Business Model

Netflix CEO and founder, Reed Hastings, started this movie rental service empire in early 1999, with Netflix’s business model beginning as subscription-based and continuing to follow this business model today. When Netflix first started, the company only offered ‘DVD-by-mail’ service, which rented DVD’s to customers by mailing them to the customer, with the customer returning the DVD once satisfied. The amount of DVD’s available to be rented at a time was dependant on the membership the customer paid for.

As the Internet business Netflix matured, it developed the innovative opportunity for customers to stream their services to their devices alongside their original DVD-by-mail option. With more people using smartphones and tablets, it has become much more convenient for people to watch movies on these devices rather than plopping themselves in front of their TV sets and plugging a DVD into an attached player (Cohan, 2013). The strategy here was to reduce costs required for postage and shipping and was ideally introduced to try and get customers and subscribers to transfer to the streaming option.

• The streaming option began in 2007, with 2,000 titles available for instant-watching via streaming and around 20,000 titles in 2010 (Bowen et al., 2014).

• In 2010, Netflix began offering its streaming services to residents in Canada and in 2011, initiated services in 43 countries worldwide. The mail services only continued in North America as it did originally (Bowen et al., 2014).

• In 2011, Netflix announced that this would no longer be an option and there would not be a subscription plan that offered both the option for streaming and DVDs-by- mail service. Instead, the services would be offered in two separate packages (Bowen et al., 2014).

• There was a negative response from the current customers and Hastings decided to only continue the streaming services offered through the name Netflix, Inc. and all mail services would be accessed through the website Qwikster.com. This caused an uproar from customers and the stock price of the company dropped considerable in a short time. This idea was abandoned from more negativities and a continued drop in stock price (Bowen et al., 2014).

• In 2012, there was over 23 million subscribers for streaming and around 120,000 titles available for online streaming and had more titles than any other streaming service available to the public (Bowen et al., 2014).

Through innovation and development Netflix developed their own software technology, which allowed subscribers to preview the list of movies based on ratings, categories and other filters (Bowen et al., 2014). This led to consumers being able to rate what they have been watching and receive recommendations based on their ratings. The consumer involvement proved successful as statistics showed that most items that were being watch were based on recommendations.

Furthermore allowing customers to have a choice between streaming and the DVD services, allowed users unable to stream or without the right capacity and/or high speed of internet to still receive the DVD’s by mails, this option allowed for consumer preferences, especially to those who liked receiving the DVDs by mail.

Continue reading: The Long Tail