About a week ago, during a trip to a local grocery store, I noticed that a large red metal box about the size of a drive-through ATM had been installed just outside the entrance.  It certainly drew my attention and upon further examination, I discovered that it was a DVD movie rental vending machine from Redbox.  For $1 a day, I could instantly rent new release DVD movies.  I couldn’t resist trying it – a pack of gum costs more.

The process was simple:  swipe your credit card, select your movie from a touch-screen, and the DVD is presented much like money from an ATM.  Returning the movie to the kiosk was just as easy.  Redbox is owned by Coinstar and McDonald’s and they claim to have served-up almost 40 million rentals.

From a retailer perspective, the kiosks provide value in that they can help drive foot traffic and that is what McDonald’s was obviously thinking with its investment.  Take the kids to lunch at McDonald’s and they beg to rent ‘Cars’.  You figure it’s only a buck, so why not (revenue for Redbox).  When you return the movie to McDonald’s the next day, you grab a coffee and McGriddle sandwhich, since you are there (revenue for McDonalds).  If you take the kids with you on the return trip, not only only will they will beg you to rent ‘Ant Bully’ but they will probably want some pancakes as well. 

Besides liking the convenience as a consumer, the important reminder for me is that innovation doesn’t have to come from being on the cutting edge of technology.  All of the movie/tv show rental buzz today surrounds downloading video or online viewing; however, Nielsen reported toward the end of 2006 that 81 percent of U.S. households own a DVD player, while 79 percent own VCRs, and DVD households rent DVDs twice per month. 

Given those numbers and the fact that Blockbuster generated 10 times more revenue in 2006 from its in-store rentals than it did from its online service means that there are still a significant number of people renting from stores.  For those people, services like Redbox provide incremental convenience – they are already at the grocery store, restaurant, etc. and renting a movie from Redbox saves them a trip.  I am not saying DVD kiosks are going to replace rental stores, but it seems to me that they can carve out a nice niche.

So, the next time we see the latest Apple product introduction on the cover of Time magazine or read about how some cool gadget company received millions in funding, let’s not forgot that innovation and convenience aren’t solely owned by cutting-edge technology.