When I turned seven I received two gifts for my birthday. One was a trip to see the recently released Star Wars, and the other was a camera that used 110 film. 110 film was a cartridge-based film that made a new line of small pocket-sized cameras possible. This first camera I received was one of those pocket-sized cameras. It took pictures, some of which I still have, that definitely had a charm of their own but left something to be desired in terms of quality.
Once a cartridge of 110 film was used, we almost always took it to a “Fotomat” to develop the pictures. Fotomat was a US-based chain of very small “hut-like” stores with mustard yellow roofs that were almost always in the parking lots of malls and shopping centers. They were barely big enough for the attendant to squeeze inside, and they sold a few things such as film, flash cubes, and other camera-related items. Fotomats were a drive through affair. In my case, my mother drove up, and filled out the necessary forms. You left your film with them, and some period of time later you picked up your developed prints.
I know well what happened to Fotomat. Their main service at the time of their demise was “1 day film development”. Stores that began offering “1 hour film development” in the 1980’s rendered Fotomat’s main service obsolete. In turn, one hour service and physical film in general were largely rendered obsolete in later years by affordable digital cameras.
This topic came up this week as part of an ITIL Service Strategy class I delivered. One of the topics in Service Strategy covers what ITIL calls “market spaces” and how various factors cause changes in market spaces. Businesses that sell services to consumers that participate in market spaces either adapt to changes, move into different market spaces, or cease business operations. In the class we discussed various technology companies that once did well but ceased operations, largely due to changes in their primary markets and their failure to adjust to those changes. Despite not really being a tech company, Fotomat somehow entered into this discussion. This made me curious about the fate of Fotomat, so I did a little research… more on that later.
Another thing that ITIL says is that businesses move into different market spaces by taking existing assets and repositioning those assets in some way that enables them to participate in a new market. An organization that does this takes existing resources and capabilities, and arranges them in some unique way in order to serve a new market space.
In my research about Fotomat, I found that in fact Fotomat attempted exactly this. In the early 1980’s, Fotomat was one of the first businesses that offered VHS movie rentals. As ITIL describes it, Fotomat took existing resources and capabilities and arranged them in some way that allowed them to move into a new market space. In the early 1980’s, VHS tape rentals was a new market space. Looking back, this is clearly an example of Fotomat attempting to transform their business. As ITIL says, an organization transforms its business when it uses existing assets to participate in a new market space. However, as the VHS-rental market space matured throughout the 1980’s, Fotomat was driven from this market by lower cost competitors.
Market spaces always have critical success factors that determine where a participant exists in a specific market. As shown in the figure below, failure to achieve the lowest levels of critical success factors means that a business really can’t participate in a market. This is known as the “entry barrier”. Organizations that achieve high-levels of the critical success factors required by a market space tend to be the chief players in that market space. The business that achieves the highest levels of the critical success factors that a market space requires leads the market space. These highest performing businesses surpassed what is known as the “competitive frontier”.
Fotomat’s video rental service allowed the rental of VHS tapes for $12 per 5-day rental period. This is about $35 in today’s money. Thinking back to the price of movies on VHS in the early to mid-1980’s, this was a good deal (it was not uncommon for the purchase price of a VHS movie to be $70-$80). The customer went to the Fotomat, looked at a list of movies, checked the one he wanted, and came back the next day to pick it up. As the video rental market matured, the critical success factors of that market changed. These critical success factors changed to the point that in order to compete, players in the market had to offer immediate access to video rentals, at a much lower price than $12 per 5-day rental period. A market participant’s inability to meet certain levels of expected critical success factors ultimately led to their exit from a market.
What’s picture-perfect clear from this is that a market space that’s active one day might disappear the next because of innovations in technology. As ITIL indicates, organizations either adapt by repurposing assets and moving into new market spaces, or they ultimately cease operations. As IT service providers we must heed the examples all around us of changes in market spaces and how we adapt to those changes. Ultimately any business will get the services that they require; the question that as IT professionals we must answer is will they get those services from us or from some competitor that adapts more quickly to an emerging market space?