Netflix is a US-based company that provides its subscribers with unlimited TV shows and movies streamed over the Internet to any devices. Company’s business activities include three segments: Domestic Streaming, International Streaming, and Domestic DVD by mail. Netflix provides services to millions subscribers across the United States, Canada, Latin America, and partly to European countries.
The company’s history began in 1997 with a mail-order DVD service. The proposition that it offered to the customers was a suggestion to be able to get any DVD, but with limits of the postal service delays. Ten years later, in 2007, Netflix introduces a new service to the world – streaming, which allows consumers watch TV shows and movies instantly on the computers. In two years, the company broadens its operations on Apple iPad, iPhone and other Internet-connected devices. Later Netflix launched its services in Canada, Latin America, and the Caribbean. During 2011-2014 the company expanded to Europe, in particular, the UK, Ireland, Austria, Netherlands, Belgium, France, Germany, Luxembourg, and Switzerland.
The company was the first Internet TV network nominated for an Emmy award. During the last two years, it garners near 30 Emmy nominations for drama, comedy series, and documentary. Recently, Netflix received seven nominations for the 2015 Golden Globes Awards.
Now Netflix connects over 50 million members over the world. Since the beginning of its service in 2007, it has been uniting people with the TV shows and stories they love. The company does not stop its development. According to the company’s web-site news, Internet users in Australia and New Zealand will be able to subscribe to Netflix in 2015. There are many people in the world who enjoy the idea of Internet TV and the company has ambitions to take its original shows and other great shows around the whole world, country by country, region by region. That is a very exciting growth challenge for the company and it does not need to create new businesses, it just needs to deliver the idea it is working on as widely as possible.
Pirating of movies and TV shows on file sharing networks is quite popular. However, the production studios involved in the creation of the movies and shows do not get any revenue when their products are pirated online. Thus, Netflix is a site, where a person can watch videos legally at a low fee. Netflix subscribers with an Internet connection can watch movies and TV shows at any time, in any place they like, and on any Netflix-ready device they choose. Moreover, users can switch watching from one device to another with no need to discover the moment where they left. Streaming can be at home or somewhere else. There is no problem to sign up for a one-month free trial and cancel anytime if a person dislikes the service. In addition, customers can form their own viewing lists or content and easily distinguish new favorite movies or shows while reconnecting with familiar personages and plots.
The major competitors of Netflix
The company faces intense competition from numerous businesses. Currently, North American market represents an inveterate struggle for capturing market share. Among the company’s competitors are such retail chains of DVD products as Blockbuster Inc. and Movie Gallery Inc. In addition, the company also faces competition from other subscription entertainment services, such as Showtime and HBO. However, the biggest challenge for Netflix is the competition from companies like Hulu and Vudu.
Hulu compiles a huge selection of titles from nearly 200 leading content companies, including a number of main broadcast networks. Users can choose from more than 1,700 current primetime TV hits. Vudu is a video service that cooperates with studios and international distributors to offer near five 5,000 movies, HD films, and TV shows. Due to their Internet connection, Vudu users have the ability to rent or buy movies and begin viewing them instantly.
Moreover, there are even stronger rivals for Netflix, in particular, Amazon Instant Video and iTunes. There are some movies and shows that are not even on Netflix’s site yet. Netflix is also developing its own programming. However, the main competitive advantages that affect business of Netflix are product availability, customer service, high quality, and low price. Netflix is continuously increasing the level of streaming content everywhere, and other providers are always trying to catch up with their own innovative content. This can be great only for users, as they will get the best programming seen in years.
Personalization as the future of industry
Neil Hunt, a Netflix chief product officer, predicts that a new way of future amusement is personalization and on-demand streaming (Kasperkevic, 2014). It is the key point of Netflix strategy to defeat its competitors. The company is going to provide people with one or two perfect suggestions that reveal customer wish of what he or she wants to watch right now depending on his or her mood and who is sitting near him or her at the TV. The idea of a prepared list of titles that a person would like to watch does not really make sense when he or she can choose anything right now and watch it. It is much better to arrange it as an un-ordered assortment of videos a viewer wants to see, where Netflix puts personalization and recommendations algorithms into practice as it spent a lot of time and efforts to sort out the un-ordered pile of the set of histories that would be appealing. Without it, every user would receive the same welcome screen greet after he or she logs in. But instead each customer sees a unique set of titles based on his or her own viewing history, and the system generates categories specific to each subscriber. A simple change, but much more results come out of it.
Netflix uses all of its personalization technology to find out and understand the taste and interests of each of those different members and then to match that up with their content. Recommendations and suggestions might sound too upright, but basically the range of content that a son would see on his screen is absolutely different from the range of the content that a father would see according to how different their tastes are. Netflix uses information technology to make numerous decisions about its members.
Consequently, the major basis of the company’s IT is a software recommendation system that maximizes the amount of titles rented by each viewer by suggesting movies the viewers may enjoy, primarily based on the previous ratings and other customers’ ratings. In order to make recommendations, Netflix has been using the Cinematch system introduced in February 2000. These suggestions are, according to the company, accurate to within half a star on a five-star user rating scale in 75% of cases, and near half of Netflix’s viewers who watched suggested movies or shows rate them with the highest mark. However, Netflix wanted to advance the Cinematch’s algorithm and started the Netflix Prize contest for a 10% improvement. The Belkor’s Pragmatic Chaos, a winner in 2009, reached a 10.06% improvement over the system.
The company collects data based on the personal television preferences of each viewer. In addition, these data allow Netflix to make decisions about different issues, such as in what content they should invest, and whether or not they should produce an original series. All this information allows Netflix to appeal to the users and keep them coming back to its services. Near 70% of the choices that customers make are based on the list suggested to them by Netflix (Ladurantaye, 2013). Comparing to the company’s competitors in the business industry, the convenience of the service provides Netflix with a competitive advantage.
The role of information technologies in the company
Netflix has to have some really smart network engineers to work on all the servers and provide users with highly qualified services. There is near a thousand kinds of Netflix ready devices. In order for Netflix to remain being so wonderful, it must adapt video streams as much as possible to each type of device. When a person just clicks ‘Play’, Netflix figures out within a second what kind of device the user is using, and which of the servers is closest to him or her. Then the user receives more than 100 customized video versions of the content. And if thousands of people in the same town all begin watching Netflix’s new season of House of Cards, it moves the hundreds of versions over to solid-state memory on the server closest to those users, just to make them get slightly faster programming experience.
Netflix is one of the world’s biggest users of cloud computing. The company rents all the computing power from AWS (Amazon Web Services). Despite the fact that Amozon.com is one of the biggest competitors, their relationship is a mutually beneficial. Over the years of using Amazon’s cloud division, Netflix has built a range of complicated tools to improve the software performance of Amazon’s cloud. Of course, Amazon has copied the improvements and offered them to other businesses. Adrian Cockcroft, Netflix’s cloud architect, claims: “We’re using Amazon more efficiently than the retail arm of Amazon is. We’re pretty sure about that” (Vance, 2013).
The information systems manage customer information, video recommendations, encoding of video files into different formats, and controlling of the general work of technologies. When a new device comes along, Netflix uses thousands of extra servers to adapt files to the new users. Since the company relies on AWS, near 700 engineers concentrate on the tools for enhancement of cloud servers and applications that test the system resilience. For example, Chaos Monkey is a resiliency tool that randomly puts virtual machine instances that are on the Amazon servers out of action. The goal of applications is to cope with random instance failures. Chaos Gorilla disables the entire AWS Availability Zone. Chaos Kong is a tool that affects the entire Amazon region. Companies such as EBay and Intel have initiated using these applications with their own cloud computing systems.
The Obama’s campaign during the last election used Netflix’s tools as well. Scott VanDenPlas, who was responsible for the campaign’s infrastructure, pointed out the Netflix software tool Asgard. It is a system management application that finds groups of servers and outfits them with all the needed for a certain job software, doing all in a couple of seconds instead of hours or days for programmers. When a couple of weeks before the election campaign Hurricane Sandy hit, Scott VanDenPlas moved much of Obama’s infrastructure from Amazon’s East Coast systems to the West Coast servers. “I don’t think we would have been able to do it without Asgard,” he says. Thus, due to this software tool they improved their operational efficiency that became a significant strategic advantage (Vance, 2013).
Hence, due to the power of the Internet and technology the company achieved the next purposes:
- Develop customer experience by providing them a web-based portal that corresponds to individual preferences. Information systems let Netflix create more personalized platform for its customers. Netflix obtains information about its members via management information systems based on what they have previously watched and then applies these data to suggest shows and movies it thinks its users will be interested in. This makes people feel themselves more welcomed and cherished on the site. And, of course, users avoid using other providers like Amazon Instant Video or Hulu.
- Improve operational efficiency. Netflix has strength in being able to offer a much wider range of movies and shows. One of its key business advantages is its huge catalogue of not so popular and old time titles, which cost effective to get and profitable to sell, but are not available in ordinary retail stores. Moreover, suppliers would get advantages from Netflix’s recommendation software, which could enhance sales of unpopular movies and TV shows. Of course, not all new titles become blockbusters and the less popular ones could get recommended to viewers only due to the Cinematch algorithm.
- Establish an effective inventory management. The Cinematch system avoids suggesting of out-of-stock movies as well and therefore, Netflix provides maximum consumption of inventory. The inventory system used by Netflix is fully automated. Computers and robots play a key role in managing CDs and DVDs by scanning them as soon as they arrive, notifying the customers about the shipment and quickly making discs available for other customers.
- Achieve the low-cost leadership. The information system puts together the order processing and customer service and this has given the company a cost benefit with raise in operations scale, decreasing cost per unit. Hence, Netflix has been able to price its services at levels difficult for competitors to defeat.
- Focus on a specific market niche with an appropriate product. Unlike opponents like Amazon, the company has built its information systems oriented on the in-home entertainment business. Netflix’s personalized movie selection services and technological innovations in the movie suggestion system are a vast entry barrier for new businesses. Although the software and technology can be replicated, Netflix has the benefit of a database of near a billion movie ratings and takes in more than a million new ones every day.
Finally, Netflix changed video distribution from a store-based rental channel to an online subscription-based distribution channel. The comprehensive information system allows it to manage and integrate business across order processing, customer service, and fulfillment operations. From the business perspective management, organizational and technical elements are aligned towards customer-focused innovations.