4- Disruptive Technology
What is video-on-demand? What role does IT play in this type of business? What are some factors presently limiting the growth and popularity of video-on-demand?
- VOD is a system that allows users to watch videos on demand -IT enables companies to stream videos based on consumer demand -Windowing (content is available to a given dist channel) and other licensing issues limit avail content and inconsistencies in licensing rates make profitable content acquisition a challenge
What are Netflix's sources of competitive advantage in the DVD business?
- operational efficiency: service quickly, error free, logistical center -selection with wide variety -consumer usage data: cinematch system is used to make accurate recommendations
Why did Netflix move to separate pricing (ex. streaming and DVD-by-mail are priced separately)
-Businesses are so different and could now act independently. Could be more agile and responsive to the individual demands of the separate operating models -Customers who use streaming are not necessarily the same as the ones wanting DVD-By-Mail
How does netflix use IT in their operating model?
-Cinematch DVD recommendations = collaborative filtering = classification of software that monitors trends among customers and uses this data to personalize an individual customer's experience
How do the costs differ for DVD-by-mail and streaming? How are they likely to change over time
-DVD has consistent costs: operating warehouse/logistics and acquiring the physical dvds. Can get the dvds at a low rate bc of the large scale which enables them to have a large selection -Streaming costs are volatile: depends on the suppliers of the content. Streaming content is more complicated in terms of revenue/cost streams, and policy. So the future outlook for costs is a unpredictable.
What factors influence the reliability of each service? threats?
-DVD: influenced by customer demand as well as factors of the USPS. Threats are derived from changes in the mail service as well as a decrease in DVD customers -Streaming: reliability depends n the interest as well as on hardware. Threats
How is subscriber interest in these services likely to change over time?
-Predicted that customers will shift to streaming as physical products become less widespread -This will create more opportunity in the streaming segment
What is collaborative filtering and how does it relate to Netflix?
-Take consumer usage behavior and analyze it in order to make recommendations -increases switching costs, barriers to entry, supply power
Bits
-anything that can be digitized -costly to produce, cheap to reproduce -easy to copy, hard to protect -value=experience -compete for attention -save on postage (represents 1/3 of netflix expenses)
What has been the impact of Netflix summer 2011 move from single plan pricing to separate pricing from streaming and DVD-by-mail?
-lost over 800k customers, stock dropped from 300 to 75, market value lost 12B -bad timing and poorly implemented -separation came with a price hike of 60% for those who wanted both services -Made things more complicated with two separate websites -Poorly communicated -sudden split of the business pissed off customers
What role do scale economies play in netflix strategy? Do these scale economies pose an entry barrier to potential competitors?
-scale economies thru leverage the cost of investment across increasing units of production -the most profitable firm will be the one with the most customers -firm with better scale economies can offer better prices, spend more on customer acquisition, more features
What is the "long tail" concept and how does it relate to Netflix's ability to offer a huge selection?
see guide
negroponte
shift from atoms to bits - idea that many media products are sold in containers (physical products or atoms) for bits