Downloaded 80 times
Uploaded byJayesh Goswami
Netflix business model
Netflix's business model provides on-demand streaming media and DVD rentals by mail. It was founded in 1997 and launched in 1998, initially offering DVD rentals by mail. In 2007, Netflix introduced online streaming. Its business model relies on monthly subscription fees of $17.99 per month, which allows unlimited rentals without due dates or late fees. Netflix partners with studios, electronics companies, and the USPS to support its delivery and streaming capabilities. Its personalized recommendations and large catalog contribute to its competitive advantage over traditional rental stores.
Netflix business model
- 1. Business Model Jayesh Goswami– 242005 Karan Mathur – 242007
- 2. ABOUT • Founded byReed Hastings and Marc Randolph on August 29, 1997 in California • Launched on April 14, 1998 with only 30 employees and 925 DVDs available through the pay-per-rent model • Provides streaming media and video-on-demand online and DVD by mail
- 3. TIMELINE • 1997: NetFlix.comfounded to offer online movie rentals • 1998: Begins offering DVD rentals • 1999: Group Arnault invests $30 million in the firm • 2000: Launches personalized movie recommendation service CineMatch • 2002: Raises $82 million in IPO • 2007: Netflix introduces online streaming • 2008: Partners with consumer electronic companies to incorporate Netflix streaming on devices • 2013: Original programming started with “House of Cards” The idea of Netflix came to Hastings when he was forced to pay $40 in overdue fines after returning Apollo 14 well past its due date.
- 4. BUSINESS MODEL • Monthlysubscription fee of USD 17.99 • User is entitled to keep and watch three DVDs as long as they are paying the monthly fee. On Netflix website, customer lists the DVDs would like to watch, select from Netflix’s menu of over 12,000 movies DVD’s are shipped via USPS. Customer can keep the DVDs as long as they want with no late fee. When customer returns the DVD’s, the next selection on movie priority list is mailed to customer
- 5. BUSINESS MODEL CANVAS KeyBusiness Partners • USPS - Postal • Cable Operators • Motion Picture Studios Key Activities • Mail Handling • Video Streaming • IT Infrastructure Key Resources • DVD Inventory, • Content Value Proposition • Price • Accessibility • Convenience • Original Content Customer Relationship • 24x7 Support • Increased Customer Database • Self-service Model Channels • Netflix.xom Cost Structure • Fixed cost of DVD’s • Postal Charges • Maintenance Revenue Stream • Monthly Subscription Rentals Key Attributes Customer interface Financial Model Key Competency
- 6. • Does Netflixhave a good story? • Are its strengths sufficiently compelling to offset its weaknesses? • If a debate were held between the proponents and critics of Netflix’s business model, who would win? • Why? 1
- 7. Value Preposition –Entertainment • The absolute number of stores that Blockbuster had to maintain in order to provide convenience blended to the infrastructure costs associated with the business • This allowed Netflix to gain a huge operational and cost advantage over its rivals. Alternative Option – Netflix Emerged • Blockbuster primarily catered to new releases. • Netflix leveraged technology to introduce the concept of queuing movies and later providing movie recommendations. • This allowed Netflix to differentiate itself from Blockbuster and its competitors Competitive Advantage • This innovation allowed Netflix to exercise more power when dealing with its suppliers – such as movie studios. • Independent movie studios keen to release their movies through Netflix since they did not have to spend exorbitant amounts of money to capture the attention of the public. Dependency - revenue earned in late fees • Late fees that Blockbuster and other stores charged were exorbitant (often higher than the cost of the original rental itself). • Netflix debuted the unlimited prepaid rental plan – whereby a user did not have to pay any late fees for rentals. • This pricing model was marketed very aggressively by Netflix, and quickly won over customers. Value Preposition – Sufficient Strength
- 8. Strengths & Weaknesses Strengths •Convenience & Personalization • DVDs rather than videotapes • Bigger selection than video stores • No late fees • Strong partnership network • Cool website Weakness • Can Netflix remain most convenient • Netflix’s rivals have DVDs too • Fulfillment challenges • Are the partnerships unique? • Who does the work? • Do customers care? Are its strengths sufficiently compelling to offset its weaknesses?
- 9. If a debatewere held between the proponents and critics of Netflix’s business model, who would win? Why? In our opinion the proponents would win, • As the value proposition of Netflix is unique in some aspects and if they adapt with new technologies to provide movie on Demand like cable operators, they will be able to maintain their market share. • Regarding the customer fatigue and subscription drop-outs after a couple of months, we think that the robust personalized recommendation system, original-content and ever increasing new movies should keep the users stick on to their subscriptions
- 10. • What isNetflix’s core competency? • What are its strategic assets? • Is there anything in Netflix’s business model that makes what the company is doing hard to replicate? Explain your answer. 2
- 11. What is Netflix’score competency and Strategic Assets? Netflix’s core competency is “Content delivery at home in the most convenient way” Partnerships with the studios Recommendation software State-of-the-art distribution network — shipping centers in the U.S. that can reach most customers with one-day delivery Original programming content Strategic Assets
- 12. Is there anythingin Netflix’s business model that makes what the company is doing hard to replicate? Explain your answer. Valuable Rare Inimitable Non-substitutable Recommendation system Y Y Y Y Digital Library Y N N N Original Programming Content Y Y Y Y Existing infrastructure (website, distribution on multiple digital channels) Y N N N Subscription model Y N N N VRIN Framework for Netflix DVD model • VRIN Model explains, Netflix business model is not so unique which can not replicate. • Only two points which certainly gives edge to this model are, Original programming content and Recommendation System.
- 13. • Describe Netflix’spartnership network. • Describe how each of Netflix’s major partnerships supports its business model. 3
- 14. Describe Netflix’s partnershipnetwork. Describe how each of Netflix’s major partnerships supports its business model. • Netflix have strong partnership arrangement – Prepaid Envelopes USPS • Risk Sharing alliance with major studio to reduce overhead and improve effectiveness Alliance with Leading Studio • With this partnership Netflix acquired inventory of 3.3 Million DVD without paying upfront cost Lower Inventory cost • Direct streaming from Web to TV’s and portable devices • No additional charge to consumers Consumer Electronics
- 15. • If youwere advising Netflix, what would you tell it to do to make its business model more financially viable for the long term? 4
- 16. If you wereadvising Netflix, what would you tell it to do to make its business model more financially viable for the long term? Think Beyond Rental DVD’s- Video Streaming Technological advancement – Keep update Company and pace with the speed of technological change in Market Step-in new market. Expand the business in other region/continent Management must find the appropriate balance to manage two distinct operations (declining by-mail business and increasing streaming business) under one brand Customer base increasing, it impacts the delivery of DVD’s Create small outlets – to improve delivery of DVD’s
- 17. • Describe howNetflix interfaces with its customers. • To what extent do you believe that this component of Netflix’s business model contributes to its sustainable competitive advantage 5
- 18. • Describe howNetflix interfaces with its customers. • To what extent do you believe that this component of Netflix’s business model contributes to its sustainable competitive advantage • No mental pressure for Late fees • Personalize touch • Expert recommendation • Easy to establish the interface Simple user interface on Netflix website Valuable personalized recommendations Unlimited rentals with no late fees is much appreciated by users Direct mailing to customers at the comfort of their home The customer interface is the environment in which the. service is delivered. It involves contact with the customer, encompassing interactions that are person- to-person, via mail, telephone, fax, or computer
- 19.