Subscriber Bridge Across the Chasm
Build a transferable customer base before technology makes the first product obsolete.
- Difficulty
- Expert
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 95%
Define the company around the enduring customer relationship rather than the current delivery mechanism. Then use the existing product to accumulate subscribers, trust, usage data, and recurring revenue before technological change makes that product obsolete. Management does not need perfect foresight about whether the replacement will be streaming, downloads, or another format; it needs enough strategic flexibility to test alternatives and carry customers into whichever format wins. Netflix built its subscriber base through mailed DVDs while positioning the company around internet-delivered entertainment. That base became the bridge into streaming. The mechanism works because distribution technology can change faster than customer needs, while an established relationship lowers the cost and risk of moving users into the new world.
Origin
Extracted from Masters in Business through Rich Barton's account of Reed Hastings explaining Netflix's pre-IPO transition strategy.
Core principles
- 01The delivery format can expire while the underlying customer need persists.
- 02A large trusted customer base is a strategic asset that can cross formats.
- 03The future format need not be known precisely to prepare for transition.
- 04Naming and positioning should describe the enduring value, not the temporary mechanism.
How to run it
- 1
Name the Enduring Need
Describe what customers will continue to want after the present technology disappears.
Pro tip Frame the mission around the experience or outcome rather than a device, medium, or distribution channel.
Watch out A mission that merely renames the current product will not guide a real transition.
- 2
Locate the Chasm
Identify what could make the current format uneconomic, inconvenient, or obsolete and estimate when the threat may become material.
Pro tip Track enabling infrastructure such as bandwidth, devices, standards, and consumer adoption.
Watch out False precision about timing can cause premature abandonment of a profitable core.
- 3
Accumulate Transferable Subscribers
Use the current offering to build recurring relationships, trust, payment connections, and knowledge of customer preferences.
Pro tip Measure whether customers are loyal to the underlying value or merely to today's format.
Watch out A large audience is not transferable if switching formats destroys the value users came for.
- 4
Preserve Strategic Flexibility
Explore plausible successor formats and avoid commitments that prevent migration when the winning path becomes clear.
Pro tip Run bounded experiments while the existing business still funds learning.
Watch out Do not treat uncertainty about the final format as an excuse for inaction.
- 5
Carry Users Across
When the successor becomes viable, make migration easy and use the established relationship to accelerate adoption.
Pro tip Let customers retain identity, preferences, billing, and continuity across the transition.
Watch out Waiting until the old format collapses can eliminate the resources needed to cross.
In the wild
Before Netflix went public, Reed Hastings acknowledged that DVDs would disappear but did not know whether downloads or streaming would replace them. His strategy was to build a sufficiently large subscriber base first, then carry those subscribers into the new delivery world.
→ Netflix crossed from mailed DVDs into streaming with an established recurring customer base.
A hypothetical specialist newsletter could use its print years to build trusted subscriptions, reader profiles, and archives while testing email, apps, and audio. When print economics deteriorate, subscribers can retain their accounts and preferences on the strongest digital format.
→ The business preserves the customer relationship despite the disappearance of its original medium.
Common mistakes
Defining the Company by Its Format
A format-specific identity makes the successor product look unrelated and can trap the organization in obsolete technology.
Demanding Perfect Foresight
Waiting to know the exact successor format sacrifices time that could be spent building transferable customer relationships.
Crossing Before the Bridge Is Ready
Abandoning the core too early can destroy revenue before the new infrastructure and customer experience are viable.
Is it for you?
Best for
It is best for subscription businesses whose current distribution technology may become obsolete while the underlying demand remains durable.
Not ideal for
It is not ideal when customer relationships are purely transactional or the future product serves a fundamentally different need.
From the transcript
“We didn't name it DVD by mail flicks, Rich named it Netflix.”
“if we can build up a big enough subscriber base before the chasm is upon us, then we'll be in an incredibly good position to…”
“It could be downloads, it could be streaming. Who knows. We really don't know.”
From the episode
Rich Barton Talks About His Startup Companies
Rich Barton