Netflix as an Example of Clay Christensen's 'Disruptive Innovation'

I am a great admirer both of Clay Christensen personally and of his theory of disruptive innovation. “Disruptive innovation” doesn’t mean simply a big innovation, it means an innovation for which doing a good job at giving your usual customers what they want and will pay for is not enough. You can see posts I have written referencing Clay here:

Netflix is a fascinating example of disruptive innovation. I urge you to read the entire article by Alex Sherman shown above:

How Netflix sent the biggest media companies into a frenzy, and why Netflix thinks some are getting it wrong

As teasers, here are the two passages most relevant to the idea of disruptive innovation. I added boldface to the most important sentence in each:

While traditional media is racing to catch up, Netflix CEO Reed Hastingsis not looking back at the runners he's passed.

Hastings has never really feared legacy media, said Neil Rothstein, who worked at Netflix from 2001 to 2012 and eventually ran digital global advertising for the company. That's because Hastings bought into the fundamental principle of "The Innovator's Dilemma," the 1997 business strategy book by Harvard Business School professor Clayton Christensen.

That book, often cited in tech circles, explains how disruptive businesses often start off as cheaper alternatives with lesser functionality, making it difficult for big incumbents to respond without cannibalizing their cash-rich businesses. Over time, the newcomer adds features and builds customer loyalty until it's just as good or better than the incumbent's product. By the time the old guard wakes up, it's too late.

"Reed brought 25 or 30 of us together, and we discussed the book," Rothstein said of an executive retreat he remembered nearly a decade ago. "We studied AOL and Blockbuster as cautionary tales. We knew we had to disrupt, including disrupting ourselves, or someone else would do it."


Hastings derived many of his strategy lessons from a Stanford instructor named Hamilton Helmer. Hastings even invited him to Netflix in 2010 to teach other executives.

One of Helmer's key concepts is called counter-positioning, which Helmer defines as: "A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business."

"Throughout my business career, I have often observed powerful incumbents, once lauded for their business acumen, failing to adjust to a new competitive reality," Hastings writes in the forward to Helmer's book "7 Powers," published in 2016.