Netflix is an online movie DVD rental firm founded in 1997 by Marc Randolph and current CEO Reed Hastings. Netflix’s strategy and market success have been based on providing a large selection of DVD’s, an easy way to choose movies, and fast, free delivery. Their goal is to deliver customer value by eliminating the hassle involved in choosing, renting and returning movies. Netflix originally offered DVDs on a fee per use basis, then introduced monthly subscriptions service in 1999 which proved to be more lucrative. Netflix has successfully dethroned Blockbuster, the previous global leader in the movie rental industry. Blockbuster began closing stores as early as 2009, losing customers to Netflix's DVD-by-mail service and other online video streaming services, such as iTunes. In 2012, Blockbuster began offering DVD-by-mail services and video streaming on its website. The brick and mortar giant leader Blockbuster had too much overhead and was unprepared for the video on the demand takeover. In an interview with Bloomberg in October 2012, Dish CEO Charlie Bergen said the company would abandon its plans to compete head-to-head with Netflix (Stern, 2013). Whether this is good news or bad news for Netflix has yet to be seen.
Netflix’s success can be attributed thinking big and starting small. Although Netflix started off mailing DVD’s, its founder Reed Hastings’ forward thinking allowed him to get a jump on his competitor. Hastings was ahead of the technology curve, and revolutionized the industry. He looked at the future of in-home entertainment and delivered a method by which movie buffs could view movies anywhere and anytime. Unlike its chief competitor, Blockbuster, Netflix hit the market with a much more efficient way of providing the in-home entertainment consumer access to his passion. Netflix’s strategy for building a bigger subscriber base was providing a larger selection of movie choices, fast, efficient delivery, no due dates for return, and convenient prepaid mail returns. The company was able to provide all the above by incorporating a Just in Time inventory system. Netflix saved money by buying rights to movies and ensuring that tech support was available to monitor servers. Part of Netflix’s technology strategy was avoidance of the burden of retail outlets by operating online. With only a few warehouses and offices, the company became a virtual organization with no retail stores and no sales employees. A small staff operates on what Hastings calls their “Freedom and Responsibility Culture.” Instead of authorized vacations, sick days, and fixed work hours, people work when they choose to as long as the job gets done. Titles and compensation are left to the individual employee. Although, the company still provides a DVD mail service, the majority of its revenue is generated by online streaming.
Even though Blockbuster was at the leading edge of DVD rental, no one had cornered the market on streaming movies. Streaming for Netflix was not an overnight success. Founder Ned Hastings ran a lot tests to determine how much bandwidth would be needed to provide the service. He also made a lot of deals with content providers in order to determine which would work this all took place over a span of 10 years. He also considered numerous pricing models for streaming, ultimately deciding to give it away as part of DVD subscriptions. That way, people could get used to streaming while he built his library of offerings. With this methodology he didn’t create an opening for a competitor. Hasting’s approach to video streaming was a bit unorthodox. He took it a step further and allowed his customers to order new show episodes online by the bundle, thus viewers wouldn’t have to wait for the next chapter of a series. Like most innovators, his methods were criticized by both competitors and suppliers.
Hastings also cut new deals with TV networks which allowed their content to appear on Netflix a