Seeing "Red"—The Netflix Story

Photo by Thomas Hawk (www.thomashawk.com)
Photo by Thomas Hawk (www.thomashawk.com)

Twelve years ago if you mentioned the phrase “movie rental,” unequivocally the name Blockbuster would have come to mind. However, around that time a little Internet start-up called Netflix came onto the scene, and the face of movie rental was changed forever. For a low monthly price they allowed their subscribers to rent any movie they wanted, for as long as they wanted. No more racing back to the local rental store to drop off your DVDs before that noon deadline. No more late fees. It was a classic case of a paradigm shift.

Now, twelve years later, CEO Reed Hastings and company have built a billion dollar-plus company, with over 10 million subscribers, 2,000 employees, and the power to make Hollywood (and those frustrating cable companies) stand up and listen. They are changing the game again with technology that allows subscribers to stream content from the Internet directly to their TV via consoles like Microsoft’s XBox. You can even watch a significant amount of content streamed online (my 4 year-old has to have his morning serving of “Kipper the Dog”). The company is so pervasive, the phrase “what’s in your queue” is now part of the vernacular.

Even when Blockbuster started monthly memberships and  DVDs by mail, it was too late to knock Netflix out. Add to that Netflix’s market cap of about  $2.6 billion (vs. less than 1/10th that for Blockbuster), the big blue giant can’t buy them out either. Could it be game, set, match for Blockbuster?

LESSONS LEARNED

So, what are the valuable lessons learned from Netflix’s story.

  1. Never rest on your laurels: Prior to 1997, no one would ever imagine anyone, let alone an internet start-up from Silicon Valley, would unseat a behemoth like Blockbuster. You never, ever know who or what will come along and snatch that crown from on top of your head. And that goes for Netflix too, as Hulu starts to make some pretty big waves of their own.
  2. Evolve: if you’ve read my book or follow this blog, you know this is a huge soap box for me. It’s imperative in today’s business environment that companies, both big and small, evolve. Evolve not only the products and services you offer, but evolve the WAY you do business. Use Twitter as your customer service desk. Give your clients (gasp) digital files and charge more for your service up front. Constantly change things up and stay fresh.
  3. Mutually beneficial and strategic partnerships: one of the smartest moves I believe Hastings made was abandoning Netflix’s plan to build their own players, and instead create technology that allowed their service to be played by multiple manufacturers. Not unlike the move that made Microsoft Windows and DOS the universal OS back when Gates and company were first growing the firm. By partnering with companies like Microsoft, Roku, LG, and others, they can now use the reach of these companies to further solidify their hold, while at the same time making these companies’ products more appealing.

BLOCKBUSTER OR NETFLIX?

So, just out of curiosity’s sake, tell me, do you use Blockbuster or Netflix? I think you know my answer already.

6 thoughts on “Seeing "Red"—The Netflix Story

  1. It surprises me when I see an open Blockbuster store. I just want to go in there and ask the customers what they are thinking. 12 years ago, when you mentioned movie rental to me, unequivocally 'Blockbuster sucks' came to mind. When I found another option, Netflix, I joined immediately. At that time (1999) I had to wait 3-4 days for a movie from Netflix but I loved every minute of it! My problem with Blockbuster was that they broke the age old rule of late fees and treated me like a criminal. Since the mid 80's, when you rented a movie and had a late fee, you paid the fee when you rented the next movie. The day Blockbuster decided they could take the late fee from my credit card whenever they wanted, I was done. I only used my local, junky indy video store until Netflix came along. I have lost Netflix movies in the past and they just let it slide. Blockbuster would probably have you arrested. Also, Netflix is on the bleeding edge of on-demand movies in my opinion. The fact that I can watch Netflix movies on demand in my living room through my Xbox 360(or blue-ray player or LG TV and soon through the iPhone) puts them way ahead of anyone else in my opinion. Netflix rocks and is definitely a good case study on changing the world.

  2. I cannot remember the last time I went into a blockbuster to rent a movie. The model was great but when add VALUE to the service – taking away late fees, keep it as long as you want, etc you change the game. Blockbusters revenue seemed to be made off late fees and spontaneous purchases of food while at the counter.Couple that when Blockbuster tried to mimic the Netflix brand sending or letting you get the movie in the store, drop it off or mail it back and no more late fees, that killed them because they had a horrible launch. They still charged massive late fees and further cemented Netflix as the future.I personally believe we still have ways to go for a total streaming domination, but hopefully we wont be afraid of the model down the pike like Blockbuster was.

  3. Good points Chase. But I don't think we'll need to wait too long for “totalstreaming domination” as you put it.🙂 I would bet that within 2 years orless, it will be a significant increase in the number of households thatstream content to their TV. When you take Moore's Law into account, that's areasonable time table.Thanks for commenting.

  4. Good points Chase. But I don't think we'll need to wait too long for “totalstreaming domination” as you put it.🙂 I would bet that within 2 years orless, it will be a significant increase in the number of households thatstream content to their TV. When you take Moore's Law into account, that's areasonable time table.Thanks for commenting.

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