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Innovation Lessons From a Vending Machine

Los Angeles: RedBox

This essay first appeared on CNN.

Want to find the next big idea? Here’s a counterintuitive way to start:
– First, acknowledge that America is a place where consumers often lag behind the rest of the world when it comes to the mass adoption of new technologies.

– Second, take a step back and look at what innovations have worked outside of the United States.

– Finally, consider how to bring these innovations to American audiences.
I’m not necessarily talking about “reverse” or “trickle-up” innovation – terms that are often used to describe inexpensive products created for low-income consumers in emerging markets that are later tweaked for America and other developed nations.

I’m taking a broader view and asking: What products and services work for the middle class in, say, Europe or Japan – or the middle class in Egypt, for that matter – that don’t exist in the United States?

Let me give you an example of the fruits of such thinking.

For the last dozen or so years, in many European cities and towns it has been possible to rent a movie at any time via vending machines.
Redbox, a company that saw its revenue grow 37.7% in the first quarter of 2011, adapted this idea to the United States. Then, it implemented a very American twist: on June 17, Redbox will start renting video games in more than 21,000 of their 27,000 vending machines in the United States.

Redbox’s real impact goes far further than merely renting out DVDs in the U.S. by borrowing a concept that has been around for some time in other parts of the world. They have introduced new forms of interaction into the American urban landscape, such as making it more acceptable to use touch screens to browse content in high-footfall, outdoor public spaces, such as 7/11 stores, where Redbox often places its rental kiosks.
And Redbox has not only introduced non-beverage/non-snack vending machine use to a new American demographic, but also offers online and mobile-phone reservations for rentals.

The company wisely marries the physical and digital worlds – thus updating both the retail vending machine and the online ordering experiences.

Most important, the value proposition — cheap movies that cost only $1 a night for all DVDs, even for new releases, versus $4.99 on iTunes for a rental download – provides sufficient pull for customers to take out a credit card and swipe to authenticate (for rental pick-ups) and complete transactions.

Redbox’s parent company, Coinstar, which not-so-modestly pitches itself as “the world’s leading supplier of valuable services that make life easier for consumers” has reinvented the rental of tangible media.
While that may seem downright quaint and maybe even doomed in an age of instant downloads and video streaming on phones and tablets, data show that physical media still dominates how Americans consume their home entertainment, at least in terms of movies.

The recently released (April 2011) “Entertainment Trends in America” report from market research firm NPD found that U.S. consumers spend 78 percent of their home video budgets on buying and renting physical DVD and Blu-Ray discs, including online and in-store retail purchases and rentals.

In comparison, 15 percent was spent on video subscription services, like Netflix (Redbox’s main rival), and pay-per-view, digital downloads (such as Apple’s iTunes), paid streaming, and video-on-demand purchases comprised the remaining 8 percent.

Sure, the need for tangible discs for movies and video games won’t last forever, and Redbox is following Netflix’s lead and is working on a video-streaming service, which will be subscription based.
But I ask you, entrepreneurs, innovators, students and consumers: how can a similar infrastructure of online and mobile reservations and self-serve kiosks support the sales or rentals of other tangible objects?

Don’t think of the Redbox example as a model for vending machines, or even movie and video game rentals, but instead as an example of a smart platform through which to support a timely exchange of physical products. What value added-services might be introduced to add convenience in the United States that already work in other parts of the world? I’d love to hear your thoughts via comments below.

(In my next posts for the Global Innovation Showcase on CNN.com, I will take you around the world with me as I research how consumers use technology, both high and low, in areas ranging from Afghanistan to Thailand and beyond.

How is the concept of mobile money playing out in the Middle East? How do salespeople reach Chinese customers in the suburbs of Shanghai? How will these observations affect your own habits, behavior, businesses, and lives, whether you’re located in New York or New Delhi? I’m looking forward to sharing these journeys here, and I hope that you will share yours with us, too.)