The Netflix and the Blockbuster (with apologies to Lewis Carroll)

Without question, the most fascinating stock story of 2010 is the raging success of Netflix compared with the epic collapse of Blockbuster, which just this morning filed for bankruptcy. There is a cautionary business tale in here that is both timeless and essential for all investors to understand.

The below should be recited in the meter of Lewis Carroll's 'The Walrus and the Carpenter' from Through the Looking Glass:

The sun was setting on the boom
The Credit Crunch was here
And all the people in their homes
Were looking for some cheer
And in their search for things to do
A new option appeared

The move was watching DVDs
Because they were so cheap
There was one franchise renting flicks
Although it was asleep
And while it wasn’t watching out
A new one came to creep

The burning down economy
Turned jobs and lives to ash
You could not take a trip because
You didn’t have the cash
No one was eating dinner out -
We worried ‘bout the crash

The Netflix and the Blockbuster
Were at each others' throats
They fought to show The Street they had
An economic moat
“Our strategy is still our stores”
The old incumbent wrote

“For fifteen bucks each thirty days
We let you rent it all,
Can you beat that?” the Netflix said
“With stores leased in the mall?”
“I hope so,” thought the Blockbuster
But it had hit the wall

“O renters, come and rent from us!”
The Netflix did beseech
“A pleasant site, with checkout right,
And all movies in reach;
You make your queue of films you want
And we will mail you each.”

The Blockbuster was scared by this
But never did admit
Instead they built a website too
But no one would use it
Needless to say the management
Was not prepared to quit

The Netflix and the Blockbuster
Fought on a year or so
And then the country froze in shock
While business quickly slowed
And all the newly jobless went
Online to rent a show

“The time has come,” the Netflix said,
“To talk of many things:
Of discs and flicks and digital -
Of downloading these things -
And how we stream this stuff to you
Before the mailman brings.”

“But wait a bit,” said Blockbuster
“We can do all that too,
Just let us close some stores real quick,
Don’t hate Yellow and Blue!”
But nothing worked for Blockbuster
They couldn’t buy a clue

“A bold new plan,” said the top man,
“Is what we chiefly need:
Bricks and clicks and mail besides
Are very good indeed---
Now if you’re ready, customers
Come to the stores and see it!”

But Netflix had already grabbed
The rental market whole
And without stores or overhead
There was no costly toll
“The game is won,” the Netflix said
“We’re really on a roll.”

Blockbuster ran the industry,
Until 2004
Its customers have moved online
And bankrupted the store
While Netflix stock has broken out
Above One Fifty Four!

So there you have it. It's a story that's been told a million times - the complacent giant felled by a nimbler, hungrier upstart with new ideas.

My apologies to Mr. Carroll. Here's the saga of these two competitors in chart form over the last two years:

Add/view comments on this post.

------------------------------

The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.