1997

Abhinav Ankit Chiren Sumeet

Agenda

• Origins
• Disrupting the Business Model
• Backward Integration – Reinventing the Business
• Saturating Markets
• Challenges
• Recommendations
Netflix

“Netflix in the beginning was a new

technology company, but based on the
oldest technology possible: the US post
office”

- Robert Thompson

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Origin
• Founded by Reed Hastings and Mitch
Lowe

• Launched as a DVD-by-mail service in

1999
• Subscription model - No Shipping Fees
& No Late Charges

The Story 2007-2011 2011-2015 2015 onwards Conclusion

ENTERTAINMENT, CONVENIENCE, SELECTION, AND
VALUE
• Value Proposition : Customers order from the comfort of
home and the DVD comes in the mailbox. Single
subscription fees covers all costs.

• Profit Proposition: No Retail store or overhead costs due

to staff.

• Technology: Internet and Transition from VHS to DVD

• Competition: Blockbuster
The Story 2007-2011 2011-2015 2015 onwards Conclusion
Extending The Competitive Advantage

• Online Recommendation Engine – Improved Customer

Experience

• Customer Wish list – Accurate forecast of Demand &

Customer Preferences

• Partnership with USPS

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Disrupting the Industry
6.3
Million
996.7
Revenue in million U.S. dollars

682.2

500.6

1.5
Million 270.4

150.8

2002 2003 2004 2005 2006

The Story 2007-2011 2011-2015 2015 onwards Conclusion

DestroyYourBusiness.com(streaming)
“Kill your business model before it kills you”

• Evolution of Business Model:

• From mailing DVDs to online
streaming
• Free for DVD service
subscribers
• Evolving role of technology:
• From Customer Service to
Product Distribution
• 24/7 Customer support

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Changing Industry Definition

• Industry in transition
• From DVD rental to content
distributer
• Competition:
• Blockbuster – Still focused on DVD
rentals Blockbuster

• New competitors in online-only Netflix

space
• Hulu
• Amazon Instant Video
Source: Neilsen Online

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Netflix: Coasting Along

3500
3,204.6

3000
No. of Subscribers : 20 Million
62% Annual Growth
Revenue in million U.S. dollars

2500
2,162.6

2000
1,670.3

1500 1,364.7
1,205.3

1000

500 #1
0
2007 2008 2009 2010 2011

E-Commerce
Annual Revenue : US$3.2 billion Customer Satisfaction
33% Annual Growth
Source: Netflix; ID 272545

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Backward Integration(Content creation)
Netflix comes up with a new BHAG

“Our goal is to become HBO faster than

HBO can become us”

- Ted Sarandos
Chief Content Officer Netflix

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Content is King

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Impact of Original content strategy

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Dealing with failure

September 18, 2011

Separate spinout for DVD-by-mail
service

October 10, 2011

Netflix rolled back Qwikster
to restore same subscription
plans

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Impact on the industry

Partners
? Competitors

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Impact on the industry(contd.)

• Industry attractiveness increased

• Rise of niche market players
• Decreasing margin due to industry fragmentation

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Seeking New Markets(Internationalization)
Current scenario

Live in 190+ countries

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Reasons for going forgoingabroad

• Slowing growth in USA 880,000

1,150,000
• Better than expected growth
outside USA 2,740,000
2,400,000
• New customer acquisition

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Challenges ahead
• Content
• Need locally relevant content
• High licensing costs

• Technology
• Piracy
• Less favorable foreign IP laws

• Pricing Issues

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Recommendation: Invest and develop local content

High

Need for
Adaptation

Low

Low High
Strategic Significance

The Story 2007-2011 2011-2015 2015 onwards Conclusion

Recommendations (contd.)

• Government Collaboration
“Believe it or not, the government really wants to
help you succeed” – Michael Etinson
• Work with governments to ensure IP
law implementation

• Purchasing Power Parity(PPP) Based

Pricing
• A dollar is not worth a dollar in every
country

The Story 2007-2011 2011-2015 2015 onwards Conclusion

“Your success in life isn’t based on your ability to simply change. It is based
on your ability to change faster than your competition, customers and
business” – Mark Sanborn