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What we can learn from Netflix

Netflix's successful transformation into a streaming giant is an instructive example of digital transformation.
By Falk Hedemann August 27, 2018
What we can learn from Netflix
Photo: Netflix

It’s impossible to talk about streaming TV today without mentioning Netflix. No other provider is shaping the streaming revolution more lastingly than the company from the small Californian town of Los Gatos. And this although it all began with an idea which today seems quite unspectacular: In 1997, Netflix was launched as an online version of a video store where customers could rent DVD and Blue Ray films over the Internet. Ultimately, this was the start of the digital transformation that continues to this day. And this was necessary, because with the original business model, the company of founders Reed Hastings and Marc Rudolph would have quickly disappeared from the market. Just ten years after its launch and five years after the IPO, Netflix again stirred up the market – and itself at the same time. In 2007, the company broke the barrier of one billion delivered DVDs and simultaneously launched the end of its own business model with its first streaming offer.

 

Ability to transform

Today we know that this bold decision was the right move: Netflix is available in over 190 countries and had over 130 million subscribers in the second quarter of 2018. This example also shows us very clearly that the digital transformation is not a project with a start and a finish – it is an ongoing process.

Take-away #1: Digital transformation never ends.

 

Pricing

The competition is not only decided by the best price – new price models are sometimes even more convincing. At Netflix, for example, there were no late redemption fees right from the start. And as early as 1999, the flat-rate model, which is still current today, was introduced: One fixed price and you can watch as many movies as you want. Today there is also a free trial month before the subscription in the basic package starts at 7.99 euros – a price that is often less than that of a single visit to the cinema. One quality promise is also the waiver of adhesion contracts, as the subscription can be cancelled at any time.

Take-away #2: The all-you-can-see-model makes the already low price even more attractive.

 

Exclusivity through in-house productions

In 2010, Netflix purchased the rights to online distribution of films from renowned studios (including Paramount Pictures and Metro-Goldwyn-Mayer) for around one billion US dollars. However, this meant the company was still competing with the strong cable providers in the USA. This only changed with extremely successful in-house productions such as “House of Cards” or “Orange is the New Black”. Today, there is already a term in the USA for the increasing number of people switching from classic TV to streaming: cord cutters.

Take-away #3: Exclusivity is an outstanding sales instrument and binds customers.

 

Personalization

There are 33 million different Netflix versions,” explained Boris Evers, then head of communications at Netflix, in 2013. This means that the entire streaming portal is personalized and every user gets their individual version to suit their own preferences.

Take-away #4: Personalization needs individual benefits.

 

Predictive analytics

User data tracking is frowned upon by consumers, but Netflix uses it to generate such a unique customer experience that subscribers benefit directly. Users can not only control their recommendations with their behavior, but can even influence future productions: Netflix looks very closely at where users fast-forward or rewind, where they pause and where they stop watching. A/B testing also plays an important role. One finding, for example, was that users like to view series as complete seasons and not just one episode per week. Today, this behavior is known as binge watching.

Take-away #5: The user data contains optimization potential for the entire value chain.

 

AI for more streaming quality

The enormous growth in many different markets with different framework conditions and user behavior patterns is a huge challenge for the promised streaming quality. Netflix therefore uses artificial intelligence in many areas, for example to analyze network capacities and prevent foreseeable bottlenecks with additional caching.

Take-away #6: Quality is a promise that must be kept.

 

Conclusion:

Netflix is a company in constant flow and has therefore basically made its product (streaming = fluent) its corporate philosophy. The use of state-of-the-art technologies, some of which have been developed in-house, does not primarily serve to maximize profits, but rather to consistently develop them further with the aim of providing the best possible customer experience. That is what we should ultimately learn from Netflix: The customer experience is the way to success.

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