Presentation on theme: "Case study analysis by Tricia Vega"— Presentation transcript:
1 Case study analysis by Tricia Vega Netflix in Two Acts: The Making of anE-commerce Giant and the Uncertain Future of Atoms to BitsCase study analysis by Tricia Vega
2 History Netflix founded by Reed Hastings & Marc Rudolph in 1997 Hastings was fed up with paying high late fees for his rented moviesDVD by mail with a monthly subscriptionPre-paid envelopes for return
3 History Hastings understood the power of the internet early on: Netflix.com queueCinematch technology2007: Online streaming was added on the website with a “Watch Now” buttonHastings focused on the future of streaming videos rather than DVDsCinematch tech- more on that later
4 History: Competition Blockbuster: Wal-Mart: Amazon Hulu YouTube Traditional brick & mortar storeadded DVD by mail services to competeLost $4 billion in revenue with the rise of NetflixFiled bankruptcy in Sept ’10, purchased by Dish Network April ‘11Wal-Mart:Largest retailer of DVD sales (economy of scale)Bought streaming outfit VUDU for $100 milAmazonHuluYouTubeTelevision shows being streamed online directly by the network
5 History: Competition Netflix’s triple advantage over competitors: Largest selection of titlesLargest network of distribution centersLargest customer base*Economy of scale advantage*** Netflix was also had the first-mover advantage**
6 History: Initial Success Netflix was the ranked #1 e-commerce site based on customer satisfaction fromSuccess built on HUGE selection of films (about 125,000 titles). Brick & mortar stores typically have only 3000 titlesObscure, older titles accounted for 75% of revenue
7 History: Initial Success Capitalized on “long-tail” selection, where a company can make a huge profit off of a near limitless selection. Netflix was able to do this because of warehouses and lack of costs associated with brick & mortar stores and streaming.
8 Systems & Operations Leading to Success Warehouses58 strategically located distribution centers in US2 day turnaroundCenters handle 1.8 mil DVDs/dayCosts $300 mil/yr to runCoordination with Cinematch to recommend titles that are availableNetflix’s VP of Operations, “Anyone can replicate the Netflix operations if they wish. It’s not going to be easy. It’s going to take a lot of time and a lot of money.”
10 Systems & Operations Leading to Success CinematchNetflix’s recommendation system“Collaborative Filtering”: software monitors trends among customers and uses this data to personalize a custom experienceEx: Pandora, book recommendations on AmazonThis tech lead to a low turnover of customers, high amount of recommendations by users
11 Systems & Operations Leading to Success DVD Streaming:Develop their own set-top box vs partnering with other existing devicesAccessible in over 200 devicesIncreases audienceRoku: Netflix’s set-top box ($99)At its height, Netflix accounted for 30% of North America’s internet traffic!
12 The Downfall BeginsHastings always understood the world was moving from “atoms” to “bits”: The idea that many media products are sold in containers (atoms) eventually switch to bits. Physical inventory is eliminated.What other products have moved from atoms to bits?
13 The Downfall BeginsJuly 2011: Profits, customer base, and stock price are at an all time highWanting to maintain the first mover position, Hastings announces Netflix will split into to separate entities: 1) online streaming and 2) Qwikster, the DVD by mail segmentOriginal monthly subscription of $10 was split into two separate $8 subscriptionsWebsite was also split into two
14 The Downfall Customers were very unhappy with the change Hastings went from industry leader to laughing stockNetflix eventually dropped Qwikster, but held the price increase
15 The DownfallWithin 3 months, Netflix lost 800,000 customers, stock price decreased from $304 to $75, and market value lost $12 billion
16 Since the downfall…The end of 2011 saw Netflix adding 610,000 subscribers in the US by the end, bringing the subscriber count to 24.4 million.Netflix continues to work towards making deals with studios to be their exclusive providerNetflix launched its own series, House of CardsNetflix had hopes of global expansion, but has since held off
17 Current Events On April 23, Netflix announced a stock price surged 25% This was attributed to the 2 million new subscribers during the first quarter of 2013Netflix shares are now up 125% this year, making the company the best performing stock in the S&P 500 so far in 2013.
18 Current EventsNetflix will be adding new original series to their line-up, hoping to eventually have 20+ showsHowever, Netflix is launching all of its new shows at once- is Hastings moving too fast once again??Some suggest that Netflix should charge by the hour of usage, and not a flat monthly rate (to increase revenue). This may further anger viewers, however.
19 Current EventsNetflix Introduces New Pricing Plan: Another Qwikster Disaster or the Right Move?Netflix is proposing a new pricing plan in order to tackle those people who are streaming without paying (ie using someone else’s password).The streaming subscription would rise from $7.99 a month for 2 simultaneous streams to $11.99 a month for 4 simultaneous streamsIs it worth it to anger customers once again after the Qwikster debacle?
20 Recommendations Hastings should move slower Continue to be compatible with as many devices as possible, including new devices.Fight for position as the cost leader, maybe offer a yearly subscription plan like AmazonAvoid any moves that would further annoy customers
21 Multiple Choice Questions Netflix introduced Qwikster in:a) 2010 b) 2011 c) 2012 d) 2009Netflix can be streamed on which device:a) Roku b) iPad c) Play Station d) all of the aboveNetflix is difficult for competitors to duplicate because:a) Most titles are exclusive to Netflix b) It is an economy of scale c) Netflix owns the rights to stream films online d) Netflix owns its own series