I suspect Blockbuster behaved similarly. It's hard to kill the golden goose.
Still examples of the sunk cost fallacy, for sure, but it feels like "lack of realization" is perhaps the wrong attribution.
They would have been better ignoring the whole digital camera thing and looking for other opportunities where they could leverage their skills and assets. Or just wound down gracefully.
Kodak is a classic example that no amount of foresight will save you when the entire industry changes underneath you.
Motorola is another, mostly forgotten example. They invented digital radios for cell phones, but they were so entrenched in analog radios at the time that they gave the technology away to a small company called Nokia. A few years later, they collaborated with Apple on an iTunes equipped cell phone, and shared their own internal designs of a full screen phone.
I think this phenomenon is one of the few ways a big company can die.
Blockbuster's organizational, legal and physical infrastructure was wholly devoted to video rental via physical stores. Decommissioning those organizational components and creating the systems necessary to spin up and run an online video portal would have required changes in the company so massive that it would effectively be a different company.
Even if Blockbuster had bought Netflix early on, Blockbuster would have been left running an organization they did not understand in a market that only vaguely resembled something it was familiar with. Even worse, and totally contrary to modern management theory, management skills alone are necessary but not sufficient to operate a growing and dynamic company on the forefront of technology. The entire management organization of Blockbuster would have been totally unequal to the task of operating Netflix competently.
Steve Eisman puts this well in [1] when talking about why he's investing in bank stocks even though he thinks prospective rollbacks in Dodd-Frank reforms are a bad idea: "There's two issues. There's what I think about the financial system and what I think about financial stocks, and the two don't necessarily correlate."
KBE: 44.49 Jan 30, 2017, 47.82 July 11, 2018 = 7.48% price growth (I couldn't find numbers for total return and too lazy to compute from distribution history)
VFAIX: 20123 Jan 30, 2017, 23569 July 11, 2018 = 17.1% total return
VFIAX: 22291 Jan 30, 2017, 27729 July 11, 2018 = 24.4% total return
KBE: SPDR Bank ETF
VFAIX: Vanguard Financial Index
VFIAX: Vanguard S&P 500I mean, sure, the business model and support systems between original Netflix and video rental store are fairly different, but Blockbuster still had a huge leg up over starting from scratch. They already had vast inventories, sorting systems, a distribution network (albeit one that would have to be heavily modified), name recognition in a market that consumers considered interchangeable (common consumers just think "video rental", not "brick-and-mortar retail vs. online direct delivery") and I assume a lot of production industry connections and relationships.
It seems like they were already over halfway there, and given that the biggest hurdle is getting off the ground, their existing brand recognition and membership records are a massive advantage.
For a while I was pretty sure I knew what a healthy buyout should look like. Now I’ve no idea. How do people pull this off?
> There was an economist once early in my career who said to me, “You know, if you’re right, what am I supposed to do? What I know how to do is solve optimization problems.”
A career economist not wanting to change their ways because they have spent a career doing things when presented with a possible outcome that maybe those things didn't matter as much. Also:
> If you think of companies that have come and gone, like Kodak, which invented the digital camera, but they had an almost-monopoly in film, and didn’t really think this digital thing would go anywhere. Blockbuster Video, which came along and put tens of thousands of mom-and-pop video stores out of business, only to be put out of business by Netflix.
These are human behaviors to recognize - sunk cost. It can sink a company. Something to be wary of as a startup grows past adolescence and into adulthood.