Case 7: NETFLIX

The Case

NETFLIX – Luck or Preparedness

Inspired by Amazon’s success in selling books online, Reed Hastings and Marc Randolph decided to create a similar company and chose to distribute films. This was the beginning of NETFLIX in 1997. At the time, videos were mostly on VHS cassettes, but the founders knew this would be cumbersome to store or post to customers, so they opted to use DVDs, even though it was a fairly new technology. A year into business, they changed the value proposition from movie sales to movie rentals.

The business grew and the fact that Netflix didn’t charge late fees and customers could rent most DVDs they wanted without having to take a trip to their Blockbuster store (yes, they were once the leaders in video rental) soon made Netflix a household name.

Securing investment in 1999, Netflix innovated once more – this time not on the delivery channel, but on the revenue stream, by moving to a subscription model. this allowed customers to pay a monthly fee and have films sent to them as soon as they returned the last one, they borrowed.

In 2007, just 10 years after the company was formed, Netflix introduced video streaming, innovating once again on the delivery channel, even though data transfer was slow and internet bandwidth was far from what it is today. Make a note of this, NETFLIX didn’t pack up the postal rentals when they started online streaming! Rather, the revenue from the rentals-by-post kept the company afloat while the streaming business grew.

In 2010, NETFLIX took another leap of faith by going international with expansion to Canada and then to the rest of the world. Today, over 50% of NETFLIX 120 million+ subscribers are from outside the USA. This international expansion, as well as a decision to create its own contents, starting with “The House of Cards” in 2013, may well prove to be the best decisions NETFLIX has ever made. With competition getting fiercer and Disney withdrawing its contents from the NETFLIX platform this year, analysts agree that the variety in international content and the appeal to a very wide audience might be the only way NETFLIX weathers this storm.

So, what can we learn from NETFLIX?

I have heard it said that NETFLIX is just a lucky company – and that the DVD price slump in 2001 enhanced their DVD rental business or that the development of the internet and increased bandwidth assisted their streaming business but I differ in opinion and dare say it was the ability of NETFLIX, like a chess player to think ahead, to predict the opponents move and to be ready with a solution that is sure to deliver profitability and value. This ability to develop strategy based on the analysis of trends is the lesson I want you to take from NETFLIX today.

In my opinion, we could be guilty of waiting too long to act.

Those who act before everyone else always seem to benefit, especially when the actions taken are the right ones. If you disagree, ask the investor who bought shares in a company before the share prices appreciated or the house owner who bought a property before the area suddenly appreciated. Don’t get me wrong, I am not saying luck doesn’t sometimes play a part, but we can create our own luck by strategically looking ahead.

To get you started, I recommend you do a SWOT analysis on yourself, your industry, your career and if you have a business, your business today. The SWOT involves an internal evaluation of your Strengths and Weaknesses, and an external evaluation of the Opportunities and Threats. Use the results that pop into your head to predict the future and then position yourself in such a way that you are ready for it.

So, joining the debate on whether NETFLIX will be able to survive or not post-Disney, I am inclined to believe they will, just because their track record shows that they have probably predicted and prepared for this ahead of time. My question to you is have you prepared for challenges that may come your way? If not, I encourage you to start today!