Strategy and Case Analysis

2.2 A Brief History of Netflix

Netflix is also a United States of America based company which was founded in the year 1997 by Reed Hastings and Marc Randolph in Scotts Valley, California. By the year 2013, the management of the Netflix decided to expand into online distribution, television and film production as well. The initial business model of Netflix was sale and rental services of the DVDs but within a year, the company moved to rental by mail service. In the year 2007, the company introduced online streaming services to its customers and also retained the rental by mail service for Blu-ray and DVDs. In the year 2010, Netflix moved to international market by entering Canada and by 2016, the company was operating in more than 190 countries. In 2012, the company launched its first series Lilyhammer and since then, Netflix has significantly increased the production and distribution of television series and films. In the year 2016, Netflix release approximately 126 original television series and movies, which significantly more than any cable channel or network.

3. How Netflix Beat Blockbuster

In the following section, light has been shed on how Netflix pushed Blockbuster out of the market. 4 main reasons have been identified in this regard which include technological change, online operation, effective pricing strategies of Netflix and continuous innovation at Netflix. These points have been discussed as follows:

3.1 Changing Technology

It has been explained by Dodgson (2018) that technological innovation facilitates a business organization in gaining a competitive advantage in the market. Dodgson (2014) suggested that it is necessary that business organizations change the current technology which they are working on and what is being offered to their customers. It is necessary that business upgrade and innovate technological platforms. This practice will help businesses in increasing their market share and hence it will help in ginning a competitive advantage over other players in the market (Dodgson, 2018). In the case of Netflix and Blockbuster, the point of technological diffusion should also be understood in order to analyze how Netflix was able to beat blockbuster.

Kenwood and Lougheed (2018) explained the technological diffusion theory in their book. They explained that technological diffusion is how a particular technology is spread and why it spreads or become popular. According to this theory, there are 4 main factors which influence the spread of an idea. These factors include innovation itself, communication channel, social system and time (Kenwood and Lougheed, 2018). It can be analyzed here that in order for a technology to be accepted and become popular among the customers and industry participants, it is necessary that it is innovative and appropriate communication channel is used to convey it to customers. Along with this, it should also be noted here that technological diffusion takes time and it is not an overnight process. In the case of Netflix as well, the management of Netflix analyzed the need of the customers first and then they implemented an innovative strategy, first Netflix provided the customers with the mail service where the customers were no longer required to wait in queues to rent DVD and Blu-rays. The innovation diffusion process can be analyzed via understanding the implementation process of this strategy. In this case, the strategy itself was an innovation as neither Blockbuster, nor any other DVD rental service provider, offered this facility to its customers. Along with this, it should also be noted here that words of mouth became the communication channels which facilitated the adoption of this innovative strategy implemented by Netflix instantaneously. Along with this, Netflix developed another innovative strategy to outperform Blockbuster which is providing the service of online streaming. Netflix understood the future requirements of the customers and hence enhanced its technology to provide the customers with an online platform to watch movies and television shows and hence putting an obstacle for other players in the market who were in the DVD rental services providing business.

3.2 Retail Outlets versus Operating Online

Retail outlets refer to the physical stores of Blockbuster and Netflix which were present at various locations in the United States and other countries in the world. In order for a customer to rent a DVD or a Blu-ray, the customers were required to visit the store and form a queue and wait for their turn for the store representative to fill the details and finally let the customer take the DVD or Blu-ray disc on rent. This was a lengthy and complicated process; however, customers were not dissatisfied with this entire process. The alternative to retail stores for rent service for DVDs and Blu-rays is online streaming. In this case, online streaming refers to the service provided by companies to its customers to view the movies and television shows they like on their desktops in their homes. Online operation does not require a store or a physical place, instead it requires an internet connection and a computer (or laptop or a phone) to access the services offered by a business organization.

In the case of Blockbuster and Netflix, it is evident that the growth strategy adopted by both the organizations is completely different. The growth strategy adopted by Blockbuster is opening more stores at different locations to reach potential customers in various. According to Burke (2018), 15 year earlier, when Blockbuster was at the boom, the company opened several stores within a short period of time (Burke, 2018). It can be analyzed here that the business model of Blockbuster was based on opening more and more retail stores at different locations and this strategy led to the downfall of the company.

On the other hand, the growth strategy adopted by Netflix was to provide access to more customers across the globe via online platform, via online video streaming services which helped the business organization is the long run. Netflix used an innovative strategy and hence not only it became the innovator in the online video streaming industry but is also became the first mover. First mover is the individual or an organization which is able to grab an opportunity when the rest of the people and/or competitors did not see any opportunity in that area or market. First mover not only seizes the opportunity but the first mover is also able to gain a competitive advantage in the industry and they become the industry leader. Netflix in this case is the innovator and the first mover, Blockbuster is the follower but it should be noted here that by the time Blockbuster understood the market potential of online video streaming industry, other competitors seized the opportunity and it was difficult for Blockbuster to compete and hence Blockbuster had to put an end to their business operations. It can be analyzed here that operating online via providing video streaming services to customers was a better strategy than retail stores for rental offering rental services.