(From Wiki: Creative destruction is an economic theory of innovation and progress, introduced by German sociologist Werner Sombart and elaborated and popularized by the Austrian economist Joseph Schumpeter.)

Living in Silicon Valley, we sometimes get to experience firsthand sea-changes in technology and in its cultural implications. The rise and fall of the corner video store is a great example of this. According to Network World (News - Alert), this October marks the 25th anniversary of the first Blockbuster Video store. Fast forward a two and a half decades, and Hollywood Video, the only video store in Los Gatos, is closing down.

I'm only speculating that their demise is at least partially due to the success of another company that happens to have its headquarters in Los Gatos, Netflix.

A comparison of their relative stock prices (below, with Movie Gallery the now bankrupt parent of Hollywood Video) helps illustrate the fates of the two companies:

Interesting how the definition of convenience has shifted. A decade ago, if you asked someone if they'd go on-line, order a video, and then wait for it to arrive in the mail, they would have laughed. Not anymore. How does this link to mobility?

I think that it hinges on convenience, and operators must understand this in developing their business models. Looking back to the appstore discussion, users will gravitate to the 'storefront' offering both selection and convenience, even if they don't really know in advance just what they want. No different than impulse shopping at your local mall.

However, some of the moves by operators in the opposite direction of what should be Business 101, such as AT&T (News - Alert)with their Android devices, are disturbing.

Perhaps they are setting themselves up to be the Blockbusters or Hollywood Videos of 2010? At the same time, too much of the discussion has focused on bandwidth and pricing, red herrings when looking at the larger ecosystem. The now virtual 'corner store,' and therefore the operator and devices, that users (and developers) will gravitate to, is one that minimizes restrictions, maximizes convenience, and reaches the largest number of subscribers.

Back to Netflix. If a company understands technology transitions and is not wedded to a single technology, they can reinvent themselves and break out of the creative destruction cycle. Nintendo, the one time baseball card maker from Japan, reinvented themselves as a video game company.

Netflix seems to be in the process of a similar reinvention. Their business is in making a wide range of content available to users in a convenient way, not in shoving small silver disks in red envelopes.

Given firsthand experience with their PC, Mac, Wii, and now iPad clients, I think they've succeeded. It will be really interesting to track the uptake and impact of their mobile client on the operator's bandwidth business model, especially in light of comments by AT&T that iPad 'unlimited' data is truly unlimited (at least for the moment). I've briefly touched on this topic here.

On a deeper level, the whole topic brings up some interesting thoughts on whether creative destruction applies to telecom, whether some operators are 'too big to fail,' and a trip down nostalgia lane to Western Union (News - Alert). Perhaps later.

David Ginsburg (News - Alert)is vide president of marketing at Innopath Software.

Edited by Michael Dinan