Innovation Isn’t a Feature Upgrade: Lessons From the $82.7B Netflix-Warner Deal
This is how disruption actually happens. Today Netflix announced it’s buying Warner Bros for a cool $82.7B. Remember when Jeff Bewkes completely dismissed Netflix 16 years ago as “no threat”?
The lesson is about disruption. Warner didn’t make bad shows. But it did treat innovation like a feature upgrade instead of a full-system redesign.
Edtech companies and higher-ed-serving agencies love to position themselves as disruptors. But many now look more like the media incumbents of the early 2010s — confident in their models, comfortable with their revenue structures, and convinced that the emerging players aren’t real threats yet.
Disruption is a strategy problem, not a technology problem. And incumbents always underestimate new models.
How Incumbents Lose the Plot
Clayton Christensen mapped this pattern long before streaming existed. Disruption rarely begins as a direct attack. It starts at the edges, in markets the incumbents don’t value, serving people they don’t prioritize.
Four dynamics repeat every time:
The new model starts small. Inferior in quality, unfamiliar to the mainstream, and easy to ignore.
It serves overlooked users. People the incumbent doesn’t consider their “real” customers.
It steadily improves. Faster than the incumbent’s capacity to adapt.
By the time it reaches the core market, it’s too late.
In 2010, Netflix was small, a little weird, and unprofitable by traditional measures. But it was learning faster. Its model fit emerging consumer behavior. And it didn’t carry the structural constraints like legacy portfolios, complex revenue models, or internal politics that kept studios trapped.
Christensen would call this “the moment the incumbent’s incentives become its biggest liability.” That’s exactly where much of our sector is sitting today.
Why This Matters for Edtech and Agencies
Many agency and edtech companies are making decisions that resemble a studio executive in 2010:
“Our clients aren’t asking for that yet.”
“The margins don’t work.”
“It isn’t high-quality enough.”
“We’ll respond when the market is ready.”
These aren’t bad instincts. They’re incumbent instincts — optimized for stability, not for disruption. Exactly the instincts Christensen warned us about.
Disruption never arrives looking profitable or polished. It arrives looking inefficient, unscalable, or beneath the incumbent’s standards. That’s what makes it so easy to underestimate.
Innovation Requires Structural Change, Not Better Ideas
Innovation isn’t just about the product or service, it’s about the configuration of the entire business system.
The Ten Types of Innovation framework reinforces this. Failures aren’t due to a lack of creativity; they come from a lack of discipline and an over-reliance on product innovation alone.
Incumbents gravitate to the right side of the Ten Types — the shiny, customer-facing side:
New service features
Better user experience
More polished brand moments
These matter. But they don’t create the advantage. That comes from the left side — profit model, network, structure, and process.
Those are the types that threaten existing revenue, job descriptions, or internal power structures. So (shocker!) they’re avoided.
Studios focused on better content. Netflix redesigned the profit model.
Agencies focus on new service lines. AI-native competitors redesign the workflow and labor structure.
Edtech companies focus on features. Startups redesign the delivery model.
It’s not the product that wins. It’s the system. The mistake is thinking you can respond with better features or incremental improvements. That’s the trap Warner fell into and exactly the trap AI is setting for today’s incumbent agencies and tech companies.
AI Is Your Netflix Moment
If you want to understand your current risk, look at how people talked about early streaming:
“It’s too low-quality.”
“It can’t scale.”
“People like the legacy experience.”
“It won’t disrupt our core business.”
That’s what early AI sounded like in 2022. That’s what many still say now.
But the signs are already here:
AI lowers production cost across content, assessment, marketing, and operations.
It moves faster than human iteration cycles.
It creates new categories of value that incumbents don’t have the structure to monetize.
It reshapes user expectations long before institutions shift.
The only question is whether we behave as Bewkes did in 2010 or whether we choose a different arc.
Where Leaders Go Wrong
In my conversations with leaders across the sector, I see three recurring mistakes, all of them rooted in the Innovator’s Dilemma.
1. Protecting the current revenue model
Christensen calls this the profit-center trap. If the new model threatens existing profit, organizations sabotage it, usually unconsciously.
AI-native competitors don’t have this problem. They start with lower cost structures and different success metrics.
2. Treating innovation as a product strategy instead of an organizational strategy
Ten Types is clear: product innovation is the easiest for competitors to copy and the least durable.
If your innovation strategy lives exclusively in your feature roadmap or service list, you’re iterating, not innovating.
3. Assuming time is on your side
Studios assumed they had time. Then streaming hit its compounding curve. Higher ed assumed online delivery would stay peripheral. Agencies assumed digital transformation would be gradual.
(AI is not gradual.)
What Business Leaders Should Do Now
Here’s where the Ten Types and Christensen converge: you need structural moves, not cosmetic ones. Some ideas to consider:
Shift your profit model: Experiment with subscription, metered use, or value-based components that align incentives with outcomes.
Build or join new networks: Partnerships, data collaboratives, or shared infrastructure can move faster than any single company and bring real competitive advantage with it.
Redesign internal structure and processes: Your future competitiveness depends on new workflow designs, AI-integrated operating systems, decentralized experimentation, empowered and cross-functional teams. These are the “backstage” innovation types that create real differentiation and future-proof your organization.
Create a protected space for disruptive bets: Christensen’s guidance still holds. Incubate emerging models outside your core business as serious bets with different incentives.
Stop waiting for perfect clarity: If you wait for the market to stabilize, you’ll be reshaping a business that no longer has a strategic position to defend.
The Real Question for Leaders
Every disruption story looks obvious in hindsight. Industries don’t collapse overnight. They erode through a thousand dismissed signals and a hundred delayed decisions. And in every case, the incumbents believed the same thing: that a better product, feature, or campaign would buy them time
AI is offering those signals right now. The work isn’t adopting new tools — it’s rewiring the systems that shape how we work, decide, and deliver value.
Leaders, ask yourself these two questions:
What part of your organization’s design is still optimized for the world you wish you were operating in?
Where would your strategy shift if you assumed the early signals were right?