In this world of Digital Transformation and Disruption, the question I often hear industry executives and leaders ask is… “How do you recognize the signs of digital disruption before it takes hold and still have time to correct and avoid it?” In fact, this is the question I hear the audience ask most often of the keynote speakers at conferences and networking events.
There is not an easy, one size fits all answer, every situation is different. But, there are certainly events and decisions we can look back on in history and learn from. Here I dive into two of those events of digital disruption. The first one is when Toys R Us decided not to commit to an online store and made a deal with the devil to offload that experience and essentially give up control of the future of their customers experience. The second one, is when Steve Jobs offered Best Buy half of all iTunes sales in exchange for exclusive rights to distribute the new iPod.
AMAZON vs TOYS R US or “Can’t See The Forest For The Trees”
Our first example of digital disruption comes from Amazon and Toys R Us. The two retailers signed a 10-year “strategic” partnership in 2000 — at the height of the Internet stock bubble — that made Amazon.com the exclusive online retail outlet for Toys “R” Us toys, games and baby products.
At the time, the deal was hailed as a model for future brick-n-click partnerships, and “many industry watchers expected online retailers to overwhelm traditional bricks-and-mortar merchants.”
Imagine that. Toys R Us was not willing to commit to online themselves and signed a bad deal with the company that would help out them nearly go out of business many years later. Only 6 years into the deal and Toys R Us had to sue Amazon to get out of that deal so they could build their own online store. And, this was all before the iPhone and the new digital/mobile world changed everything a few years later.
Evidently the deal was only exclusive one way and Amazon was making deals with Toys R Us’ biggest competitors. 10 years later and Toys R Us has still never landed on a strategy that works in the new digital age. It was only recently that Toys R Us, who is $5 billion in debt, announced a $100 million revamp of their online store.
Would you have built your own online store at the time? Would you have had the foresight to see the potential of online back in 2000? Is this one of the deals that made Amazon the power house it is today?
BEST BUY and APPLE or “Snow White Doesn’t Take a Bite of the Apple”
In 2001 Steve Jobs supposedly offered Best Buy 50% of every song sold on iTunes if they would help him distribute the iPod. Best Buy said “No”, not interested.
From Apple’s perspective, this seems reasonable, Apple wasn’t trying to corner the market on music and really only did it as a way to sell their devices. In fact Apple didn’t see the value of the music. In the recent HBO documentary THE DEFIANT ONES they talk about how before the purchases of BEATS there really wasn’t a strong focus or push on Apple’s part to embrace the streaming service. By the way, I highly recommend you watch that documentary, it is fantastic.
This makes me think of recent news of other big box stores making poor strategic decisions in the past and not embracing the future of tech when it mattered, and now suffering from those decisions. Will Best Buy, or have they, already come to regret this past decision? Is this an anchor they keep dragging behind them?
Best Buy was more focused on selling game machines with $1 margins and buying up mall based music retailers like Sam Goody and Suncoast at the time and this did not fit into their strategy… even for freemoney evidently.
One year later, Apple was selling more music than Best Buy and Walmart. All these years later, Best Buy has never learned how to make money off of music, it is and always has been a loss leader for them. I would say nobody in this story saw the potential of the music sales, they all looked at it as an means to an end.
How would of a “Yes!” instead of a “No.” changed Best Buy? Would they be in the trouble they are in now? Was it better for Apple that Best Buy said “No.” all those years ago? Would you have taken a free bite of the Apple?