Netflix\'s Case Analysis PDF

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Netflix Case Study. Threat of new entrants. ...

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Running head: NETFLIX’S CASE ANALYSIS

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Introduction Netflix Inc. is one of the largest video-rental and media streaming company in the world. The company which is headquartered in Los Gatos, California, can trace its history to the year 1997 when it was founded by two American entrepreneurs Marc Randolph and Reed Hastings. Although Netflix is currently one of the most successful companies in the film and video retail industry, it is a company that endured a difficult beginning. An idea that Reed Hastings claims to have been motivated by a big late fee for “Apollo 13” which accrued to about $40 has come a long way. The company's development faced a lot of challenges, especially competitive challenges from Blockbuster (which was founded in the mid-1980s and operated till 2010). This paper discusses Netflix's strategic process over time and various aspects of Netflix’s growth as in the sections below. Netflix’s strategic process over time Netflix is a company that describes an agile business with an agile business strategy. Since its founding, Netflix has adopted several strategies that have helped the company to grow to the level it is now. The company's main strategy that has been part of the company's growth is gaining a technological advantage. All along, Netflix has been trying to be ahead of its competitors by developing and adopting technology that would place them in a more competitive position. In the 1980s, video viewers depended on cable television themed channels such as HBO, ESPN, CNN and Nickelodeon to watch video content (Rothaermel, 2017, p. 434). Later on, video cassette recorders which allowed viewers to record, rent or purchase pre-recorded cassettes leading to local video rental clubs. In the early and mid-1990s, viewers relied mostly on

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digital versatile discs (DVDs) to play video content. However, to get the DVDs required a viewer to visit video rental clubs and vendors. Following the internet service providers’ abolishment of pay-per-hour billing system, most Americans were able to access unlimited internet access for a flat rate fee (Rothaermel, 2017, p. 434). The founders of Netflix saw this as an opportunity to take the film and video industry online and launched its website in 1998. Netflix's website enabled viewers to view the available video contents, create a list of favourites and rent or purchase DVDs at a discount which were mailed to the customers (Rothaermel, 2017, p. 436). In 2007, Netflix again was ahead of its competitors when it launched its on-demand streaming service. Through the streaming feature on Netflix’s website, the subscribers were allowed to watch one thousand titles instantly on their computers (Rothaermel, 2017, p. 439). Although other competitors adopted the streaming concept, Netflix remains the leading company providing video streaming services. Another strategy that Netflix used over time is product differentiation. Every time, Netflix concentrated on differentiating its services from those of its competitors, especially Blockbuster. When Netflix was founded, renting and purchase of video content was through local physical stores. However, Netflix differentiated its services in the video industry by introducing an easier way for the customers to view, rent or purchase DVDs through their website without visiting physical stores. Service differentiation significantly increased the number of Netflix’s subscribers. By focusing on providing video content to viewers through online platforms enabled Netflix to remain relevant and to endure competition from Blockbuster and other competitors. Another Netflix’s strategy was focusing on producing its original content for streaming. This came after it experienced challenges of getting video content to stream. Netflix made a breakthrough in creating original content in 2013 after it released its first original series “House

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of Cards” (Rothaermel, 2017, p. 440). Since then, Netflix has produced several original video contents. Some of the challenges with this strategy Netflix's decision to concentrate on online video services, especially streaming services, have been met with several challenges. The first challenge is a strong competition. Since its inception in 1997, Netflix's has had several strong competitors beginning with Blockbuster which was well established, then the emergence of Amazon, Walmart, Sling TV, YouTube Red, Hulu, HBO and Redbox among other companies. The second challenge is getting relevant content. According to Hastings, Netflix gets more hours of viewing per dollar spent on original content as compared to licensed content (Rothaermel, 2017, p. 444). It is difficult to get original content, although Netflix is investing big on this. Another challenge is contentious relationships with internet service providers. Video streaming uses large bandwidth and causes huge traffic which made ISPs impose "data caps" on users and "zero-rating" which makes streaming more costly. Finally, Netflix faces a challenge in international growth because of the challenge of getting original content in other countries and unfavourable government restrictions. Netflix and the U.S. home entertainment industry Netflix disrupted the U.S. home entertainment industry through a number of techniques. The first technique was to take home entertainment online. Netflix revolutionized the way people accessed, rented or purchased video entertainment products in the U.S. by introducing the concept of online services. As the internet usage continued to grow in the U.S., many people found it easier to access and create a personalized list of video content that would be mailed to them without having to go to physical stores. Continued innovation led to the launch of the streaming feature, which reduced the dependence on DVDs for video content in American homes

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because people could get instant access to many video contents through various internet-enabled gadgets. This significantly reduced the pricing of video contents. Netflix’s innovation over time Netflix had several innovations that contributed to its growth to where it is currently. One of the earliest Netflix’s innovation was taking video and film industry online following the launch of its website in1998 (Rothaermel, 2017, p. 435). Netflix's website was unique, and it provided personalized services emulating the best parts of a video store. The website was powered by an engine that provided a personalized recommendation to customers the same way clerks do in physical video stores. Another major innovation by Netflix was the introduction of streaming feature. Although its competitors quickly implemented the idea, it was an innovation that was developed by Netflix. Creation of original content was another innovation by Netflix. This came due to the difficulty of getting licensed content due to licensing problems. Changes in Netflix’s business over time In the early stages, Netflix's business model was similar to the typical stores. It was only differentiated by a website which enabled customers to browse through several DVDs, select favourites and have them mailed directly to their homes (Rothaermel, 2017, p. 436). In 1999, Netflix introduced the concept of monthly subscriptions where customers paid a flat rate fee for a number of discs instead of the price-per-disc strategy. By 2007, Netflix had moved away from mailing discs to customers by introducing an on-demand streaming service. By 2013, Netflix had started creating its original content to supplement the licensed content.

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How Netflix’s business model innovation supports its technology growth Netflix’s business model depends entirely on technology. Since its founding, Netflix’s strategy was to take video retail services online. As a result, this strategy supported technology development to ensure that customers could access, rent or purchase DVDs. The need to continue being an online-based company led to the introduction of streaming services. Streaming services supported technology in that online services requires a sophisticated website to handle personalized services to its large customer base as well as sophisticated gadgets that can access and stream online video content. Therefore, this calls for technology innovations. Netflix’s core competencies Netflix’s core competencies include information technology skills. The company’s ability to take advantage of technology is one of its strategic points that it used to endure competitions and even defeat some of its biggest rivals like Blockbuster. Another key core competency is its revolutionary business model which changed the ways people rented, purchased and watched video contents. Also, the company has a huge customer base in the U.S. and other parts of the world, which gives it some competitive advantages. Due to is size, Netflix enjoys able to offer affordable prices to its customers, which serves as a competitive advantage. Finally, the creation of original content gives Netflix a huge competitive advantage because its original content is only available on its website. These core competencies are vital to Netflix's competitive advantage sustainability because they maximize customer satisfaction, improve operations, reduce operational costs and improve automation and personalization of services. However, some can be modified through further innovations on information technology to improve the way customers access quality

NETFLIX’S CASE ANALYSIS services at reduced costs. Also, the original contents can be improved by adding services that support a variety of cultures and languages in various regions. Increasing demand for Netflix’s services in the U.S. It is highly likely that Netflix will reach its saturation state in the U.S. in the near future. This implies that Netflix needs to find ways of making the company more appealing so as to increase demand for its products. One way of achieving this is by increasing the creativity of its original content. It is important for Netflix to identify and recruit talented people to improve the quality of its original content to increase customer loyalty and keep demand high. Netflix should also ensure that the video content available on its platforms represent the diversity in the U.S. by offering a larger product portfolio. Alternatively, Netflix can venture into other services to spearhead its growth. One of the viable services that can improve Netflix's growth is the provision of video games. The company should partner with gaming companies or develop its own video games and provide a platform for customers to stream and play games. Gaming services is an idea that has been there for a long time, but Netflix is yet to implement it. It is now the right time for Netflix to act on this idea.

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