Netflix Inc. (Netflix) is currently the largest online provider of DVD rentals in the US. Founded by Reed Hastings in 1997, the company offers monthly prepaid rental services utilizing its online search engine, where the company then mails DVDs to subscribers via the United States Postal Service (USPS). Since the company’s inception, Hasting has been exploiting disruptive innovations as a means of creating a competitive advantage over incumbents within the industry. Netflix faces stiff competition within the movie rental industry that includes Blockbuster Video and traditional “mom and pop” video rental stores. Now, Netflix must develop a new strategy in response to the competitive moves and technology changes within the industry. Netflix is now contemplating new strategies so that it can compete with online video and Video-on-Demand (VOD) providers, as well as, Redbox, a movie rental provider, which delivers DVD’s through a system of strategically places kiosks.
This case analysis will first start by identifying the factors that led to Netflix growth as well as weaknesses and risks that Netflix currently faces. Next, the case analysis will provide potential strategies for Netflix going forward. Finally, the analysis will provide recommendations on what strategy Netflix should take in order to improve its position going forward as it implements a video-on-demand service.
The recommendations proposed in this case study are based on five key elements: The environmental context, The Netflix Company (Company), USPS and Movie Studios (Collaborators), Netflix’s Customer base and Netflix’s Competitors.
In 1979 a Los Angles retail outlet is credited with the creation of the retail movie. The video rental industry boomed throughout the 1980’s and became a fixture in consumers’ spending during the 1990’s, grossing an average of $1 billion yearly. With the arrival of digital versatile discs (DVDs) and the Internet during the 1990’s, the industry experienced a period of increasing technological sophistication that has led to the creation and reinvention of new business models, as evident in the example of Reed Hastings and Netflix. The company’s ability to rapidly capture market share with the developed of their new service offering that provided a monthly rental services utilizing its online search engine, where the company then mails DVDs to subscribers via the United States Postal Service (USPS).The success of this model has caused other companies, including Blockbuster, to imitate the service offering. Now with a rapid influx of online video and Video-on-Demand (VOD) services, the industry has become increasingly volatile. As indicated by the success of Redbox’s $1 per day DVD rental service and Netflix and Blockbusters rapid revisions to costing structure, the environment is also extremely cost sensitive, which will affect both Netflix and other companies’ service offering options in the industry going forward. Finally, while there is a little room for industry growth because of new innovations and the ability to watch movies on a computer, it is a mature industry as a whole. The only real option for a company to grow is by increasing market share. This obviously plays are role in the volatility and stiff competition within the industry.
The case suggests that the Netflix system has been built to serve the customer and that the organization is service oriented. Netflix’s greatest strength is the company’s ability to be a leader in service innovation within the movie rental industry. It is clear that Netflix was able utilize a disruptive innovation model to gain market share within the movie rental industry. As a disruptive innovation, Netflix was able to disrupt and redefine the trajectory of the movie rental market by introducing a service that was simpler, more convenient and less expense to product...