We’ve created a new method of business model simulation and used it to simulate the market disruption of Blockbuster by Netflix.

Click here for the interactive simulation: https://plot.ly/~jerryaoverton/4

The simulation anticipates that the Netflix model can become profitable with much less investment than is required for the Blockbuster model; and it anticipates that the Netflix model has a greater overall revenue potential than the Blockbuster model [Des]:

Table 1: The observed performance of Blockbuster and Netflix. Source [Des]

The simulation predicts a period of similar performance, followed by a period where Netflix far outperforms Blockbuster, followed by another period of similar performance.  Gross profit for Netflix and Blockbuster shows agreement between simulation and actual performance:

Figure 3: Gross profit of Blockbuster and Netflix from 1998 to 2008 [Top]

The method was useful in simulating real innovation, it made predictions matched observations, it produced real insight, and was easy to build using R.

Want to know more?  You can reach me on Twitter: @jerryaoverton

[Des] Amit Deshpande, Analytics: Netflix vs. Blockbuster, http://bit.ly/1shL3XI

[Top] Top Accounting Degrees, Netflix vs. Blockbuster, http://bit.ly/WUCeZs