Reed Hastings, co-founder of Netflix, once stated that the inspiration for creating the company came from an unsatisfactory experience renting a movie. According to the story, Hastings rented the Apollo 13 title, with Tom Hanks and was late in the return, for which he had to pay a fine of 40 dollars. The anger would have given rise to the inspiration to create a company that last year had a turnover of around 25,000 million dollars.
Although his partner Marc Randolph denied the story, the reality is that Netflix’s trajectory is inspiring. The company was born in 1997, when the video rental industry was clearly dominated by Blockbuster, which had more than 5,000 stores in the United States alone and boasted that seven out of 10 Americans were located within 10 minutes by car from one of its establishments.
Blockbuster based its business model on movie rentals and candy store sales, through a family socializing experience. The main product was the first-run films, which were complemented by a menu of catalog films. The company was acquired in 1994 for $ 8.4 billion, however, in 2010 it was declared bankrupt, once the Netflix model was imposed.
Netflix built its model based on exploiting Blockbuster’s weaknesses, which apparently were its strength: i) the supply of first-run titles, ii) the policy of penalties for late return of films, and iii) the large inventory of films. .
Blockbuster users looking for new titles often left unsatisfied with insufficient copies. The rental of catalog titles, without an accompaniment to select the appropriate titles, was another element of dissatisfaction. The penalty policy was also a nuisance factor, although it was very valuable as it generated significant resources for Blockbuster.
The voluminous inventory of Beta and VHS titles, at a time of technological transition to the DVD format, represented a barrier to the mobility and reaction of the company.
Netflix exploited user dissatisfaction by providing timely information about movies and implementing a rental system without penalty for late return. Notably, he built a system for collecting information on user preferences, which has led him to produce several of the most successful series in television history. Likewise, it exploited the emergence of DVD, positioning itself as a company that promotes technological change.
Netflix demonstrated the possibility of implementing a distribution system, based on an old tool, the US postal system, which it still uses to distribute movies in physical format, through the DVD Netflix company.
The success of the company leaves several lessons:
- There are no eternal dominant positions, as the most successful business models contain flaws.
- Innovative companies can be successful if they identify and exploit the flaws in traditional companies’ business models and address the causes of consumer dissatisfaction.
- Business success depends, increasingly, on the possibility of building databases that allow better understanding of consumers.
- The policy of attracting and retaining talent is essential to building a successful institution.
The video home entertainment ecosystem has changed radically in recent years and will continue to change with the emergence of various competitors. Beyond its future, Netflix will prevail as a study organization due to its ability to generate new ideas in the execution of operations and in serving the needs of consumers.
Twitter: @javiernunezmel
Reference-www.eleconomista.com.mx