Netflix: They Smartly Care, Case Study Example

Abstract

Netflix began as a monthly DVD shipping subscription company via the internet but today increases its e-commerce through instant streaming  and downloadable rental videos and through its dedication to being on the practical cutting edge of internet entertainment. The Netflix management team played a strong role in its foundation and its continued progress, and the company as a whole has also successfully integrated e-commerce measures with relatively few internal or external threats. Netflix is a modern e-commerce success story about the importance of being people-friendly, technologically user-friendly, and innovative.

Netflix: They Smartly Care

Let’s talk about branding-identifying an icon or symbol with a specific product (Falk, Sockel, & Chen, 2005). Walking down the street, how many ads do you pass on billboards and buses or how many do you see in your mail or even trailing from the back of an airplane as it passes? In the physical world, these advertisements go largely unnoticed; this is clearly more frequently true for the virtual world. Despite the presence of a great number of gimmicks, customers remember simpler advertisement, like word of mouth. One brand has been on many tongues recently, and those little red envelopes in the mailbox are bringing smiles to millions of faces—20 million to be exact (“About Us”). The past, present, and future of e-commerce for Netflix are essential to the company’s affluence and survival. Accordingly, the elements of management, e-commerce, internal threats, and external threats will be briefly discussed in the following pages.

Management

Established at a time where rapid-fire advances changed the facts of media distribution, Netflix exploited a need, a vision, and some quick copyrighting to corner the market. Anxious to avoid the same fate as their bankrupt ex-competitors, the company continues to focus on the future and where media distribution is going– rather than where it has been. Netflix customers have constant access to movies through DVD, internet, Smartphone, PlayStation 3, Xbox 360, and Nintendo Wii consoles, and over a hundred other devices, and now a disc is not even required to access those services (“About Us”). According to Patterson, the shift is not going unnoticed. Between recent hikes in fees, decreased availability of DVDs, and Netflix’s corporate assertions that it is a “streaming company” which “also offers DVDs”, the service is already making a transition into another phase of e-commerce (2011, p. 1).

Management plays a very intimate role within the organization of Netflix, because many of them, such as their founder and CEO, Reed Hastings, were present at the company’s conception. Falk, Sockel, and Chen (2005) stressed that a beginning should begin with an advantage, good understanding, and quality. Although the authors were specifically referring to the establishment and implementation of websites for e-commerce, Reed Hastings co-forms just such a beginning but remained behind the scenes as he shared the glory with his management team, who specialize in product offerings, general business counseling, marketing, human resources, services and DVD operations, content, and finances (“About Us”). Perpetually urging the board to remain the front-runner in the evolutions of technology and film entertainment, Hastings’ foresight has ushered the company into a golden age despite the significant set-backs it has already faced since its founding in 1997 (“About Us”; Setoodeh, 2004 ). How could they resist one of Time Magazine’s 100 most influential citizens of 2005? In 2010, his popularity was again upheld as he was named Fortune magazine’s “Business Person of the Year” (“About Us”).

This decade of popularity may be coming to a screeching halt as Netflix’s decision to phase out DVD offerings has outraged the very loyal customers upon which the viewing empire was built. Within hours of officially announcing the implementation of the first phase of the transition to streaming only, the removal of some “Add to DVD Queue” options, hundreds of outraged customers defended their patronage of the much larger collection of DVD’s. Widespread customer input has influenced major policy changes before, and the Netflix company takes great pride in its relations with its consumer base (Patterson, 2011). Falk, Sockel, and Chen (2005) claim that a breach in business etiquette is one of the quickest ways to slow-or even contradict- the force of positive momentum (p. 67). Nonetheless, the move toward streaming aligns with Hasting’s early position regarding online movie rentals: “By the time movie-download technology becomes more mature and online titles more widely available…DVD rentals will be big enough to put Netflix in a strong position to prosper in the online marketplace” (“Movies to Go”, 2005, p. 2). Thus, the company is remaining true to its early focus on this new technological niche.

E-Commerce

The very beginnings of Netflix are inseparable from the principles of e-commerce, which “Movies to Go” defines as “the ability to amass an inventory that goes far beyond what any high street operation can hope to sustain” (“Movies to Go”, 2005). According to their website, Netflix ships out more than 2 million DVDs per day from more than 100,000 titles (“About Us”). Sheer numbers alone do not impress the clientele. In 2009, the company’s chief content adviser sealed a deal with the respected Starz channel to release a limited number of recent films to Netflix viewers (Grover, Satariano, & Levy, 2010). This development signaled the shift in the entertainment industry’s attitude toward online rentals and Netflix in particular, who had been shunned less than five years before the Starz deal (“Movies to Go”, 2005).

The extreme success of adding streaming to the Netflix offerings is owing to many factors, but the organization of the streamed selection has been a key component of customer satisfaction. Possible to organize according to genres and their subdivisions, the production date, or their similarity to other films, Netflix continues to make their queue more user-friendly (“About Us”). Understanding the website user’s behavior is the key to online success, according to Falk, Sockel, and Chen (2005). As just such a conscientious company, Netflix continually updates its display formats for organizing content and for sorting and rating according to the recorded preferences of the subscriber. Because access to streaming services requires a log-in, Netflix, in effect, tracks all viewing on that account and for its body of customers as a whole- after which a series of suggestions are made based upon recent viewing and (if applicable) the rating it was given.

Monroe (2009) praises the ingenuity of this recommender system (or “collaborative filtering”, as it was once called) and anticipates the benefits which this data could pose to a variety of research fields. Netflix even offered a $1 million prize to the team who could design an algorithm which improves the recommender system most. Such wide scale availability of entertainment data is unprecedented, drawing from “more than 100 million movie ratings—which include user, movie, date of rating, rating— from some 480,000 users about nearly 18,000 movies” (p. 15). Monroe also expects the benefit of this information to roll out into work task computation, social networking, and detailed financial summaries and planning (p. 17).

Internal Threats

While Monroe (2009) is very excited about advances in Netflix’s recommenders systems and the prospect that “All of our life will be digitized” (p. 17), but it seems that two very important elements were missed in that discussion: security and privacy. E-commerce agents browse sites such as e-bay and mine simple identification information for their sponsors; these agents could– if so inclined- steal data, use others’ resources, plant remote-execution computer viruses (like the Trojan horse), destroy company data, intentionally overload servers, and lie or deceive the company and the customers. In the internet world, visibility is often linked to trust, and e-commerce businesses which take that risk with conscientious efforts made to protect security and privacy are maintaining their edge and their customers’ rights.  (Wagner & Turban, 2002, pp. 84, 87-88). E-commerce agents are typically regulated, but the damage that could be done by a computer hacker or a disgruntled employee with customer records cannot be understated.

Hong compares safety of information in new technologies to riding with training wheels on until these precautionary measures are no longer needed (Lindan, Hong, Stonebraker, & Guzdial, 2009). However, settings vary greatly according to the use and features of the computer, the preferences of the computer’s administrator, the security needs, and the software installed. Not all computers will have training wheels. Until they do, there is an inordinate amount of personal available through recommender systems which “memorize” what certain customers view, prefer, and purchase, thus posing a significant threat to both privacy and security. Even if the most accurate recommender system were to be developed, Lindan, Hong et al.’s 2009 excerpts reveal questions about whether these suggestions will be trusted if they are not paired with familiar or recognizable titles and question whether it is better to provide more conservative recommendations to gain customer trust or to provide the undiluted range of possibilities, including the extremes (pp. 10-11).

External Threats

Netflix has not gone unchallenged. With access to diverse forms of media becoming increasingly more accessible, a barrage of competitors sprang forth to rival the iconic red envelope. In the category of movies via mailbox, the Blockbuster megachain was among the first significant threats to the Netflix supremacy. Offering in-store rentals and (in most cases) speedier shipping, Blockbuster was a fan favorite which rivaled Netflix for a short time (Setoodeh, 2004). Ironcially, “Movies to Go” claims that Reed Hastings co-founded Netflix in response to a $40 late fee from Blockbuster, and the Netflix rivalry later inspired Blockbuster to adopt a “No late fees” policy—too little, too late. Netflix was already an established influence in online rentals, and Blockbuster overextended itself trying to keep up (“Movies to Go”, 2005). Netflix also expanded its reach, utilizing 35 distribution centers and spending more than 450-600 million dollars each year in an effort to provide overnight shipping of DVDs (“Movies to Go”, 2005; “About Us”; Grover, Satariano, & Levy, 2010).

Video kiosks originally posed little threat to Netflix- with distributors coming and going (Setoodeh, 2004). Although this customer base exploded with the recent addition of RedBox™ kiosks near Wal-Marts and gas stations, their business has leveled off as instant downloads and streaming have increased the accessibility of video entertainment. Although disposable DVDs originally made a splash, environmental conservationists and procrastinators alike were not impressed, because these discs required the consumption of a larger number of resources and would last only two days due to chemical treatments (pp. 1-2). Utilizing online-rather than on-site- video rental companies also necessitates 40 percent less carbon dioxide emissions and 33 percent more of available energy sources, making online video rental the most environmentally-friendly video viewing option despite the reliance on the cases of papers for the envelopes in which the DVDs are shipped. The only other raw materials consumed are utilized during the manufacturing stage of production (Sivaraman, Paca, et al., 2007, pp. 77-85). Although many strictly-online rental companies started in the wake of Netflix success, the internet sales are not the fertile lands that many perceive them to be. For every one internet sale, 75 or more customers visit a website (Falk, Sockel, & Chen, 2005, p. 67).

Conclusion

Innovation was at the heart of Netflix’s formation, and CEO and Co-founder Reed Hastings has maintained that spirit of forward-thinking and customer service which helped Netflix to explode onto the video viewing scene and which continues to draw in more loyal subscribers. Many critics expected the Netflix online viewing revolution to be over in five years (Setoodeh, 2004; “Movies to Go”, 2005). Today, Netflix can honestly claim that not even Wal-Mart could penetrate into their corner of the market, and customer loyalty is so strong that few have thought to question the liberties which the company chooses to take as they improve their product offerings. As Falk, Sockel, & Chen (2005) so ably point out: “Electronic commerce (e-commerce) is not about having a great looking website…nor is it about the art behind the site…It is about building relationships and making money!” (p. 65). Netflix has survived because it has successfully secured those two goals and has entered into the e-commerce pantheon.

References

About Us. (n.d.) Retrieved 31 Jan. 2011 from <http://www.netflix.com/MediaCenter>.

Movies to go. (2005). Economist, 376(8434), 57. Retrieved from EBSCOhost.

Falk, L. K., Sockel, H., & Chen, K. (2005). E-Commerce and Consumer’s Expectations: What Makes a Website Work. Journal of Website Promotion, 1(1), 65-75. doi:10.1300/J238v01n01•06

Grover, R., Satariano, A., & Levy, A. (2010). Honest, Hollywood, Netflix Is Your Friend. BusinessWeek, (4162), 54-55. Retrieved from EBSCOhost.

Lindan, G., Hong, J., Stonebraker, M., & Guzdial, M. (2009). Recommendation Algorithms, Online Privacy, and More. Communications of the ACM, 52(5), 10-11. Retrieved from EBSCOhost.

Monroe, D. (2009). Just For You. Communications of the ACM, 52(8), 15-17. Retrieved from EBSCOhost.

Patterson, B. (Jan. 18, 2011). Netflix: No more renting DVDs from streaming devices. Yahoo! News. Retrieved Jan. 30, 2011 from <http://news.yahoo.com/s/yblog_technews/20110118/tc_yblog_technews/netflix-no-more-renting-dvds-from-streaming-devices>.

Setoodeh, R. (2004). Beyond the Video Store. Newsweek, 144(23), 91-92. Retrieved from EBSCOhost.

Sivaraman, D., Pacca, S., Mueller, K., & Li, J. (2007). Comparative Energy, Environmental, and Economic Analysis of Traditional and E-commerce DVD Rental Networks. Journal of Industrial Ecology, 11(3), 77-91. Retrieved from EBSCOhost.

Wagner, C., & Turban, E. (2002). Are Intelligent E-commerce Agents Partners or Predators?. Communications of the ACM, 45(5), 84-90. Retrieved from EBSCOhost.