Netflix’s Growth Alongside Digital Transformation
Netflix has used the changing digital landscape to its advantage as its become one of the biggest entertainment companies today.
Netflix has been a big winner with the advancement of digital technologies. To date, they have amassed an astounding 117.6 million international subscribers in nearly 200 countries around the world. This success has come from primarily three reasons: 1) advancements in streaming capabilities accelerated in line or better than expected as Netflix transitioned to a primarily streaming service; 2) the proliferation of mobile phones and tablets as well as the introduction of smart televisions allowed Netflix to be available to its customers at all times; and 3) the change in viewing tastes because of the first two greatly enhanced Netflix’s value proposition.
The first company to think about delivering content via streaming technologies was not, in fact, Netflix, but rather its old competitor Blockbuster. In the early 2000s, Blockbuster formed a team to explore the possibility of having its content library available to its customers online. However, as most people still had dial up internet connections and with broadband just beginning, streaming did not function well enough to serve its customers with adequate connections. When Netflix pivoted from its lucrative DVD mail order business to a service that relied on streaming first, the technology had finally caught up and its customers could watch many of its movies and shows online clearly and completely. The transition happened faster in the United States than Netflix had anticipated, leading to an increasing number of subscribers from which Blockbuster and other services could not match. As internet connections have improved throughout the world, Netflix has continued to ride this trend and provide its international customers with the same, clear experience.
Not only did Netflix have faster connections to its customers’ computers so they could view its content online, mobile technology advanced so that Netflix could function across multiple of its customers’ devices, making it a much more necessary subscription service to have. The success of the iPhone in making Americans want smartphones and the follow on introductions of other smart devices like tablets gave Netflix platforms to have more touches with its customers. In 2010 it launched the Netflix application for iPhones and iPod Touches. Again this accelerated with international growth and the proliferation of smartphones around the world.
Finally, as a byproduct of the changing technological landscape, customer tastes changed in the way in which they viewed content and what they were viewing in ways that Netflix took advantage of. Because screens were now available at all times, video became more of an essential part of people’s lives. No longer did people feel they had to sit down in movie theaters or wait for their weekly television shows. Because they were constantly connected to fast internet, they could watch short form video whenever they wanted. Netflix, unlike traditional film and television production studios, was in the prime position to deliver this content. Their data showed what their customers watched, in what increments, and what they desired more of. All this made Netflix the behemoth it currently is.
As Netflix goes forward it will have to continue to use technological advancements to be everywhere consumers watch content and have the content that allows them to keep growing subscribers. But since their origins as a DVD by mail service, they have used digital transformation to grow passed most of their competitors.
Interesting post, Ari! Tough to imagine a life without Netflix now! I wonder what the future has in store for the company. When Netflix started streaming, it was providing a product that was pretty easy to replicate and, as a result, we’ve seen a multitude of other content streamers enter the space. As you mentioned, Netflix then moved to original content to differentiate, and many of their competitors followed suit. I remember reading that Disney even pulled their content from Netflix for their own streaming service. Moving forward, there is increased pressure on Netflix to continuously produce great content or find some other way to prevent itself from becoming essentially a commoditized business. It’ll be interesting to see how it plays out!
Thanks Ari! My biggest concerns about Netflix are old people and poor people. In the US, Netflix has super high penetration in the younger crowd but still has a ways to go with the old and the poor. As broadband penetration stops growing, (in the high 80%’s in the US), we are seeing that for some the internet, and therefore Netflix, is either not affordable or important. Although the international growth you describe is encouraging and likely to distract for a while, I fear a meaningful slow down in the US will change the stock’s narrative and bring its valuation back to earth.
Interesting post. It’s been very interesting watching how Netflix has remained nimble and responsive to its users over time. They’ve readily adapted their business model, embracing change and new technology paradigms as they’ve come along. It seems this is largely guided by their data-driven analyses and focus on customer behaviors and experience. It will be further interesting to see how this plays out compared to Amazon Instant Video and other streaming offerings.
Thanks for the post! Whenever we talk about Netflix’s success, I’m always reminded of the power of data. It only helps provide better recommendations to its customers creating a better customer experience, but more importantly, Netflix was able to create original content tailored to customer’s needs. I was surprised to read in an article that Netflix’s efforts in original content have been earning near 100 Emmy nominations in recent years. I’m interested to see how the market changes as more networks provide their own streaming services, as well as more tech companies start to create original content. (For example, Facebook recently launched the Facebook Watch.)