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Tuesday, July 20, 2010

Prepare to be disrupted

Recently I cancelled my cable... That's right, no more Time Warner Cable. It all started when I was watching CSI one day. I used to be a big CSI fan, but I realized that I didn't really care about it and I was really just watching it for the sake of it being on. So I took the step to delete the subscription from my DVR. Then I realized, I really didn't watch that much TV. And even if I did, I could get CSI from other sources like Netflix or even over the air. The only thing I needed cable for was ESPN, and that was mainly for Monday Night Football.

I would save $67 a month by not having cable. I'd be happy to pay $5 a month for ESPN during football season. But there's no way to do that is there? On the contrary... when I go on Time Warner Cable's website, they keep shoving "bundles" in my face, saying how much you save by bundling their internet, cable, and phone services. Save money by spending more? That's a bunch of bull. There's no reason for Time Warner to offer a la carte services. What's the marginal cost for beaming me just ESPN vs. 250,000 channels? Nothing. The cables are already there.

This is a classic case of a company overshooting their customer. Clayton Christensen talks about it in his book Innovator's Solution. When that happens, they are ripe to be disrupted. Other companies who can offer a "good enough" product to get the job done, and structure themselves accordingly, can disrupt larger companies. Time Warner isn't competing with Dish Network or DirecTV. They're competing with my over the air HD antenna, my mlb.tv subscription, and my local sports bar. But they don't realize that... they're still running ads for bundling and showing me how much they're cheaper vs. Dish or DirecTV.

Or, their cost structure doesn't allow it...  Or their accountants don't allow it. They probably have a king's ransom tied up in infrastructure costs. And on their books, they need to pay off the depreciation even though depreciation isn't a real cost. So they need to make a profit big enough to pay off depreciation. Little do they know they may be heading towards bankruptcy.

I love disruptive companies that take down big companies (that's maybe why I'm a Milwaukee Brewers fan and I hate the Yankees). My favorite company is Netflix, who took down Blockbuster with their new model. They had their cost structure set up to distribute movies by mail. Blockbuster had a million little retail stores. No way could they keep up with Netflix with their Total Access program. And guess what? Netflix may be in position to disrupt another big dinosaur: Time Warner Cable.

I posted a while back about how small companies can take down bigger companies. Go out and be disruptive!


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