This presentation briefly analyses the characteristics and timeline of the diffusion of Netflix by assessing Rogers' five diffusion characteristics. for different steps in their company history. It analyses the surrounding of this innovation via PESTEL-analysis and gives brief hints on how to intensify the diffusion of Netflix further globally.

1. Felix Zappe23.03.2017Kurs: Thema | Fakultät | Institution
Disclaimer
IOT 5037
Innovation Adoption and Diffusion in
Organisations
10th January 2017
The Diffusion of
Netflix
By: Felix Zappe and Merve Senay

2. 23.03.2017
IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix
Edward de Bono Institute | University of Malta
DisclaimerAgenda
The Netflix Diffusion Timeline2
Characteristics of the Innovation “Netflix”1
2
Characteristics Influencing Diffusion of Netflix3
PESTEL Analysis - Factors Influencing the Adoption4
Recommendations for the Diffusion of Netflix5

3. 23.03.2017
IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix
Edward de Bono Institute | University of Malta
Disclaimer
3
1. Characteristics of the Innovation
Online subscription-based streaming service within high-tech sector
Evolution into leading online television network
Targets movie-lovers all over the world (40 million customers)
Netflix as Service Innovation:
• Intangible
• Heterogeneous
• (Semi-)perishable
• Simultaneous consumption (watching) and production (streaming)
Netflix as Disruptive Innovation (Christensen, 1995):
• Create new market with new values
• Disrupt existing market with existing values
• Displace established market leaders

4. 23.03.2017
IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix
Edward de Bono Institute | University of Malta
Disclaimer
High Procurement
Costs
Independent MoviesRecommendation
System
2. The Netflix Diffusion Timeline
• Evolution of online
movie rental
• Fees in line with
competitors & slow
delivery time
• Shift to a prepaid
subscription model
• Further adjustment of
pricing system
• Unbalanced customer
demand
• Surveys & ratings to
balance out demand for
new & old movies
• Filter for hiding
unavailable movies
• Decreased customer
dissatisfaction
• Decreased need for more
copies of new movies
• Hiring of Ted Sarandos
• Negotiation of
“revenue-sharing
agreements” with major
studios
• Overcoming barrier of
slow delivery time
• Offering overnight and
same day delivery
• Acquisition of distribution
rights to independent movies
• Introducing them to market
• Online Streaming
1997 2000 2007
New Distribution
Centres
Bypassing “Out-of-
Stock” Issue
Feedback from
Early Adopters
Video-On-Demand
40 $ late fee
payment
UNLIMITED
1.0
4

5. 23.03.2017
IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix
Edward de Bono Institute | University of Malta
Disclaimer
2007 2013 2017
Rising Customer Base
• Integration with platforms
such as XBox360, PS3,
Nintendo Wii
Own Production
Internationalisation
• Expansion outside the US
• Market entry into 60
different countries
New Consumer
Behaviour
• Netflix Merchandise
• Open Source Project
• Netflix Hack Day
NETFLIX WORLDWIDE
Goal: Becoming the only
“TV-Network” worldwide!
5
• Independence
• Success: many Emmy-
Nominations and Awards
2. The Netflix Diffusion Timeline

6. 23.03.2017
IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix
Edward de Bono Institute | University of Malta
Disclaimer
6
3. Characteristics Influencing Diffusion of Netflix
Online rental Online streaming Own series
Relative Advantage
No stores
Convenience
No rental
Higher convenience
More control
Highest convenience
Compatibility Relatively high (Relatively) high High
Complexity Medium Low Low
Observability High (but delayed) High High
Trialability
Immediate trial
after delivery
One month trial
Cancel at any time
One month trial
Cancel at any time
1.0 2.0
(Rogers, 1995)
3.0

7. 23.03.2017
IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix
Edward de Bono Institute | University of Malta
Disclaimer
7
4. PESTEL Analysis
Factors Influencing the Adoption
Legal & Political
• Copyright laws
• Tax differentials
• National regulations
• Net neutrality
• Privacy laws
Economic
• Purchasing power of
customers
• Foreign exchange
volatility
Social
• Changing demography
• Changing customer
behaviour
• Diverse consumer
segments
• Online piracy
Technological
• Keep track of
technological developments
• Developing respective
apps
Environmental
• Online production and
consumption
• Shift from real to virtual
product
Legal & Political
• Copyright laws
• Tax differentials
• National regulations
• Net neutrality
• Privacy laws
Social
• Changing demography
• Changing customer
behaviour
• Diverse consumer
segments
• Online piracy

8. 23.03.2017
IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix
Edward de Bono Institute | University of Malta
Disclaimer
8
5. Recommendations for Diffusion of Netflix
Expanded partnership network
 Lower entry barrier
Diversification of own produced
content
 Exploiting the whole range of TV
spectrum
Creating incentives for increasing
Netflix’s popularity
 Organising Netflix parties (hype
creation)
Being aware of political and legal
issues in respective countries
 Influencing legal regulations and
laws in favour of own behalf
Examining the capabilities of
becoming a network provider
 E.g. focusing on rural areas, double
or triple play offers
Collaboration with cable TV
providers
 Scheduled vs. flexible show times

9. 23.03.2017
IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix
Edward de Bono Institute | University of Malta
DisclaimerIt is not easy to combine student obligations with the Netflix
obsession
Thank you for your attention!

10. 23.03.2017
IOT 5037 – Innovation adoption & diffusion in organisations: Diffusion of Netflix
Edward de Bono Institute | University of Malta
Disclaimer
10
References
Tidd, J., Bessant, J. R., & Pavitt, K. (2005). Managing
innovation: Integrating technological, market and
organizational change (3rd ed.). Chichester, United
Kingdom: Wiley, John & Sons.
Shih, W., Kaufman, S. & Spinola, D. 2009. Netflix.
Harvard Business School.
Pereira, P. M., 2015. Netflix – the new face of the TV
industry.
Noren, E. (2013, January 21). Digital Business Models:
Analysis of the Netflix Business Model. Retrieved
December 26, 2016 from
http://www.digitalbusinessmodelguru.com/2013/01/a
nalysis-of-netflix-business-model.html.
Sadq, Z. M., 2013. Analysising Netflix‘s Strategy.
International Journal of Science and Research.4(3).
Christensen, C. (2012, July 10). Disruptive innovation.
Retrieved January 2, 2017, from
http://www.claytonchristensen.com/key-concepts/
McAlone, N. (2015, November 18). The father of
“disruption” theory explains why Netflix is the perfect
example — and Uber isn’t. Retrieved January 2, 2017,
from Business Insider,
http://www.businessinsider.com/the-father-of-
disruption-theory-explains-why-netflix-is-the-perfect-
example-and-uber-isnt-2015-11
Randhawa, K., & Scerri, M. (2015). Service innovation:
A review of the literature. In The Handbook of Service
Innovation (pp. 27-51). Springer London.
Rogers, E. M. (1995). Diffusion of innovations (4th
ed.). New York, NY: The Free Press.