NETFLIX“The Blue Disruptor”

Jason NorenLloyd Ricks

Adam Uchimoto

Pete HaneyLindsey Cassidy

Elisaveta Kristo

SGM 5401:Competitive

Strategy

Summer II2016

The Timeline

1985 1998 1999 2000 2001 2002 2003 2004 2005 2006 20072009/2010

BB Founde

d

Netflix Founde

d

Intro unlimited

subscription

IPO, $4.8B Valuation

Cinematch algorithm adopted

DVD in 13% US

households, up 5% from ‘99

Neg. revenue-sharing agree w/

most major studios

Simplified cancelling process

IPO

Superbowl Ad

campaign, posted $1.6B

loss

Redbox Launches

kiosk

DVD in 37% US

households

Named Netflix a threat

Post first profits, $6.5M

Offered Netflix for

$50M, declined Launched BB

Online service

Launch “No Late Fee” campaign, forgoing $600M

revenue

Post $1B in revenue /

6.3M subscribers

BB Online, 2.2M

subscribers

VOD market attracting

competitors

Enters VOD market w/ $50M cash

Rolls out kiosk

system

Bankrupt, $24M

valuation

Core Competencies“Global leader as a Internet TV network offering commercial-free, unlimited

viewing entertainment on any networked device”

High Quality, Original & Exclusive Content

Personalized UX via Proprietary Recommendation System

Customer Focused Always be prepared to fill the gap Keep on learning

•Keeping personnel focused on one thing•Available cash for partnerships, etcResources•Looking ahead on product development•Hiring the right individualsProcesses•Listening to customers and reacting•Very competitive on cost structureValues

Role of InnovationNetflix the Disruptor

Utilized DVDs over Video Cassettes Mail order vs Brick and Mortar 3-tier Unlimited Subscription Service

No late fees Proprietary algorithm - product differentiation

that increased company value while slashing prices

Distribution Centers expansion, 90% of subscribers within single business day shipping

Entry into VOD market with well established infrastructure and pricing structure

Revenue-sharing agreements

Blockbuster the Sustainer Revenue peaked in 2004; 70% of rentals were

new releases & $600M of revenue in late fees Offered Netflix in 2000 but declined Finally reacted to Netflix in 2004 with the

launch of Blockbuster Online Attempted doing both online and in-store and

was unsuccessful Finally eliminated late fees in 2005 The demise in 2010; Bankrupt despite having

higher revenue than Netflix…why?...no core resources, processes and value to compete!!

Netflix is “Master” Disruptor

The Winning Strategy It’s about “VALUE

INNOVATION” and not technological innovation

Value innovation places equal emphasis on value and innovation

Focus on driving costs down while driving customer value up

New Value Curve

Blue Ocean Strategy

Strategy Canvas: DVD-By-Mail

Crea

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redu

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Elim

inat

eRaise

Strategy Canvas: Video-On-Demand

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Raise

The Blue Disruptor Results

BB Express launched

Netflix IPO & changing the playing field

Challenge/Recommendations

How to approach and deal with the online viewing offerings (VOD) and remain one step ahead of the competitors?

Solution #1: Licensing partnerships with cable providers Offer its proprietary recommendation system seeking to enhance their VOD offering.

Familiar deal with that was accomplished with US Postal Service Solution #2: Integrate streaming online video feature into their core offering.

Continue to offer services at the same monthly fixed prices; however, offer premium viewing options with different subscription plans

Solution #3: Building a stand-alone online video business

Current Status and Future of Netflix

2008 – 2015: Developed many partnerships, expanded platform availability and launched to international markets

Present Day: 81 million members across 190 countries enjoying over 125 million hours of entertainment

 Creation of Original Content utilizing Algorithm & Data Analytics – i.e. House of Cards