When Netflix was founded in 1997, nobody knew that the company would change so remarkably over the next ten years. Today, Netflix has over 150 million subscribers and annual revenues of over $15 billion. It all started as a small DVD rental business and later evolved into a streaming service. How Netflix even managed to do a double pivot is explained in this article.
With two pivots to the company we know today
Netflix's business development history can be divided into two pivots. The first developed from a DVD supplier to a streaming service. The second pivot includes the transition to its own content production. However, both pivots were not created overnight, but as a result of many smaller innovations. Especially important are four main areas of innovation in which Netflix has changed significantly.
As a DVD delivery service, Netflix worked very closely with the US Post Office. But the further away the DVDs had to be delivered, the longer the delivery times became. So a way had to be found to shorten delivery times to reach consumers who didn't choose a film three days in advance.
Data evaluation innovation
In addition, Netflix has made little use of customer data about ratings, content, popularity, and usage patterns. The improved data rating was used for a program that could suggest movies based on customer preferences. The system created for this is called Cinematch and is based on a five-star rating system. In 2010 Netflix even offered a bonus of 1 million Euros for those who could improve the system by 10%. In 2013, four former competitors joined forces and won the prize (Cronin, 2014).
In order to shorten delivery times, barcode scans, decentralized distribution centers and automated sorting systems were introduced. The bright red DVD sleeve quickly became the Netflix identification symbol. It was also developed to meet the requirements of the U.S. postal service for first-class mail delivery. An additional benefit was provided by automated sorting equipment in the Netflix warehouse. In 2002, Netflix opened another 10 distribution centers in the U.S. and later expanded to 58 automated centers to overcome geographical distances (Cronin, 2014). Finally, the dream of overnight delivery could be realized.
In addition to the recommendation system introduced in 2002, there were also sales participation agreements with some film studios. This meant that each title did not have to be purchased individually and several copies of the same film could be published. From now on customers could rent any number of films per month.
Success or defeat?
In 2011 Reed Hastings decided to make Netflix a streaming company. The original DVD delivery business became a separate company called Qwikster. The knocking down market loss of $12 billion gave the deceptive impression of a failed company. Share prices fell from their high of $300 per share in July 2011 to a low of $63 at the end of November of the same year (Cronin, 2014). Today, Netflix is active in two industries. As a streaming company, it produces its own content; for the "House of Cards" series, for example, Netflix has paid around 100 million dollars. They also signed a contract with Sony to produce more content. In addition, Netflix has also further deepened data analysis. By analyzing the time period, number and length of use, they try to capture customer habits. Critics, however, wonder whether another pivot will soon be overdue. Because the company has gained a lot of competition in recent years. Many companies from the film industry have entered the streaming business and claim their rights. So Netflix soon has to do without some popular series such as Friends. The competition also knows that customers choose the streaming company with the best offer. Hopefully, their next pivot is already ready, otherwise Netflix will find it difficult to maintain market dominance.
Netflix, the nimble pacesetter
The "Nimble pacesetter" approach has two main features. One is that they rely completely on a new technology and the other that they remain flexible. Nimble pacesetter companies often focus on new markets to fully develop them. The ultimate goal is rapid growth and dominance (Cronin, 2014). Netflix meets both criteria, counting on millions of consumers using DVD players instead of videotapes. In addition, it did not stick to the DVD format for very long, but developed early into a streaming group. Netflix's business development can teach us many things. For example, focused long-term development planning can still be successful even if it doesn't look like it at first. Netflix has also proven that it is better to focus on a strong customer focus rather than fear of failure.
Implementing projects successfully with Falcon
The "Nimble Pacesetter" approach is a pivot strategy with two main features. On the one hand, that will completely rely on a new technology and on the other hand, that the company remains flexible. Nimble Pacesetter companies often focus on new markets to fully develop them. The ultimate goal is rapid growth and market dominance (Cronin, 2014). Netflix meets both criteria by counting on millions of consumers using DVD players instead of videotapes. In addition, it did not stick to the DVD format for very long, but developed early into a streaming group. A lot can be learned from Netflix business development. For example, that focused, long-term development planning can still be successful even if it doesn't look like it at first. Netflix has also proven that it is better to focus on a strong customer focus rather than fear of failure.