Netflix Case Study

Netflix Case Study

Background and Problem Definition

Reed Hastings started his company, Netflix, with the desire to find better ways to provide a movie rental service that would better satisfy customers. Netflix used the Internet and the U.S. Postal Service to deliver a good selection of movies and convenience to a quickly-growing number of subscribers. While his company changed significantly, in price structure and operations, over a few short years, Hastings repeatedly stated, "Netflix's purpose was not to provide DVD rentals through the Internet but rather to allow for the bet home video viewing for its customers." Continuing with Hastings' statement and initial desire, the best option for the future of Netflix is to integrate a streaming online video (Video-On-Demand) service into its core offering.

SWOT Analysis

Strengths

* Online video pioneer

* Easy to use, simple service

* High personalization through ratings and suggestions

* Ease of service termination/re-entry

* Extensive content library reaches beyond "new releases"

* Well established online platform Weaknesses

* Delivery delay for DVDs

* Small streaming content

* High operational costs

* Licensing/copyright agreements with movie studios

Opportunities

* Lower operational costs

* Partnerships with TV channels, gaming system companies

* Exclusive content deals

* Educational and gaming content

Threats

* Other streaming services

* Other rental stores

* New video formats

* Cannibalization of their own services

* Emerging customer needs

Strengths

Netflix was the first to enter the online DVD rental business market, thereby creating a first-mover advantage as well as a differentiation-based advantage by offering a service no one else was offering. This fueled and propelled the initial success of Netflix as they were operating in the virtually competitor-free arena and were attractive to early adopters and tech-savvy consumers alike. Also, Netflix made subscribing and unsubscribing to its fee-based rental service simple, which attracted even the most skeptical of customers. Through extensive feedback and ratings from the users, Netflix offered a plethora of customized movie recommendations and suggestions based on what the subscriber had previously viewed.

By establishing a relationship with independent film studios, Netflix satisfied the movie buff market segment through offering a much more extensive content than its brick-and-mortar rivals, for which stocking older and lesser-known movies was simply too expensive. When the streaming video technology became more of reality and less of a dream, Netflix already had a well-established, successful online platform.

Weaknesses

While Netflix made renting DVD's more enjoyable and easier, its biggest weakness remained the delay in delivery. Most subscribers still had to wait at least a day to receive their DVD's, and some even longer. Postage costs, new DVD acquisition, manual labor required to handle shipping and receiving of DVD's, and other distribution-related expenses totaled to high operational costs for the company. This coupled with the expense of damaged and/or lost DVDs ate away at profits.

However, when first entering the VOD market Netflix was bound by small content availability which made the possibility of the streaming video as a stand-alone service virtually impossible. Also, Netflix needed the backing and partnership of larger Hollywood studios, besides the already established relationships with smaller movie companies. Bound by copyrights and without the support of Hollywood that sets the prices and the rules of the game, Netflix had a very hard time upholding their value proposition of convenience, value and selection.

Opportunities

Netflix had already built a large, loyal customer base that thrived on the convenience and ease of use of their service as well as the utilization of technology to deliver what they, the subscribers, wanted. With the addition of video streaming, Netflix can lower their shipping costs thus allowing additional dollars to be spent on content without compromising profit margins. The structure of Netflix resides online, thus adding a large advantage when providing streaming video.