PowerPoint Presentation
netflixBy Group Z2
1Netlfix, a brief IntroductionStarted as an online home video
rental serviceFounded by Reed Hastings & Marc Randolph in
1997Located at Los Gatos, California, USAWebsite launched in
1998Concentrated on early technology adopters, DVD player buyersDVD
by mail only in USACurrently present in 40 countries Netflix has
been one of the most successful dot-com venturesNot available in
Asia
Netflix Business Model canvas
Structure-Conduct-Performance An emerging industry in 1998
Gained first movers advantageTechnological leadership
Online platform to preview and share preferencesProprietary
recommendation system
Strategically Valuable Assets-Revenue sharing agreements with
major studios by 2000
Creating customer switching costs- Competitors didnt offer
lesser known movie titles
Strategic Moves made In 1998, traditional pay per rental modelUS
postal service deliverGained competitive advantage as it targeted a
niche market of those owning DVD playersOnline prepaid Subscription
model to counter longer delivery timesMore no. of DVDs could be
rented at a time Promotion of independent and older movies helped
in reduction of Avg. price of the catalogueVideo-recommendation
algorithm was very successfulPartnerships with studios
Netflixs performanceThe demand for more movies helped Netflix
make profitsThe revolution in internet made their business model
successful
Product analysis - NetflixHigh priceLow price
High popularity
Low popularityOlder films GOOD VALUE STRATEGYStreaming and discs
for rent, both Blu-ray and DVDsPREMIUM STRATEGYECONOMYSTRATEGYOVER
CHARGING STRATEGYDVD Boxed sets
HistoryUncertaintySocial ComplexityLow Cost
DuplicationInternet/Web portalMaybe CostlyThe Recommendation
modelCostly to duplicateAlliance with USPSPartnership wih
StudiosOne Day deliveryMovie catalogQ1: Analyze external and
internal environment by performing SWOT analysis for Netflix
SWOT AnalysisOPP:New product line: Video games, educational
materialAlternative subscription: Offers to appeal less frequent
subscribersThreats:Other VOD competitors: Vongo, CinemaNow, Movie
Beam, Traditional Cable/ Satellite providersLimited VOD content due
to studios concerned about pirating and affecting DVD sales.
10Q2. Did Netflix do the same jobs for consumers that
Blockbuster did? How did this evolve over time?
Started off as an online alternative.
Focused on early technology adopting households.
Used the U.S. postal service for shipping.
Business model was similar to Blockbuster initially.
How it evolved?
Realization of faults in business model.
Introduction of new algorithm and software.
Focus on consumer preferences rather than latest releases.
Shift to a new pricing model of pre-paid subscription.
Shift in the content acquisition strategy.
Q3. COMPARE BLOCKBUSTERS & NETFLIXS PROFIT MODELS. HOW DOES
THIS AFFECT THE STRATEGIES?
Blockbusters profit modelRetail Outlets - 5194 Locations70% of
American population lives within a 10 minutes drive of a
BlockbusterMaximizing the days that any movie was out on rent10% of
the revenue was from the late feesSales staff recommended new
moviesPreview copies of new releases were sold at discountShelf was
dedicated to hit moviesStores were reluctant for storing older/less
demanded movies
Netflixs Profit MODELOnline retailingDVDs delivered through
USPSSearch Engine for customersNo late feeHaving a movie at home
all the timeUnlimited PlanPersonalized experience through the
algorithmOne day delivery for 90% of the customers Netflix
Distribution CentreTie up with studios: 1.2x = 2x
Q4. What might have been an assumptions checklist made by
Netflix at each stage of strategy? What assumptions checklist might
you use for VOD?
The entry strategy:A niche market targeted, only DVD player
buyers (Early technology adopters )Lack of competition in DVD
rental would give a competitive advantageThe latent demand for
online subscription, previewing, reviews Customer service offered
by online platform would be better than telephonic modeWider
choices offered in movie titles, instead of just hits and new
releases would be a sustainable advantage
The Early Strategy: Offering recommendation to all users without
subscription would create a web portalRefocus only on cash induced
strategy could gain cash inflowNo other retailers would sell
DVDsCost of building DVD library was realized laterMonthly prepaid
subscription fee would never be a lucrative value offered
The Pricing Strategy changes:Unlimited rentals were offered
without any research, assumed dot com boom will boost there
growthThe inventory of older movies would become a burden was never
thought of
The recommendation model:Repetitiveness of recommendations due
to a common homepagePromotional value of editorials would be
sufficient for movie fans
The distribution channel:Shorter delivery times would enhance
customer satisfactionPartnering with Studios would reduce costs
The unsubscribing strategy:Offer easy to exit options to users
would make them return later
Assumption checklist for VODCustomers would download & watch
videos/moviesTechnology would lead to better offering than the
substitutes Subscriber volume would increaseInstant gratification
could be satisfied by VODs as compared to DVDsThe youth would
prefer VOD over DVDsStudios would continue giving license to
distribute movies in the VOD format
Q5. Where will the money be in the VOD world? Hasting believes
that since the first sale of doctrine doesnt apply, the winning
business model will be very different.
Product differentiation is under 3 heads Product attributes,
Firm- customer interaction and Firm linkagesHow can VOD come into
play with the current economics of scale ?VOD can be used by
customers to find movies for future viewingLogistics Vs. Bandwidth
sharing is a problem
PRODUCT DIFFERENTIATIONVONGO allows users to download and watch
movies for a month but in a limited catalogueChoice of films
limited to the ones being aired on Starz networkNETFLIX streams the
videos in a format similar to YouTubeThis marks the entry of
monthly payment based service provider into the online
marketInstant streaming and hence gratitudeSolves all the logistics
problems such as turn around time of DVDs
FactorsValueRarityInimitabilityOrganizationNational
Inventory
Sustained competitive advantagePricingTemporary competitive
advantageVOD
Sustained competitive advantage
Streaming
Sustained competitive advantage
Movie collection
Sustained competitive advantage
Digital file ownership
Temporary competitive advantage
VOD Porters five forcesThreat of New Entrants
High level capital needed and sunk costs highToo expensive for a
firm to test outHigh level of technological advantages
neededProduct differentiation very hardBrand name a huge factor
Rivalry
Price war with BlockbusterVariety of choices like Amazon Unbox
(internet)Low rivalry as differentiation will emerge
Supplier powerBuys from studiosForward integration of buyers
possible Buyer concentration is really highHard copy sales of DVD
is affectedLimited power to influence the evolution of the
market
SubstitutesRental stores, pay per view, televisionRental stores
dont provide the instant gratitudeUser switching is very difficult
as suchThreat of substitutes limited
Buyer powerPower is low as one persons decision wont effect
marketBuyers an substitute but substitutes are weakPrices can be
regulatedNot much bargaining power
ComplimentsTechnology main complimentHigh bandwidth needed 3Mbps
(internet)Products like Apple TVCD, DVD loosing value
Q6. Should Netflix sell/license/rent its recommendation system
to other players in the industry or will its system quickly become
a profitless commodity? What might the terms of a license look
like?
Netflix could license its recommendation system to other players
like local cable operatorsThe technology would soon be imitated by
the competitors Licensing the system would help gain revenues for a
longer periodCustomer base would also increaseA revenue sharing
model can be developed and a license term be laid down wherein per
subscription or per video viewed could be charged
Value chain model
