Companies

Netflix – Flicks directly on the net… at last


Lately, I’ve been running errands to tie up the loose ends of a construction project at home and I keep driving past the now defunct ‘Hollywood Video’ store in my neighborhood. As you might expect, the Product Manager in me looks at this abandoned store and can’t help thinking about the innovation and creative destruction delivered to my neighborhood by… you guessed it… Netflix.

I have to admit that, over the years,  I was only a sporadic member of the videos-by-mail, no-late-fees Netflix service. That’s because I was always able to find time to watch movies in the theater and so waiting for movies to release on video and be shipped to my house didn’t make much sense. However, all that changed recently when I discovered the instant gratification of Netflix’s video streaming service.

Of course, like the rest of Netflix’s instant-streaming customers, I would like the catalog of content to grow by leaps and bounds. The growing rate of adoption of the streaming service is a great win and a great challenge for Netflix – it’s now up to them to turn these buyers and users into vociferous lovers of their service. In the meantime, there is enough geeky PBS and National Geographic content on their catalog to keep me satisfied for weeks, if not months.

I recognize that it might be a little too soon to add Netflix’s streaming service to the annals of buy, use, love greatness but my study of their strategy might interest fellow Product Managers because it reveals the makings of a blockbuster – no pun intended. Here’s what I learned…

  • If the data contradicts your business model, reconsider the business model –

    Over the past few years, Netflix noticed the downward trend in the number of DVD shipments per user and an increase in the amount of streaming content. This unadulterated market data has driven the company’s transition to streaming from the DVD-by-mail business model that built its initial success. As with any transition, there will be challenges – lower monthly subscription fees, higher content licensing fees, heavyweight competitors etc. but Netflix is clearly committing to the future instead of rabidly defending the past. As Product Managers, we’re often confronted with a choice – tweak the parameters of a known model or explore the uncertainties of new ones. To help with this choice, let’s commit to seeking as much true market data as possible. In the absence of data, self preservation drives PMs and companies towards the tried and true instead of risking the path of tomorrow’s breakthrough.

     

  • Focus on eliminating the pain of change – 

    The triumph of the internet as a means of serving entertainment content seems like a foregone conclusion to folks like me, but it represents a significant transition away from traditional TV for a large majority of Americans (even those with access to high speed internet). Netflix (and the competition) is working feverishly to reduce the pain of this change by offering it’s streaming service on a wide range devices that are already plugged into their customers’ TV screens. Like all good Product Managers, the folks at Netflix know that introducing an innovation that is dependent on a change in customer behavior requires a keen understanding of current behaviors. There are no guarantees of success, but fitting seamlessly into the current ecosystem and eliminating the switching costs will definitely help the odds.

     

  • Customer satisfaction is your best defense – Netflix has been astute about intimately understanding customers’ interactions with the service to drive greater satisfaction. In fact, they even spent a million dollars to crowdsource a better recommendation engine to improve the customer experience. This focus on customer satisfaction will serve Netflix well, especially as their power as a content clearinghouse spurs competitive reactions from content creators. Netflix’s strongest defense will remain it’s ability to offer a service that customers prefer. Competitive pressures are a constant for companies and Product Managers and it’s critical to remember that customer satisfaction (more so than feature wins, pricing or promotions) is ultimately the strongest defense.

     

Netflix is charting a bold course to redefine not only it’s own business but also the larger entertainment industry. I cannot predict today if Netflix will emerge on top but I can tell that it won’t be for the lack of a sound strategy.


2 thoughts on “Netflix – Flicks directly on the net… at last

  1. Great post. I’ve always thought of Netflix as a great product management organization. How can they not be when they saw over a decade ago what even Blockbuster failed to recognize and even as late as 2007 was still denying… i.e. on-demand video is the future. Netflix is taking all the right steps by 1. Build a decent library/inventory 2. Acquire solid delivery channels (postal, online, set-top boxes, gaming systems, home entertainment centers, etc.) 3. Continue to acquire additional member in expanding demographics. What’s next… how about growing international content, or even building its own “TV” network available only to subscribers and airing only content that receives the right amount of subscriber votes? Hmmmm… yep bright future for NFLX.

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