce your footprint and focus on a niche business that is relatively safe from disruption. The problem is that, while such approaches can buy time, they may not delay the inevitable. At some point, the walking dead become the dead.

And of course, shrinking to survive is a far less attractive proposition than thriving through growth. Growing in an era of disruption is certainly challenging for incumbent organizations. To get there, business leaders are focusing as never before on understanding disruption and finding its upside.