by: dora e. plancarte-yslas bus 550- spring 2011 04/26/11
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www.netflix.com. By: Dora E. Plancarte-Yslas BUS 550- Spring 2011 04/26/11. Chapter 4- Netflix: The Making of an E-commerce Giant and the Uncertain Future of Atoms to Bits. What is Netflix?. - PowerPoint PPT PresentationTRANSCRIPT
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By: Dora E. Plancarte-Yslas
BUS 550- Spring 2011
04/26/11
www.netflix.com
Chapter 4- Netflix: The Making of an E-commerce Giant and the Uncertain Future of Atoms to Bits
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What is Netflix?• Online company that offers on-demand
streaming of TV shows, concerts, documentaries, and movie and DVD rentals by mail
• Over 100,000 titles to chose from creating a near-limitless section (long tail)
• One flat rate service starting at $7.99 with no late fees and no shipping costs
• Online streaming 24/7 with no limits from Netflix ready devices
How many people in this class have a subscription to Netflix?
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Timeline• 1997: Incorporated in DE• 1998: www.netflix.com launched• 1999: Start of online subscriptions• 2002: Completed IPO (initial public
offering)• 2003: Revenues up 78% > than 2002 and profit was $6.5 million• 2006: Profit of $1 billion• 2007: Internet streaming• 2010: Streaming > DVD • 2010: Expansion to Canada• 2011: Over 20 million users
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Development•Business Problem: Reed Hastings got a $40late fee from a video rental store. •Business Solution: Created a DVD by mail service rental business with no late fees.
•Trial run in 2009 with a 1 month free trial.
•After 1 month, only 20% did not want to pay a subscription.
How has the original
Netflix interface
improved?
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Business Processes•58 ultrahigh-tech distribution centers located within driving distance of 119 USPS facilities•Handle 1.8 million DVD per day•100% of DVDs are hand-inspected•Turnaround time per DVD is 8 hrs. •Reach 97% of customers in a 2-day window•43 phone reps•2,180 FT & 2,149 PT employees
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Technology Features
• Queue• Blogs• Friends and Communities• Reviews• Social Media share feature• Ready Devices• Suggestions via Cinematch
(Collaborative filtering)• The Netflix Prize for $1 million
(crowdsourcing)
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Management Mistake?
• Founder and CEO Reed Hastings’ initial dream• In 2002, Netflix offered 5,500,000 shares at $15.00 • NFLX on Nasdaq• Stayed private longer • SEC filings exposed data and success• Brought forth competition but now had $$$ to expand and innovate• Redbox is still privately held• Currently at $252.22 per share.
Do you think CEO
Reed Hastings made a
good decision by
going public with
Netflix?
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Competition
• DVD Windowing is forever (Film release window) yet licensing creates restrictions, typically 28 days after DVD release date
• Low cost start up• Pure play (no storefronts)• Helped drive DVD brick-and mortar rental stores to bankruptcy• Affecting the cable industry• Netflix offers: largest selection, largest customer base, largest distribution
centers, and the industry leading strength in brand and data assets
Why have competitors not been as
successful as Netflix?
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New Business Model
• Blockbuster and Redbox: Rent a movie for a specified amount of time or late fees apply
• Netflix: Keep the movie as long as possible (no late fees) so less mail transactions are made since it costs 88 ¢ round-trip for a DVD by mail
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Achievements• #1 in customer satisfaction 9 times in
a row by Foresee• The best at satisfying customers by
Nielsen and Fast Company • Retail Innovator of the Year by the
National Retail Federation• CEO: 2010 Business Person of the
Year• Churn rate <3%• 95% of subscribers have
recommended Netflix• 71% of new subscribers have been
encouraged by an existing subscriber
Do you think customer
satisfaction has been the main reason for Netflix’s success?
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Future
• Physical DVDs will be completely replaced by online streaming (atoms to bits)
• Postage: 1/3 of expenses even w/discounts • Was named Netflix not DVDs-by-mail• Blu-rays meaning double inventory
Do you think Netflix will still be as
profitable in the future if
DVDs by mail become
obsolete?
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Takeaways• Netflix’s business assets• IPO “mistake”• Netflix’s attractive business• Why is Netflix successful?• Durable brands: customer
experience• Physical retailers are limited• E-Commerce reaches more
users• Atoms to bits concept• Windowing and licensing limits
Any questions?
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Question
A) Happy customers refer friends minimizing in subscriber acquisition costs.
B) It costs more to acquire a new customer than to keep one.
C) The longer a company has the customer, the less likely they are to leave.
D) The longer a customer stays with the firm, the more profitable they company becomes.
E) All of the above.
Why do companies strive for a low churn rate if new customers are always available?
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Works Cited1. Gallaugher, J. (2011). Information Systems: A
Manager’s Guide to Harnessing Technology 1.1, Flat World Knowledge Inc.
2. Netflix’s 10-K filings with the SEC for 2010.
3. Yahoo Finance: http://finance.yahoo.com/q?s=NFLX NFLX <31 April 2011>
4. Virtual fun. Economist [serial online]. May 15, 2004;371(8375):15-16. Available from: Academic Search Premier, Ipswich, MA. Accessed April 24, 2011.
5. http://www.business-strategy-innovation.com/wordpress/wp-content/uploads/2010/06/Adam-Hartung-Netflix-Opportunity.jpg
6. http://www.ehow.com/facts_6757161_did-netflix-start_.html