With currently around 125 million users (April 2018), Netflix is the undisputed market leader in video streaming. The company was originally founded in 1997 as DVD mail order business and found itself in the throes of a deep crisis in 2011, before it celebrated serial successes with “House of Cards”, “Narcos” and “Stranger Things”, all originally produced by Netflix. If you want to know how to learn from Netflix’ strengths, here a few suggestions…
Netflix is seen by many as a start-up but the current video streaming market leader was founded as early as 1997, offering mail-order DVD rentals. Over the years, and in line with the internet bandwidth, streaming outgrew the original key business rapidly. By now, Netflix serves 125 million streaming subscribers around the globe, increased sales by 40% last year and announced that it would invest 6 billion dollars 2018 in the creation of exclusive content. And this only nine years after a strategic mistake had lead to a major crisis for the company. What lessons can start-ups learn from Netflix?
Netflix’s message has always been straightforward: Watch movies as easily and comfortably as possible and whenever you wish – at a fixed price. Process and transaction handling are made simple and highly flexible, also when it comes to mail-ordering DVDs online. The Netflix website also is a prime example of focusing on the essential – no unnecessary frills. Personal profiles are saved wherever you stopped adding to it, and your subscription can be activated or deactivated with a single click.
At the end of 2011, the Netflix management team around CEO Reed Hastings decided to separate the ever faster-growing streaming business (Netflix) from the decreasing DVD rental business (Quickster) and at the same time to increase prices by 50%. A mistake with serious consequences: within one quarter, Netflix lost 800,000 subscribers and the share value dropped by 80%.
However, the company did not waste any time and called the separation of the two businesses off immediately. And customers forgave Netflix – despite the higher prices. Since then, the company has always reacted noticeably quickly to customer feedback, even if it is about features like different ways to create a personal profile.
Which TV shows are watched at what time? How many episodes are watched in succession, and where do people stop watching? Netflix analyses the viewing preferences of its customers in every detail. With up to five personal profiles for one account, it is possible to tailor recommendations and offers to every single household member. Algorithms learn to adapt to any taste and to recommend any content, in order to keep the audience interested long term.
Netflix customers demand more and more current content. However, the broadcasting licencing business is expensive and depends on the film studios’ willingness to cooperate. This is why Netflix, at the beginning of the 2010s, decided to massively invest in the development of high-quality in-house video content and to give stars and directors a guarantee for the production of a second season, contrary to film studio practice.
In 2013, Netflix enjoyed great worldwide success with “House of Cards”, and since then other global hits like “Narcos”, “Stranger Things” or “Orange is the New Black” have followed. The streaming community wants more, the share price is at an all-time high – and Netflix’s coffers are filled to the brim.