For Borders and Blockbuster, Technology Sped Their Failure

Two iconic brands — Blockbuster and Borders — are imploding this week, and at the root of their troubles is a failure to make the right technology choices. Technology alone doesn’t define a brand’s success. What matters is how fast and how well they implement the right technology.

While Borders and Blockbuster operate in somewhat different categories, their management teams stuck with business models that once worked instead of taking the chance on a different future.

For Blockbuster, the business model focused on operating neighborhood stores that rented VHS tapes, then eventually DVDs and Blu-Ray discs, and making a significant profit by charging late fees. I remember when my family forgot to return a stack of movies and got socked with $80 in fees. I swore that would never happen again and signed up with
Netflix.

Down the street, the Borders business model involved operating big box stores that sold books, CDs, coffee and journals. Borders’ challenge was that much of their sales came from new items, which had to be replaced constantly. That expensive requirement didn’t allow for many strategic missteps.

But the bankruptcy of both companies goes beyond the challenges of their business models. Bad management is also a culprit.

Borders largely ignored the e-reader, partnering with Sony instead of embracing the technology as core to it’s business. E-readers inside Borders stores were always given a small amount of floor space, and the Borders e-reader app was a poorly-executed after-thought.

Arch-rival Barnes and Noble created the Nook, generating adequate market share by aggressively marketing the first color e-reader, creating a passable Nook app for portable devices and occasionally giving away current books to entice people to use the Nook instead of Amazon’s Kindle app.

Borders’ management didn’t understand the significance of the shift away from books to e-readers until it was too late. The company even outsourced it’s online retailing to Amazon, essentially giving up control of it’s own future. Interesting to note that a co-founding Borders brother also invented Web Van, the doomed online grocery delivery service that operated during the dot com boom a decade ago.

Down the street, Blockbuster ignored the rise of streaming video. Management believed that Netflix could never compete effectively with a neighborhood store. From the earliest days when Netflix was buying movies off the shelf from Wal-Mart because studios wouldn’t talk to them, Blockbuster believed consumers would always want to visit a store on Friday night and stock up on movies and candy for the weekend.

Blockbuster entered the streaming video marketplace late and never fully committed to growing a streaming platform because the change in strategy represented a threat to its core business and the hundreds of leases it had committed to.

I don’t mean to imply that Blockbuster and Borders were were stupid. Looking in the rear view mirror always offers a clear glimpse of what you should have done. But even a consumer could see that times were changing.

The challenge for management at any company is to look beyond what’s always worked and constantly assess the threat of what’s ahead. What’s real? What’s the potential in up-ending the model that has always worked? Are we in such a secure cocoon that we can’t realistically
assess what’s coming?

The road behind is littered with companies that didn’t do that. MediaPlay, A&P, Circuit City, CompUSA, Woolworth, Bombay Company, Lillian Vernon, KB Toys, Mervyn’s, Linens ‘n Things…all left customers, investors and employees in the dust because they bet on either the past, or on a future that panned out differently.

In some cases it was failure to acknowledge that what used to work is coming to a close. And if management doesn’t address that, the entire company will come to a close.