MIS ch 4 - Netflix

what is the difference between brand and advertising?

Advertising can build awareness, but brands are built through customer experience. ---This is especially critical online, where opinion spreads virally and competition is just a click away. Blockbuster and Walmart, however, discovered that their strong consumer awareness didn't translate into any advantage when competing with Netflix. Netflix's excellent customer service built their brand and established them as the leader and the first firm consumers thought of in this market

why did many analysts incorrectly underestimate Netflix?

Analysts and managers have struggled to realize that dot-com start-up Netflix could actually create sustainable competitive advantage, beating back challenges in its initial and highly successful DVD-by-mail business, from Walmart and Blockbuster, among others. they thought Netflix was at a disadvantage by not having physical stores

how does Netflix use collaborative filtering to match movies to consumer taste, and in what way does this software help Netflix garner competitive advantage?

Netflix also keeps customers happy in brand-building ways by leveraging its massive and growing arsenal of user data. Data is collected when customers rate movies they've seen, and this data on customer likes and dislikes is fed into a proprietary Netflix recommendation system called Cinematch. creates switching cost for users because all of their rating data is stored by Netflix, best recommendations Collaborative filtering technology has been continually refined, but even if this technology is copied, the true exploitable resource created and leveraged through this technology is the data asset.

software platform

Netflix eventually decided to think beyond one hardware alternative. ---The firm developed a software platform and makes this available to manufacturers seeking to include Netflix access in their devices. ---It was an especially smart move given the explosion in content watching that occurs on screens that are not televisions, and Netflix tools made it easier to build apps. Today, Netflix streaming is available either as an app or baked directly into over a thousand consumer electronics products, including televisions, DVD players, video game consoles, phones, and tablets. Hastings's firm has ended up with more television access than either Amazon or Apple, despite the fact that both of these firms got their streaming content to the television first. Today, Netflix access is considered a must-have component for any Internet-connected media device. Partnerships have helped create distribution breadth, giving Hastings an enviable base through which to grow the video streaming business.

why did other firms find Netflix's market attractive?

Netflix was able to create critical and mutually reinforcing resources—brand, scale, and a data asset—that rivals simply could not match. IPO data disclosure may have attracted these larger rivals to the firm's market

how is the concept of atoms to bits impacting a wide range of industries?

Newspapers struggle as readership migrates online --- once-lucrative classified ads and job listings shift to the bits-based businesses of Craigslist, Monster.com, and LinkedIn. Apple dominates music sales, selling not a single "atom" of physical CDs, while most of the atom-selling "record store" chains of the past are bankrupt Amazon jumped into the atoms-to-bits shift when it developed the Kindle digital reader. ----Who needs to kill a tree, spill ink, fill a warehouse, and roll a gas-guzzling truck to get you a book? Kindle can slurp your purchases through the air and display them on a device lighter than any college textbook. ----When the Kindle was released, many thought it to be an expensive, niche product for gadget lovers, but in less than four years, the firm was selling more electronic books than print titles.

crowdsourcing

The Netflix Prize is an example of crowdsourcing, a technique in which a firm states a problem it would like solved, the reward it will provide, and then makes this available to a broader community in the form of an open call. While Netflix did not implement the final winning algorithm as introduced, it had already begun incorporating changes based on learning from submissions even before the contest was complete. The effort was also a public relations bonanza, with articles on the effort (and Netflix superior Cinematch software) appearing in major news and business publications worldwide. Not only does the firm benefit from code submissions; the contest also has a recruiting payoff. Says one manager about these efforts, "We can see people who already know our code base and are doing interesting things.

how does the long tail concept relate to Netflix's ability to offer customers a huge selection of movies?

The ability to serve large geographic areas through lower-cost inventory means Internet firms can provide access to the long tail of products, potentially earning profits from less popular titles that are unprofitable for physical retailers to offer some demand for several obscure movies exists, but isn't high enough for stores to carry, Netflix CAN afford to carry all of these movies and gains all the customers that make up that demand MAJOR Netflix advantage because they offer 100,000+ dvd titles via long tail offerings ---they offer new AND old titles (get the old movies at low prices and pays them royalties) there's actually MORE money to be made selling obscure stuff (the stretched-out but larger area on the right-hand side of the curve) if you can reach the greater customer base provided by the Internet traditional retailers don't have shelf space for this many dvd's works because: ---cost of production and distribution drop ---unmatchable selection advantage ---no geographic constraints ---netflix gets old movies at a low cost

what are various key issues holding back streaming video models? How is Netflix attempting to counteract these challenges?

Uncertain if Netflix will gain streaming subscribers ahead of rivals. A growing but highly unpredictable business in terms of future costs, content availability, rival intensity, appeal vs. alternatives, and more. Key is in creating strategic assets that others can't match, but what are they? Brand, scale advantages, and data drove DVD-by-mail dominance. Windowing, exclusives, and other licensing issues limit available content, and inconsistencies in licensing rates make profitable content acquisitions a challenge. --- Although the marginal cost for digital goods is zero, this benefit doesn't apply to licensees. ---Wildcard: Netflix CEO Reed Hastings sits on the board of both Microsoft and Facebook—allies with potential for even stronger partnerships, but which are also potential competitors.

collaborative filtering

a classification of software that monitors trends among customers and uses data to personalize an individual customer's experience Data is collected when customers rate movies they've seen, and this data on customer likes and dislikes is fed into a proprietary Netflix recommendation system called Cinematch. --- Cinematch is a software technology known as collaborative filtering. Netflix has a huge advantage with their data (competitors can only mimic this)

longtail

an extremely large selection of content or products. The long tail is a phenomenon whereby firms can make money by offering a near-limitless selection Netflix uses this as an advantage of having no geographic restrictions, they are able to offer near-limitless selection

fixed development costs

costs that do not vary according to production volume electronic marginal cost is virtually zero--- it doesn't require any material to produce another unit the biggest cost is the fixed cost to develop the software

variable deployment costs

expenses that change in proportion to the activity of business

what is Netflix's business model?

innovative business process superior IT flexible business model ---were open to the process of switching from DVDs to online streaming ---customers don't pay a cent in mailing expenses, and there are no late fees. ---different process than rivals Hastings knew that if his firm was to remain successful, it would have to transition from mailed DVDs to streamed video appealing to customers because of the ease of use

what role do scale economies play in Netflix's strategies? how are these strategies an entry barrier to potential competitors?

netflix's size = huge scale advantages (profit) (killer asset) scale in customer base scale in selection provided scale allows netflix to: --lower prices -- spend more on customer acquisition, new features, and other efforts smaller rivals have an uphill fight established firms end up straddling between online and brick and mortar stores bigger customer base provides more data and makes Netflix technology the best --(hard for other firms to compete because it will be hard for them to take Netflix users and be able to get data from them) No one else had a comparable network at launch, so the lack of scale among rivals harmed their customer experience, weakening their brand As for Netflix, what delivered the firm's triple scale advantage of the largest selection, the largest network of distribution centers, and the largest customer base, along with the firm's industry-leading strength in brand and data assets? ----->Moving first.

atoms to bits

shift from physical to electronic The idea that many media products are sold in containers (physical products, or atoms) for bits (the ones and zeros that make up a video file, song, or layout of a book). ----As the Internet offers fast wireless delivery to TVs, music players, book readers, and other devices, the "atoms" of the container aren't necessary. ----Physical inventory is eliminated, offering great cost savings. this shift takes away shipping and handling costs for Netflix DVD by mail service ---switch to low-cost bandwidth

downside to Netflix's early IPO?

since IPO in 2002, Netflix has survived big incumbent competitors, low cost newcomers, and price wars (killed blockbuster) IPO was like blood in the water, attracting two very big sharks (walmart and blockbuster) when Netflix went public, it was forced to show everyone how profitable it was this lead to a rapid increase in competition competitors were not worried about Netflix before it's IPO, they thought it had a disadvantage with no storefronts

what are some technologies Netflix uses in its operations to reduce costs and deliver customer satisfaction and brand value?

technology is that heart of netflix's operations 58 ultra high-tech distribution centers (DC's) --DC's located close to USPS facilities --trucks collect shipments from USPS hubs and return the DVD's to the nearest Netflix DC --scanners pick out incoming titles constantly improving process Netflix technology revitalizes latent studio assets. Revenue sharing allows Netflix to provide studios with a costless opportunity to earn money from back catalog titles: content that would otherwise not justify further marketing expense or retailer shelf space. The strategically aligned use of technology by this early mover has allowed Netflix to gain competitive advantage through the powerful resources of brand, data and switching costs, and scale.

churn rate

the rate at which customers leave a product or service rate for netflix's most active regions was less than 3% Cinematch (netflix's proprietary recommendation system) generates a LOW churn rate --- customers can find movies that they never would have on their own --> leads to dependence on Netflix ---switching cost because they have all of their rating data stored on Netflix

pure play

when you don't straddle a business that operates on the internet only without a physical store competitors thought this was a major disadvantage to Netflix before IPO