Disrupting an old industry in light of new technoligical innovation
Netflix set out in 1997 to revolutionize the way we watch home entertainment. Initially built on a DVD-by-mail service, they were a tremendous disruption to the home movie rental industry and subsequently drove Blockbuster out of business. They achieved these results by riding on the DVD technology wave and taking advantage of the physical properties of the DVD that was flat and sleek, which allows for easy delivery right into the consumers’ homes. This allowed them to eliminate the physical stores of the business and build video centers which supports a much higher amount of movie titles that can be transported to anywhere in the country through their strong operations system.
Using technological innovation to develop core competency
Netflix developed their core advantage based on the observations of an unsolved problem in this traditional industry: that customer demand usually follows the newest title releases. This caused a backlog on the newer titles whenever it comes out and leaves older titles forgotten and underutilized. To solve this, Netflix developed algorithms for film recommendations that not only promoted old content based on customer preferences, but also increased the stickiness of their customers. This approach also allows a natural expansion into the more and more popular online streaming. Shifting from the pay per view model to the subscription model, Netflix was able to change people’s perceptions of DVD rental while building a sustainable business model for more stable finances. Through the above integrated strategy and offerings, Netflix is able to anticipate customer behavior changes to hedge against competition.
Adjusting strategy to survive among shifting trends
Netflix’s continual success also relies on their ability to adjust their strategy according to shifts in new technology advancement that changes consumer behavior. As on-demand content and online libraries becomes increasingly available, they have observed that in order to retain customer loyalty, they needed to shift their business model to become more and more focused on content development. An online content provider has now became a production studio that develops first class content.
Another example would be their actions when facing technological roadblocks. Having observed that there are a significant amount of customers who want to watch streaming services on the television set but were unable to do so, Netflix was able to be at the forefront of technological innovation and partner with Roku to develop a router that allows the Netflix programs to be watched on the TV set and game consoles.
Of course, this doesn’t mean that they have never made bad choices. Netflix’s attempt to separate their DVD-by-mail service under a separate name called Quikster proved to be a bad move. Customers were confused by two separate services with increased pricing that was originally nicely integrated together. After realizing the significant subscription drop after this announcement, Netflix was quick to reverse the decision, apologize and move on. To this day they still mention this event as a great learning experience publicly stated on their official website.
Netflix competes in an ever changing space that is filled with multiple categories of competitors: linear networks, pay-per-view content, DVD watching, other Internet networks, video gaming, web browsing, magazine reading, video piracy, and much more. Over the coming years, most of these forms of entertainment will continue to evolve. However, a company that is transparent, agile and willing to prove their words through action is a good indicator that even through a time of transformation or missteps, they would have the ability to come back and prosper.