Netlfix
Netflix is a company defined by progress that pushes the bar of innovation, a company that promises 500k subscribers by IPO time and delivers 700K. A company led by a man not afraid to take risks.
In Hastings own words, “It wasn’t the time to do a bunch of testing and analysis. We had to make some bets and not worry about getting it wrong”.
From the get-go, Netflix started offering a completely different value to consumers. The video rental market at that time, 1997, was dominated by brick and mortar stores that had very similar pricing models (i.e. rent for a specific price for a specified time) and rented mostly VHS tapes, the common technology at the time. Netflix decided to come to market with a spin on the industry norm. They decided to not be a brick and mortar store, but rather offer a mail-delivery video rental service that was completely online. They decided to not rent any VHS’s, but rather rent only DVDs, a new technology at the time. And eventually they decided to pioneer a subscription-based pricing model in the industry.
Piggybacking off of Hasting’s comment, regarding risk, in the introduction, things ended up going well for the company…very well actually. For example, DVD technology turned out to be the fastest adopted technology in history. In one year, U.S. household penetration grew by 8 %. Slowly, but surely, DVDs started replacing VHS cassettes at traditional video rental stores. In turn, the value that Netflix was offering customers started to decrease. Hastings had to make a move; a risky but calculative move.
Blockbuster was very similar to other video rental stores in the industry. They generated profits by (1) renting out movies through their retail stores and (2) selling pre-viewed movies at a discount to clear shelf space for upcoming releases (3) charging late fees (accounted for about 10% of revenues). They would rent out movies for $3 to $4 for a set number of days, and charge late fees afterwards.
Netflix attempted to
In Hastings own words, “It wasn’t the time to do a bunch of testing and analysis. We had to make some bets and not worry about getting it wrong”.
From the get-go, Netflix started offering a completely different value to consumers. The video rental market at that time, 1997, was dominated by brick and mortar stores that had very similar pricing models (i.e. rent for a specific price for a specified time) and rented mostly VHS tapes, the common technology at the time. Netflix decided to come to market with a spin on the industry norm. They decided to not be a brick and mortar store, but rather offer a mail-delivery video rental service that was completely online. They decided to not rent any VHS’s, but rather rent only DVDs, a new technology at the time. And eventually they decided to pioneer a subscription-based pricing model in the industry.
Piggybacking off of Hasting’s comment, regarding risk, in the introduction, things ended up going well for the company…very well actually. For example, DVD technology turned out to be the fastest adopted technology in history. In one year, U.S. household penetration grew by 8 %. Slowly, but surely, DVDs started replacing VHS cassettes at traditional video rental stores. In turn, the value that Netflix was offering customers started to decrease. Hastings had to make a move; a risky but calculative move.
Blockbuster was very similar to other video rental stores in the industry. They generated profits by (1) renting out movies through their retail stores and (2) selling pre-viewed movies at a discount to clear shelf space for upcoming releases (3) charging late fees (accounted for about 10% of revenues). They would rent out movies for $3 to $4 for a set number of days, and charge late fees afterwards.
Netflix attempted to