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Blockbuster's High-Tech Future: Shaken, Stirred or Blended?

24 Feb, 2004 By: Holly J. Wagner

Blockbuster Video is preparing for some pretty ambitious initiatives in the coming year. They'll be great if the company can get it all done in enough time to keep the market from passing the chain by, but right now it looks just as likely to me that the promises will be half-fulfilled at best by year's end.

I base that on the degree of difficulty in executing some of the planned improvements. I came to Video Store Magazine from Advanstar's CRM (customer relationship management) magazine, which focused most of its attention on customer service call centers and e-commerce back-end management. A lot of what Blockbuster executives are promising is a lot harder to execute than it looks like it should be on paper.

It's great to be all things to all people, but ask any e-tailer (except Amazon) that tried to have a system up on the Internet in time for the 2000 holiday season and you will learn that it's not that simple. Logistics are difficult at best, even with the simplest model. The Blockbuster plan for “blended commerce” — the CRM term for brick-and-click — is extremely difficult to get working properly. Several companies that tried to race to the Web with simpler systems found out it wasn't that easy and ended up putting out their shingles at Amazon by 2001.

To its credit, Blockbuster has finally caught on to what's growing and what's dying in home entertainment. Efforts to push into games and the used-disc trade — which I distinguish from pre-viewed because PVTs are typically rental selloff, while “used” to me means the consumer trade-in model — are a smart move in tough economic times and a flooded market.

But Big Blue is hardly a first mover in online rental. Although it's only fair to note the chain has been offering “rental by post” in the United Kingdom for some time, CEO John Antioco has repeatedly told analysts that online rental will never be a large portion of the chain's U.S. business. Clearly, moves in that direction indicate that Netflix and other online services present a significant threat, or at least a chunk of market share Blockbuster wants. The little upstart may not be the pushover Blockbuster is hoping.

Like online rental, much of what Blockbuster is trying to do has already been done. But I see two major hurdles in the logistics of integrating online and in-store rentals. As I understand it, Blockbuster plans to let consumers rent online, using stores in the renter's area to ship the product. Then the consumer could return it by mail, at a store or decide to keep it after renting by choosing that option on the Web — an option that would be really cool and a unique selling point if they can make it work.

But I have to have my doubts because of some preliminary steps that are still not in place. First of all, Blockbuster's millions of renters must use their membership cards at the stores where they are obtained; they can't go to another store while on vacation and use the same card. Although CFO Larry Zine told analysts last week that the chain would have that bug worked out by the end of the year, integrating that many customer records in a chainwide POS system is a massive undertaking in itself. Then integrating that with Web functionality and providing customer service support is a whole other can of worms.

Finally, it may seem great in theory to let customers rent from one channel and return at another, but this is not as simple as Best Buy routing an online order to a store for pickup. The transaction has to go full circle. It's less like pure-play Netflix and a lot more like U-Haul, which adjusts its rental prices based on where you rent the truck and where you plan to return it. In the same way U-Haul can't have all its trucks from San Diego, Detroit and Nashville all pulling in for return in Cincinnati on the same day, Blockbuster will have to come up with a system that means online rentals get returned somewhere near where they were checked out if it wants to stay competitive. That will be a lot harder with a blended commerce system, assuming the chain can get it blended at all.

Customer service gurus have a rule of thumb: A satisfied customer tells three friends; a dissatisfied customer tells 10. That's some pretty scary math for a mature business that's trying to change to compete with another mature model. If Blockbuster succeeds, it stands to make some important gains. But if it fails, well, the bigger they come, the harder they fall.

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