Netflix is a subscription-based media service provider which provides online streaming of a library of films and television programs, including those produced in-house. As of the present count, the company has over 139 million paid subscribers and 9 million subscribers on free trials.
Netflix was initially dealing in DVD sales and rental by mail, but the sales were stopped after a year, only focusing on the rental business. Multiple rental models were introduced in the early 2000s and built its business model flat-fee unlimited rentals when it had only 300,000 subscribers. The DVDs were delivered by the company to the subscriber’s home in an envelope by mail.
The side story
It is a lesser known fact that along with the renting of DVDs, Netflix also sold advertising space on the envelope, which then fetched a wholesome of money. Selling ad space was very successful, from which they delivered $30 million in profit.
The Inside Story
In 2007, when Netflix had around 5 million subscribers, it expanded the business with introducing online streaming of media, while retaining the DVD rental service. By 2010, the services grew and Netflix had an impressive 13 million subscribers, but it was time when the company had to make a remarkable move to grow its business drastically.
It was the time when Gibson Biddle led the product development for Netflix, Reed Hastings (Founder and CEO of Netflix) asked him to kill off advertising. The fundamentals that Reed believed in, was the mentality of experimentation and taking risks, which is the foundation of a successful business.
Killing of advertising has proved to be the game changer of Netflix. It was Reed Hastings who proposed the idea of killing off advertising on the grounds that even after giving the best of their efforts, they could not have been the best in the world at advertising. So, they shifted their focus on the task that they were going to be best at, ‘personalisation’. Reed’s objective was to make the product simpler and to focus on personalization and streaming.
Netflix’s ideology has always been observing and consciously working to take on the same level of risk, even after reaching greater heights with the passage of time. Gibson had best described the mentality of experimentation with business models in three facets:
1. Delighting your customers.
2. Building things that are hard to copy.
3. Ongoing experimentation with business models.
Till date, risk-taking and experimentation have been the heart of Netflix’s product strategy. Netflix today, invests $12-13 billion on original content, in a year. Netflix has left no stones unturned to keep its customers delighted, and has continuously worked on engaging the artists which has built many advantages that are extremely hard to copy and proves to be the tripartite recipe for success.
And finally, a note about delighting its customers-“Netflix doesn’t care if you share your password with your friends and family!?”