Netflix Essay

4714 words - 19 pages

IntroductionFounded in 1997 by its current CEO, Reed Hastings, in 2009, Netflix (Nasdaq: NFLX) was the world’s largest online subscription-based DVD rental company based in Los Gatos, CA. It offered its 10 million customers an access to more than 100,000 DVD titles in more than 200 genres. Starting at $9.99 per month, different price levels were currently offered by Netflix, each which allows its subscribers to possess different amount at a time with no late fees. (Netflix, 2009) By the time the Netflix was launched, Blockbuster Inc. (NYSE: BBI), the biggest mogul in the video rental realm foresaw Netflix’s attempt to pioneer its online rental services as a futile endeavor, since it was believed that video rental customers would not desire to wait for days for the DVD. Nevertheless, Netflix had proved Blockbuster’s assumption wrong. In the year of 2008, despite the downturn of the U.S. economy due to the subprime mortgage crisis, still, Netflix, one of a handful of companies that had their stock prices rose over the dreadful year of 2008, enjoyed a 6.72% rise in its average stock price, whereas Blockbuster suffered a 66.75% loss. (Google, 2009)One of the most intriguing key to Netflix’s success was its ability to predict the future. In 1997, by the time that Netflix was launched by Hastings, most of video rental services only offered VHS videotapes to be checked out, in addition, DVD players had been released for several months. Nevertheless, Hastings firmly believed that the DVD rental services would be highly profitable in the next couple of years. Regardless whether he was lucky or not, he was right!What were Netflix’s secret recipes for its astonishing success? In this paper, Netflix’s strategies will be analyzed using Porter’s Five Forces model and other analyses as the tools.
Business Models analysesPorter’s Five ForcesDeveloped by Michael E. Porter, a professor at Harvard Business School in 1979, Porter’s Five Forces is a simple model which depicts a business’ competitiveness into five vital factors that are interrelated to each other, which employs a key role in a success of an industry. The five forces are buyer power, supplier power, barriers to entry, threat of substitutes and rivalry. (Wikipedia, 2009)Buyers Power – As well as Dell’s highly praised supplier power, Dell Computer Inc. was also eulogized for its customer services. It offered a quality on-site service which had attracted many customers and built brand loyalties for it. Again, from the profit equation above, revenue is another determinant that is directly proportional to the profit, and of course, the source of a firm’s revenue is from customers. In all industries, intuitively, consumer buying power has a strong direct relationship with the U.S. economy. If the economy grows (i.e. real GDP increases and the unemployment rate decreases), consumers will tend to spend more. On the other hand, if the economy contracts (i.e. real GDP shrinks and the unemployment rate...

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