Netflix vs Blockbuster Business Model

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  • Topic: Renting, VHS, DVD
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  • Published : March 8, 2009
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Netflix Vs Blockbuster – Business model / Profit model

A busines model is the way a supplier transacts business with its customers. Business model innovation focuses on addressing unmet needs on the part of consumers who dislike some aspect of an existing business mode of an existing category. So with that said what is Netflix and blockbuster business model? Blockbuster business model back in the early 2000 was to pay –per-rental. Blockbuster’s customer were frustrated by late fees and not being able to find their movie of choice when they wanted it. Blockbuster’s brick and mortar business model was the onlu video rental chain that could offer the prodict that customers wanted. Its biggest strength was their sheer size. However, with customers busier lifestyles, demand and the advancement in the technology, Blockbuster was left behind and needed to explore the uncharted waters of the internet. Blockbuster focused on market niche when they started decades ago renting VHS tapes. They used information systems to enable a focused strategy on a single market niche. Blockbuster targeted a specilized market which included a specific type of customers and provided a specified product to that customer. They focus primarily on renting out movies and games to people who like both. Michael Porter’s competitive forces model is probably one of the most often used business strategy tools and has proven its usefulness on numerous occasions. The five forces consists of traditional competitors, new entrance, customers, suppliers and substitute products and services. When we look at blockbuster’s industry it has many different aspects to it when considering the dimensions of its industry. First of the five forces is Buyer Power which is high when buyers have many choices. Hollywood video is probably Blockbuster’s main competitor when we consider a company that rents both movies and games. However Netflix has become a video rental leader and to continue to domcate the position. NetFlix has found a great niche; allow people to rent DVDs at a set monthly fee; no late fees, no hassle, just movies in the mail. They have been wildly successful, and for good reason. It's a good product at a decent price. The concept behind NetFlix has spun off into a number of similar industries (video games, porn, most anything that could be rented at Blockbuster). The interesting thing about NetFlix is that they acquired a patent on their model: In June 2003, Netflix obtained a patent on a "method and apparatus for renting items." The patent covers "a computer-implemented approach for renting items to customers (in which) customers specify what items to rent using item selection criteria separate from deciding when to receive the specified items." In addition, it covers what it calls a "Max Out" approach, which allows a certain number of items to be rented simultaneously. If enforced, the patent could conceivably turn all of Netflix's competitors, no matter what they rent, into paying licensees — or run them out of business entirely. Emerging DVD Market.

The market for in-home filmed entertainment is very large, of which video rentals and purchases comprises the largest fraction. Consumers in the United States spent roughly 80 percent of total filmed entertainment expenditures in 2001 on in-home filmed entertainment, Consumer video rentals and purchases represented $23 billion or 73 percent of the market. DVD rentals are quickly becoming a significant portion and a key driver of the home video segment, with video format undergoing a rapid technology transition away from VHS to DVD (see “Growing DVD Rentals,” side panel).

Four factors are driving the change:

1. Superior Quality.
DVDs are a vast improvement in quality over VHS cassettes and have many more features such as director commentary, alternate endings, and other special features. As a result, initial consumer interest was strong and quickly hastened the transition from VHS...
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