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Creative Destruction

February 9, 2010 01:36 by ckincincy

image On another blog I wrote about a company I worked for many years ago going out of business.  It was a manufacturing company.  I wrote it about the time of all the bailouts and questioned the legitimacy of the thought that some companies were ‘too big to fail’.  We live in a Capitalistic country, the very foundation of capitalism is creative destruction.  The process of companies dying due to the creativity of other companies. 

On the way into work today I heard about Hollywood Video closing 800 stores.  Attributed to Netflix and Red Box.  Anybody reading this blog knows what Netflix is.  Red Box could be a bit more unknown.  At many locations are DVD rental kiosk, these are Red Box.  For $1 a day you can rent a  DVD. You don’t have to go out of your way to shop their product, you can do it when you go to buy Milk.  You usually don’t have to race the clock because they are located in 24 hour stores. 

Blockbuster isn’t much better off.  They are losing customers at a pace that they can’t reallocate their business model.  Even if they did reallocate their business model, the new business model of Kiosk and mail order movies actually erodes their own customer base and they have to close stores and lay people off.

imageI haven’t use a movie rental place outside of Red Box and Neflix in years.  My wife has hit the local movie rental, not to rent movies, but to buy used ones at a fraction of the price.  I am an avid Netflix user.  We have the two DVD plan, and I LOVE the streaming. 

Creative destruction is the foundation of business in America.  Nobody is too big to fail and nobody should be propped up by the government.  Let capitalism work, the outcome is companies like Microsoft and Google.  Netflix and Red Box. Even Walmart.  I grew up when K-Mart was king, now they are nothing but an after-thought.  I actually wonder what damage is being done to our future economy due to the government propping up failing companies.  What innovation will never come to fruition because GM was too big to fail?

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