Examining Netflixs Business Model

Examining Netflixs Business ModelAnalyze Netflixs business model?How does Netflix change the video scattering industry?Business ModelBusiness Model describes how a company produces, delivers and sells a dish out or product to create value for its customers, sh beholders and other stakeholders. Netflix a pi singleer in the online videodisk subscription returns operates in the in-home entertainment video market. In-home distribution channels include home video lease and retail outlets, ancestry and satellite television, pay-per-view, VOD (video-on-demand), lucre streaming and broadcast television. (Source- Netflix Annual Report 2005 Section Industry Overview)Netflix started operations in 1997 and relied on the DVD format as the mass medium of in-home entertainment, although this format of viewing was restricted to a small population of affluent, technology-savvy customer base. Over a period of time DVD became accepted as the prime(a) and its penetration into every househol d rose exponentially.Netflixs business model revolves around its home-grown proprietary softw atomic number 18 Cinematch which powers its website and a schoolwide knowledge system to manage operations. The comprehensive information system allows it to manage and integrate business across order processing, customer service and fulfilment operations. This leads to maximum physical exertion of library and operate with a decreased number of customer reps. It had 100 customer reps to handle 115,000 customers in the early days, now it has 43 to handle 3.2 million customers.From a business sentiment management, organizational and technical elements ar aligned towards customer focussed innovations. Warehouse workers get free Netflix subscriptions and DVD players. Corporate Employees are kept happy with perks so that they are eager to solve tough engineering problems to improve substance abuser experience.Netflix and the video distribution industryNetflix changed the video distribution from a store establish rental channel to an online subscription establish distribution channel. The web-site enables subscription account signup and management, personalized movie merchandising, inventory optimization and customer support (Source- Netflix Annual Report 2009). Coupled with features such as social meshworking (Friends) and queue management (Profiles) it compares distributively subscribers movie preferences derived from the souls past ratings and rental patterns with preferences of other users contained in the database and comes up with personalized movie recommendations unique to each subscriber. The company leveraged on the power of Internet and technology to achieve two purposes (a) Enhance customer experience by providing them a web-based portal tailored to individual preferences. It comes up with a customer specific recommendation list based on the individuals ratings of past viewings. Customers great deal set up their queues and receive delivery by dint of dismount. There is no return deadline no charges and the DVDs can be military posted back through pre-paid envelopes.(b) Enhance operational efficiency Traditional Video rental retail outlets would have to compromise on the number of titles available in each of its stores because of space constraints. Netflix has an advantage in being able to offer a much wider range of titles since the stock is piled in its warehouses. One of its core business strengths is its vast catalogue of non so popular and old time movies and TV show content which is cost effective to procure and profitable to sell, but is not available in conventional retail stores. Cinematch to a fault avoids suggesting out-of-stock movies and ensures maximum utilization of inventory. An effective and comprehensive Information system enables it to distribute DVDs from the nearest warehouse through US Mail. There are 100 shipping points across the fall in States which enables the company to provide delivery in one bus iness days for 97% of its customers.Advantages and Disadvantages to potential customersAdvantages Personalized DVD rental services and movies through internet streaming.The recommendation software is quite accurate and is built on the customers historic choices and ratings. Coupled with the social networking feature (Friends) it avoids the customer to go through the hassles of selecting and ending up with something he does not desire.Availability of a wide range of not so popular and old titles which are not available in a conventional DVD rental stores.Disadvantages The recommendation software purposefully omits out-of-stock titles and hence influences the choice of the customer.It is intentionally slowing down delivery to high chroma customers which are not so profitable. Instead it gives a preference to the low volume members. Hence preferential treatment is given to the more profitable low volume customers.Ability to fight competition and sustain its own markets(Source Annual Report 2009. From Sec Filings of 2010 Subscribers have change magnitude to 20,010(in thousands), Revenues have increased to $2,162 Million and Net Income has increased to $161 Million)Netflix has continued to increase its subscription base, revenues and net income over the years. The following analysis is based on how information systems can address Porters agonistic forces model Traditional Competitors, novel Market Entrants, Substitute Products and Services, Customers and SuppliersLow-cost Leadership Netflix uses its information systems to ensure maximum utilization of inventory and avoiding recommending out-of-stock titles. The information system integrates order processing and customer service and this has given it a cost advantage with increase in scale of operations, driving down per-unit cost and Netflix has been able to price its service offering at levels difficult for competition to meet.Product Differentiation Netflixs personalized web based movie selection services and technological innovations in the movie recommendation algorithmic program are a huge entry barrier for new entrants. Although the software and technology is not hard to replicate Netflix has the advantage of a database of over half(prenominal) a billion movie ratings and takes in more than a million new ones every day.Focus on market niche Un bid competitors like Amazon, Netflix has built its information systems targeted to the in-home entertainment industry. It has engaged with partners to expand the number of devices which can support streaming videos from Netflix.Strengthen Customer and Supplier Intimacy Almost 60% of the movies customers put in their queue comes from Netflixs recommendation system and ensures customers run a lesser risk of wasting time on a movie that they forget not enjoy. This increases the switching costs for the customer. Although the case study does not state anything explicitly, the annual reports of 2010 indicate that Netflix obtains content thro ugh streaming content license agreements, DVD direct purchases and DVD and streaming revenue sharing agreements with studios, distributors and other suppliers and our assumption is that suppliers would benefit from Netflixs recommendation software which could boost up sales of their not so popular titles. All new titles do not end up becoming blockbusters and the less popular ones could get recommended to customers with specific preferences based on Cinematch algorithm. competitory strengths of Netflix include an iconic brand, personalized merchandising, growing scale without substantial increase in cost and an information system catering to convenience, selection and fast delivery. caput competitors are DVD rental outlets and kiosk services, such as Blockbuster, Movie Gallery and Redbox (Source Netflix Annual Reports 2010)Video package providers with pay-per-view and VOD content including cable providers, such as Time Warner and Comcast direct broadcast satellite providers, such as DIRECTV and Echostar and telecommunication providers such as ATT and Verizon (Source Netflix Annual Reports 2010)Online DVD subscription rental web sites, such as Blockbuster Online (Source Netflix Annual Reports 2010)Entertainment video retail stores, such as Best Buy, Wal-Mart and Amazon.com (Source Netflix Annual Reports 2010)Internet movie and TV content providers, such as Apples iTunes, Amazon.com, Hulu.com and Googles YouTube. (Source Netflix Annual Reports 2010)Popularity of alternative entertainment mediums which can be distributed using a similar business model like Netflix (Example Gaming CD and DVDs)Threats Currently the time for distribution in DVD format is shorter than release to other mediums (VOD, premium TV etc) after a theatrical release of a movie. This gives a competitive advantage to the DVD market. However this competitive advantage may go if the distribution to these multiple formats happens simultaneously.The proprietary technology and information systems a re also based on a certain historic scale of operations which has increased substantially and this could lead to systemic disruptions and negatively impact operations.The DVD format would in all probability give way to Internet movie and TV content providers and Netflix would be left stranded with its warehouse and sophisticated mail handling systems.However the one thing which pull up stakes continue to survive is CINEMATCH and its database of billions of movie ratings which will give a competitive edge to Netflix when it decides to switch over to other formats of movie distribution.AOL, chawbacon to Charge for EmailQuestionYahoo and AOL are relying on some durable economic laws to support there new netmail product. What are these?What are the new opportunities that they can exploit by Certified mail product?Durable economyAssumption1. Net Neutrality Legislation will not be approved by the congress.2. Certified mails also have an opt-out feature that allows recipients to unsub scribe.A sustainable or durable economy requires the development of programs, policies, and implementable initiatives that encourage activities that will empower communities and conservation of resources promote environmental justice preserve ways-of-life and promote by example and through discourse the ideas of ecological and participatory democracy and its true(a) world implications.The basic principal of economy is to distribute the scare resource to most needy ones. In reference to this caselet, the spam mails are using the network bandwidth preventing the internet users to do there legitimate work. The real value produced by information providers comes in locating, filtering and communicating what is useful to the consumer. The certified email service allows email service providers to deliver only the legitimate emails to end users. As the legitimacy and the background of the email originators are already verified by the service providers like GoodMail, this will help in reduc ing the spam detection cost for AOL and Yahoo. Also, spam and Phishing is bigger threat to web based mail users. To keep the user experience, companies spending huge amount of money to reduce the spam. The fundamental factors that determine the profitability is industry structure and sustainable competitive advantage. By offering these service AOL and Yahoo can out perform there competition.There aint no such thing as a free lunch .The economic theory, and also the lay opinion, that whatever goods and services are provided, they must be paid for by someone. The information production and delivery systems requires significant amount of investment in Hardware, Software, network systems. To sustain this business, they need to recover the cost and make profit. The free mail based service cost the mail service providers close to $10-$12 per user. By charging the business to deliver there message to its users, they can recover this cost. Yahoo, AOL mail users will also benefit from this a s the information sent to there inbox is useful to them and also they will have an option to unsubscribe these certified mails if they wish too. The business will be willing to pay these charges for sending the mails as this monetary value will allow them maximize there ROI.Opportunities for AOL and YahooCustomer care in a service-based industry and priority email deliveryIn the information age, service based industry rely heavily on email based communication. Companies want to make sure that, there product information, quires and customer concerns are addressed in stipulated time. The internet traffic is growing year by year and which creating the bandwidth issues. Yahoo and AOL can start the priority email service (similar to the Fedx, USPS, US post which charges for faster delivery) where they can provide the guarantee of delivering mails and to user inbox in stipulated time by charging the legitimate fees. They can work with ISPS to prioritize there mail traffic by sharing the revenue they earn. Eg. Distributed Document Processing services.Govt agencies wanting to reach out to mass public to explain there policies.Yahoo and AOL can offer products to government agencies where they can deliver there communication directly to users inbox.On line AdvertisingBy collecting information about their interests, what particulars mail users want ( based on the responses to the certified mails),Yahoo and AOL can customize adds that can be displayed alongside users mail box page.Reduce the spam and provide security measures to there users.Phishing and online identity theft are the fastest-growing threats to the email users. By using certified email service Yahoo and AOL can fight the spams better which will help in en-reaching the user experience. This will attract more users.