This document discusses Netflix's strategic evolution and competitive advantages. It analyzes Netflix's strategies using Michael Porter's generic competitive strategies framework and Blue Ocean strategy framework. While Porter's framework does not fully apply to Netflix due to it pursuing multiple strategies, aspects of differentiation and focus strategies were evident. Netflix created value as a Blue Ocean by targeting new markets with independent films and lowering costs through new agreements. Both Porter and Barney's theories are then analyzed in how Netflix created competitive advantages through unique activities and resources, though these were not initially sustained due to replication by competitors.

1. BUS 845 Strategic Management Santiago Londoño 43769683 1
Strategic Management
BUS 845
Individual assignment S1: Netflix Case
Due 1/04/2015
Word count including reference:
Question 1: 969
Question 2: 992
Santiago Londoño
43769683
Lecture: Erik Lundmark

2. BUS 845 Strategic Management Santiago Londoño 43769683 2
Question 1:
Netflix, a company that has evolved since its origins, from delivering DVDs, and now be
able to stream a movie on the TV. This evolution brought into the company many
challenges in different fronts such as: competition, low engagement from the clients, low
loyalty or desertion, changing constantly the changes of price, time constrains within the
supply chain, limitation of technological appliances and negotiation with suppliers either
with big studios or retailers. The goal to answer the first question, is to critic and analyse
how the two different strategies from the perspective of the “Generic Competitive”
strategies from Michael Porter and the “Blue Ocean” strategy create value or competitive
advantage. In addition, look the term of value and how the two frames are opposite
between each other. Finally, to answer the question, is to compare the two different
strategies to comprehend why Netflix is a Blue Ocean.
Hasting, made all sort of strategies to create value towards the customers and for the
company. Strategies such as the “Blue Oceans” or the “Generic Competitive” strategies
are useful to see how a business can create value for the buyers. However, the concept of
“value” for the two different strategies are applied in different ways. Although, those
strategies are aiming to create value for the business and buyer.
According to Porter, the Generic Competitive Strategy creates and deliver value towards
the clients and the business in order to have an advantage unique, this is call a competitive
advantage (Johnson et al, 2013). Therefore, without a competitive advantage, a business
is defenceless to the competition. For Porter in order to create an advantage, the business
has to choose between cost of leadership, differentiation strategy and Focus strategy
(2013). Cost of leadership, it can be seen as the company that choose lower prices over
the competition. Differentiation, can be seen as the firms that invest in R&D in order to
create a unique value where the competition cannot match. Finally, Focus of Strategy, is
the strategy that is targeting a unique niche of market in which the company molds its
products or services for a specific need so it can create a competitive advantage (2013).
For Porter, there is a dilemma call “stuck in middle” where companies should not try to
do the three strategies at once. In the Netflix case it is clear to see that the company was
in a middle point where it was aiming different strategies such as: reduction of costs,
differentiation and targeting unique markets. For example, Netflix create associations and
agreements with small studios to have a wider portfolio of videos and also it creates the
first scheme of subscription within the industry. All these examples are a clear way to see
how the company was acting in the middle by trying to be different, reducing costs and
targeting a niche market. Therefore, Porter´s frame work is not applicable to analyse this
case. Yet, there is elements of the strategy that the company use in order to be unique.
As mentioned before, there is no room for been in the middle. However, Blue Oceans is
aiming a different method to create a competitive advantage to create value in different
fronts. According to Chan Kim and Mauborgne (2005) a new opportunity can be look as
creating a new demand for the company or exploring a new market; reducing the cost and
create value towards the customers and the firm. Netflix, clearly achieved this by
generating new agreements with the small studios bring up new elements such as
independent movies for a specific market-niche and lowering the cost of acquisition. In
addition, Netflix create a new revolutionary schemes of price and time such as the

3. BUS 845 Strategic Management Santiago Londoño 43769683 3
subscribers and by extending the rental periods. Finally, by creating agreements with
USPS allowed to deliver a better service and lower the costs of operation. All of this key
elements can be seen as a blue ocean, because is generating value and at the same time
reducing cost. Though, this tactics applied from Netflix does not mean that it cannot be
copy easily from the competition. Blockbuster once notice the threat that Netflix
represented, it started to create similar tactics to regain share market.
Finally, the StrategyCanvasby using the four action framework (eliminate, reduce, create
and raise), helps to reinforce that the case of Netflix that is truly a Blue Ocean. According
to Chan Kim and Mauborgne (2005), the strategy canvas aims to see the landscape of the
competition and what is the value that the customers are receiving. Using the Four Action
Framework it is clear how Netflix is acting in the four different level by comparing it
with Blockbuster. However, Blockbuster manage to copy Netflix strategy in the long
term, but Netflix had a privilege position of history and uniqueness.
Overall, there is a Blue Ocean in Netflix, not only because the company target a new
audience but also by making innovation in price, agreements and cost. However, the blue
ocean does not guarantee that in time the competition would not try to do the same tactics
and all of the sudden create a Red Ocean.
Finally, both of the strategies let a space to debate in which is better. Porter, has a point
in which lower-cost can gain market share but does not guarantee sustainability in time.
Blue Oceans, should recognise that to be “different”, need a trade-off or sacrifice
something. Sometimes, been different comes along with R&D which huge resources are
need it. To conclude, the two frames can work together to create a hybrid. The hybrid
could be seen as been in the middle position, but also creating new opportunities in the
market to have a competitive advantage. Instead of just using one angle, companies
should be encourage to trying different fronts to create a sustainability in time.
Question 2:
For the sake of answering the second question, is important to see the two different frames
of competitive advantage seen from the perspective of Porter and Barney. In addition, the
two theories will be exposed to be analysed under the case of Netflix and look how this
company applied unique advantages in the market. Finally, there will be short conclusion
in order to discuss the two points of view.
Both as Porter and Barney agrees that in order to create value, the firms has to create
unique activities or exploit unique resources so the buyers can see points of difference
(Porter, 1996; Barney, 1991). However, both of the theories define their activities and
resources in different ways in order to achieve value and a unique position. For Barney
(1991) the resources that a company has (tangible or intangible) are the path to achieve a
competitive advantage (resource based view). The firm resources include the assets,
capabilities, organizational process, firm attributes, information, knowledge and so forth
(1991). The possible resources can be classified in three elements: physical capital
resources, human capital resources and organizational capital resources (Barney, 1991).
Though, Barney claims that this resources are not a key factor of sustained competitive
advantage because it could prevent a firm to implement strategies, In other words,
resources are the elements that an organization has in order to implement a strategy to

4. BUS 845 Strategic Management Santiago Londoño 43769683 4
increment the efficiency and effectiveness. Whereas Porter (1996) states that, activities
can create a competitive advantage. He claims that, a firm can be more successful than
the competition only if they can deliver more value to the clients or by lowering the cost,
or do both of them (1996). In other words, a better efficient activity come along with a
competitive advantage, therefore, activities can differentiate a company from the
competition. Moreover, he also claims that, in order to choose a strategic position, the
firm should choose between a Variety-based position, needs-based positioning or access-
based position. This three concepts are looking for distinguish activities from others
(Porter 1996).
As mentioned before, the two position are likely in terms of creating different points of
value but the way to achieve, analyse or to applied are different. Certainly, Netflix goal
was to deliver a unique value to the customers by providing a better video format (DVD),
also by delivering the movies to the household’s people would not have to worry about
getting out of the house, by having a specific portfolio of DVDs that Blockbuster did not
had and by introducing the plan of subscription. However, this strategy applied from
Netflix that brought efficiency, effectiveness and differentiation of activities could not
been seen as a sustained competitive advantage. In addition, yes, Netflix had a First-
Mover advantage and Positive reputation (Barney, 1996), still did not give a sustained
competitive advantage because Blockbuster did exactly the same delivery strategy.
To understand where Netflix had a sustained competitive advantage, it is important to
note that Sustained competitive advantage is when a strategy is creating value for the firm
by not been implemented and replicated by the competition (Barney, 1991). Barney
(1991) claims that, in order to for a firm to have a sustained competitive advantage, the
resources of a firm must have four attributes (VARIN): Value, Rare, Imperfectly imitable,
no substitutes. On the other hand, Porter (1996) states that, a sustainable advantage is how
the activities correlate and interact harmoniously in order to create value, he calls these
“Fit”. There are three types of fit: simple Consistency, reinforcing activities and
optimization of effort (Porter, 1996). In addition, he also claims that the firm needs to
sacrifice something in order to get something else, this is call Trade-Off. Trade-offs, are
born by three different ways: Image or reputation, activities and coordination-control.
Netflix indeed, have had factors of sustainable competitive advantage by combining
activities “fit” and special attributes (VARIN). For example, the company started to
develop a new strategy in which employees recommended movies of all genres to advice
the customers of good movies. Also the creation of a software in which customers make
a survey in order to see the preferences of their clients and rate movies. These two ideas,
lead to create a better inventory system to supply and to get to know better the insights of
the customers because by generating the software, the company created a positive
network effect between clients. Therefore, Netflix created it a sustainable competitive
advantage comparing with Blockbuster. Netflix by doing those strategic moves could turn
the balance in which now the new releases represented only the 30% of the rentals
generating new clients, revenues, points of difference and generating value in the long
term. Blockbuster, could not match this platform because still they were relying on the
stores. In addition, Blockbuster was in a position in which they did not know pretty well
the business of online delivery DVDs turning it on a rare factor and hard to duplicate or
imitate.

5. BUS 845 Strategic Management Santiago Londoño 43769683 5
However, this do not mean that the current state of a firm cannot turn into a
Schumpeterian situation in which “what was a resource that enable the capacity of a
sustainable competition in a particular moment it might in the future might no longer be
value for a firm” (Barney, 1991). Yet, both of the frames can been easily imitated by
companies and especially from the ones that have the financial support to do so. The
debate is open to see whether the activities (Porter, 1996) or resources (Barney, 1991) are
the only way to have a sustainable competitive advantage. None of the frames consider
the factor of client loyalty. This could be a good path to create a sustainable competitive
advantage by using tactics of marketing such as: Branding, powering the brand equity or
programs of loyalty. Marketing, could be a good tool to enhance the value in order to
create a sustainable competitive advantage and create good resonance towards the brand
as Apple successfully those with the clients.
References:
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of
Management, 17(1), 99-120.
Johnson, G., Whittington, R. & Scholes, K., Angwin, D., & Regnér, P. (2013) Exploring
Strategy (10th Edition). Harlow England: Pearson Education, ISBN:
9781292002552
Kim, W. C. & Mauborgne, R. (2005). Blue Ocean Strategy: From theory to practice.
California Management Review, 47(3), 105-121
Porter, M. E. (1996). What is strategy? Harvard Business Review, 74(6), 61-78