âIn most companies there would be months, perhaps years, of savage debate⊠The spectre of cannibalisation would roam the hallways, striking fear into fainthearted executives.ââââGary Hamel
[TL;DR Some companies struggle to kill off profitable but customer-hostile revenue streams, fearing short-term losses. But clinging to a fading model often proves more costly than the pivot itself. From Ryanairâs punitive pricing to Blockbusterâs late fees, history shows the dangers of resisting change. Othersâââlike Charles Schwab, Apple, Nintendo, and Netflixâââembrace self-cannibalisation as a strategic necessity. This weekâs Thursday Thought explores why smart organisations prune what no longer serves, how timing the pivot matters just as much as making itâââand why not all of the past needs to be abandoned.]
The Late Fee Effect
In many organisations, decision-making around disruptive change is like trench warfare: drawn-out, entrenched, and emotionally exhausting. This is especially true when the conversation turns to retiring a profitable product or service that no longer serves customers.
Take Ryanair. While I avoid flying with them if it is at all possible, which is less about the poor experience and more about the principle. Their pricing model is devoid of service and more like a trap. A way to squeeze revenue out of customers rather than create lasting loyalty. The problem is that it apparently works until it doesnât. It seems their practices have only worsened over time, as highlighted by this recent article detailing how some Ryanair customers were left stunned after being charged ÂŁ1,375 in extra fees.
Ryanairâs model is a living example of what I call The Late Fee Effect: a reliance on short-term, punitive profits that risk long-term brand survival.
Blockbuster, Kodak and the Cost of Clinging
Blockbuster is a classic example of a company that struggled to sacrifice a profitable but outdated revenue stream. In early 2005, after a three-month pilot, CEO John Antioco boldly decided to eliminate late feesâââa major source of revenue. Later, at the end of 2006, he introduced Total Access, a hybrid service combining online DVD rentals with in-store returnsâââa product that initially proved superior to Netflixâs early offering.
However, as my friend Greg Satell highlights, internal forces rather than mere strategic missteps undermined Antiocoâs efforts. Activist investor Carl Icahn and franchisees resisted these transformative moves due to concerns over short-term profitability. Internal opposition intensified, culminating in Antiocoâs resignation in January 2008 following a heated compensation dispute. His replacement, Jim Keyes, promptly reversed these innovations, doubling down on physical stores rather than embracing digital transformation. Blockbusterâs failure wasnât just about missing digital trendsâââit was about losing to internal resistance and short-term financial pressures.
Similarly, Kodak invented the digital camera in 1975 but feared cannibalising its lucrative film business and thus buried the technology. Kodak didnât lose because it failed to innovate; it lost because it feared cannibalisation more than irrelevance. Like Blockbuster they eventually shifted gears and even had the number one line of digital cameras. They just never replaced the profits of its film development business.
When Companies Get It Right: Schwabâs Bold Moves
Charles Schwab offers a different storyâââone where a company made tough sacrifices to ensure long-term success. In 1975, Schwab saw an opportunity to break from the traditional high-commission sales model (Rewiring Reward Systems). The company halved customer fees, shifted salesmen from commission-based pay to hourly salaries, and introduced toll-free phone ordering. Later, Schwab pioneered 24/7 trading, prioritising accessibility over short-term profits.
As Gary Hamel noted in our 18-part series for The Innovation Show, the reason Schwab moved decisively while others hesitated was simple: they had already built a culture willing to prioritise long-term trust over short-term gain.
The same could be said of Apple. Launching the iPhone meant cannibalising the wildly successful iPod. But Jobs famously said, âIf we donât cannibalise ourselves, someone else will.â That mindset propelled Apple into a new era, even if it meant retiring their own star product.
Netflix did the same. Rather than protect its DVD-by-mail business, it invested in streamingâââat a time when it wasnât yet clear that customers were ready. The pivot wasnât frictionless, but it was necessary.
Nintendoâs Bold Cannibalisation
Nintendo offers a remarkable case of perpetual self-disruption. In his book Big Bang Disruption, my great friend Paul Nunes highlights how Nintendo repeatedly disrupted its own successful products, from the GameCube to the Wii and eventually the Switch. Each new console generation deliberately cannibalised its predecessor, creating successive waves of adoption and declineâââwhat Nunes calls a âshark finâ pattern.
Nintendo and the Shark Fin
Nintendo realised that disruption was inevitable, particularly in consumer electronics, where exponential technologies and near-perfect market information empower customers. Instead of resisting cannibalisation, Nintendo managed it strategically, launching disruptive products before competitors could seize the initiative.
Crucially, Nintendo understood that consumers often anticipate disruption, deferring purchases in expectation of something better. Rather than lamenting this reality, Nintendo embraced it. They accepted that the information advantage had shifted irrevocably from producer to consumerâââand that the best defence was to disrupt themselves first.
Nintendoâs willingness to cannibalise its own offerings repeatedly allowed it to stay relevant and thrive in an era of accelerated change.
Timing the Pivot: The Osborne Effect
Thereâs a flip side to this conversation. Cannibalisation, mistimed, can be equally fatal.
In 1983, Osborne Computer pre-announced its next-generation personal computersâââthe Executive and the Vixenâââmonths before they were ready. Customers, hearing something better was coming, cancelled orders for the current model. Sales plummeted. Cash flow dried up. The company collapsed before the new machines hit the shelves.
This became known as The Osborne Effect: the risk of undermining your current product before the new one can support the business. A strategic pivot, poorly timed, can be just as dangerous as no pivot at all.
Killing Revenue Streams to Stay Alive
Companies resist killing profitable but customer-unfriendly revenue streams because the immediate pain is tangible, while long-term benefits are uncertain. But history shows that those who refuse to evolve eventually become obsolete.
As Clayton Christensen and Joseph Bower wrote in Disruptive Technologies: Catching the Wave (Harvard Business Review, 1995):
âFor the corporation to live, it must be willing to see business units die. If the corporation doesnât kill them off itself, competitors will.â
Nature, as always, offers a metaphor. The human body undergoes apoptosisâââa form of programmed cell death. Every day, 50 to 70 billion cells die to make way for renewal. Without this, the body would fail to function.
Organisations require the same mechanism. Legacy products, services, or revenue streams must eventually be retired to make space for new growth. Companies that fail to do so risk obsolescence.
The Courage to Prune
âWhat part of our past can we use as a pivot to get to the futureâââand what part represents excess baggage?ââââGary Hamel, Competing For The Future
Netflix didnât abandon its culture of customer convenience when it pivoted to streamingâââit built on it. Schwab didnât reject its founding ethos of customer-first financeâââit doubled down on it. Apple didnât kill the iPod because it stopped caring about music; it killed it because it saw music converging with everything else in our pockets. Nintendo disrupted its own best products repeatedlyââânot because it enjoyed disruption, but because it understood the inevitability of market-driven change.
These companies used their core principles as a fulcrum, not an anchor. They understood the difference between a value and a vesselâââbetween what must endure and what must evolve.
By contrast, Kodak and Blockbuster mistook their delivery mechanism for their identity. They couldnât distinguish what was foundational from what was fungible. And when the world changed, they couldnât pivot because they were still carrying too much of the past on their backs.
Ryanair and others dependent on predatory fees may still profit today, but their future depends on whether they can let go of whatâs comfortable and embrace whatâs right. Otherwise, they risk becoming the next Blockbuster.
Killing off a profitable but customer-unfriendly revenue stream takes courage. But delaying that decision in the name of short-term comfort only prolongs the inevitable. Whether itâs a legacy pricing model, a dying product line, or a sunset market, the most resilient businesses are those that learn to prune, sacrifice, and reinvent.
4 weeks to R-Day, Reinvention Day at the Reinvention Summit.
Tickets still available and I have special Innovation Show goodie bags for those of you coming. Please let me know if you intend to so I can have enough bags ready.
https://www.thereinventionsummit.com
The latest Episodes of the Innovation Show are below.
Part of our Open and Free User Innovation Series is with Andrew Torrance on the legals of Free User Innovation.
https://medium.com/media/295d42f5afae551030c44157ecc3ce4e/href
The latest Gary Hamel episode is here:
https://medium.com/media/b1999c561f3121a5b8e99a930a2a7361/href
Big Bang Disruption with Paul Nunes:
https://medium.com/media/abb436186a554cc9a08564406c5c05b6/href
How to Navigate the Osborne Effect Without Killing Your Business Too Soon was originally published in The Thursday Thought on Medium, where people are continuing the conversation by highlighting and responding to this story.