Netflix recently has been reeling (pun intended) from the [1] onslaught of attacks from Blockbuster. There have been multiple discussions about how Netflix needs to meet the attack. From, “they must focus on small indie films” to “lower prices is the only way for them to compete.” The lesson to be learned is that when you are expanding your business remember to focus on building your foundation. If Netflix were to decide to compete on price now they would get unmercifully hammered. Netflix needs to compete on differentiation, just like any new company. Netflix developed the better mousetrap, however they did not perceive that the other mousetrap makers would be able to compete with them. Once Blockbuster finally realized that they had the infrastructure to compete, based on inventory, market share and sites, they started kicking butt. Remember to look at the business you are getting into and then to look at differentiation. If Netflix had taken their original cash hoard while they were doing well and invested that in the foundation/differentiation pieces of the business (indie or foreign language films, etc) then they would be in a better position to compete against Blockbuster.  Where Netflix is positioned now though will make it incredibly difficult to take a step back and focus on differentiation without getting pummeled by the market.