Saturday, July 16, 2011

The redbox Model

Redbox.  I remember the first time someone told me about redbox.  What an awesome idea.  At this point, Netflix ($NFLX) had pretty much made the traditional movie rental model obsolete.  One of the main problems with this model - extremely high overhead, was solved by Netflix by using lower cost (per unit of inventory) distribution centers and letting the USPS handle there logistics.

In a sense, redbox has done this as well, except the distribution centers are just kiosks that resemble a high tech, uber-marketed vending machine.  The kiosk acts as a movie rental store, except there is not associated labor costs, expensive lease to manage, or other utilities to worry with.  The business model is so simple, and yet such a great idea.

Coinstar ($CSTR), who owns Redbox, has also diversified this model (which they have dubbed "automated retail") to include BluRay and Games.  This got me thinking....what other business models could be disrupted by instituting the "redbox model"?  There is one I can think of:  the airport "Best Buy" kiosk.  Another good way to remove some of the overhead to an increasingly low margin industry (in this case, consumer electronics).

Eventually, streaming video content will make the DVD itself obsolete, in the way Netflix has made the traditional movie rental store obsolete (I'm looking at you, Blockbuster).  But the "automated retail" idea will always be able to be utilized as a low-cost distribution model for retail products.

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