Netflix Disruptive Innovation

Executive Summary

The purpose of this report is to explain a disruptive innovation using an ICT-enabled technology, which in this case is Netflix. Netflix is a platform that revolutionised the way people would watch series and Movies and rent a DVD on the same. With subscription plans, applications on different platforms and their exclusive content, made it harder for people not to have piece of it. Netflix started off as a video on demand and DVD by mail kind of a platform and then later expanded its services to even online video streaming which was the spotlight of its developments. Netflix is a disruptive innovation because it revolutionised how people get their daily dose of entertainment. By the introduction of cheap prices, HD quality and a new perspective of TV shows everybody wanted to move on from their usual TV channels and DVD movies. A part of Netflix’s in house production, called “Netflix Originals” produces and directs their own set of series, which have been shot and directed in a different never- seen- before perspective. A unique set of series made its customers stick to it rather than just providing them with same old movies and usual TV shows. It’s also ironic that Netflix put the good old Blockbuster out of business, by providing a more convenient way to rent movies, but only to later on start focusing on original media instead.

The author then moves onto exploring the various adoption categories for this Innovation which are the innovators, early adopters, early majority, late majority and laggards and also based on the study suggests relevant innovation characteristics for each adopter category. Wherein the author says that the Innovators are the people who have a mind-set of “trying anything new in the market first”. The Early Adopters are the people who want to adopt an innovation because the Innovators went for it. And then come the Early Majority, the Late majority and the Laggards who adopt to such innovations based on their ease of access, usage, and reviews. The report then proceeds to paint a picture on the ex-ante and ex-post phases of evaluation and two evaluation methods in each of these phases. The author then moves onto analysing the selected innovation in terms of its entrepreneurship and start-up potential, and talks about how a start-up company aiming to bring a disruptive Innovation like Netflix can use the Crowd sourcing, Open source software’s and Online cloud computing providers to start the development of the Innovation in the early stages. The author then talks about the most important aspect of any innovation company which is the use of Business Analytics to maintain its current customer relationship using predictive analysis, customer service and management, also on how to use Descriptive Analysis to understand the Designing part of the Innovation. These are the key factors of any Innovation which lead to its success and it being Disruptive amongst the others. In this case Netflix was able to accomplish all of these, which lead to it being the favourite online platform for its users in terms of entertainment.

This paper helps understand the various aspects that involve in the development, its start-up potential and the Business analytics of the innovation Netflix. The results for Netflix were very positive since Netflix looked at every aspect during its rise and hence is a favourite amongst its users until now.

The business social value for Netflix is currently on the rise, since Netflix has its own production house that makes its own TV shows and Movies, users have found their interest in the same. These TV shows and Movies are not found anywhere else and hence Netflix’s users have stayed with it for a pretty long time now.

1.0 Describing Netflix

1.1 Introduction to Netflix

Netflix is an American entertainment company founded by Reed Hastings and Marc Randolph on August 29, 1997, in Scotts Valley, California. It specializes in and provides streaming media and video-on-demand online and DVD by mail. In 2013, Netflix expanded into film and television production, as well as online distribution. As of 2017, the company has its headquarters in Los Gatos, California. Netflix’s initial business model included DVD sales and rental, although Hastings jettisoned DVD sales about a year after Netflix’s founding to focus on the DVD rental by mail business. In 2007, Netflix expanded its business with the introduction of streaming media, while retaining the DVD and Blu-ray rental service. The company expanded internationally, with streaming made available to Canada in 2010 and continued growing its streaming service from there by January 2016, Netflix services operated in over 190 countries. Netflix entered the content-production industry in 2013, debuting its first series, House of Cards. It has greatly expanded the production of both film and television series since then, offering “Netflix Original” content through its online library of films and television. Netflix released an estimated 126 original series or films in 2016, more than any other network or cable channel. As of July 2017, Netflix had 103.95 million subscribers worldwide, including 51.92 million in the United States. (Netflix. (2017). En.wikipedia.org.) ^[1]

Netflix changed the way TV Shows and Movies were brought to the user. By implementing a subscription plan Netflix gave content to its users more than any other Cable provider or DTH. Hence this brought upon a change in the way we watch entertainment. “Netflix was able to appeal to Blockbuster’s core audience by providing, a wider selection of content with an all-you-can-watch, on demand, low-price, high-quality, highly convenient approach,” as Business Insider Australia puts it. The reason for Netflix being disruptive is for when it launched its mail-in subscription service, it did not go after the core customers of competitors like Blockbuster. The customers who rented new releases “on demand”, which initially Netflix didn’t provide its users.  Christensen has also claimed that, initially, Netflix only appealed to a few customer groups: “movie buffs who didn’t care about new releases, early adopters of DVD players, and online shoppers.”  Hence according to Christensen, Netflix is a trademark of disruption, since a disruptive company targets segments of the population that have not been unnoticed by its competitors, delivering a substandard but more custom-made alternative and apparently at a lower price. By this eventually a disruptive company like Netflix starts moving upmarket. It keeps the advantages it had at the beginning, and adds the things mainstream customers want, and all of a sudden there no reason to have Blockbuster anymore. But Netflix knew that wouldn’t cut it to keep them high up in the market, and they moved onto introducing the ability to stream videos online. This was the huge shift that came. This is how Netflix was able to appeal to Blockbuster’s audience by providing, “a wider selection of content with an all-you-can-watch, on-demand, low-price, high-quality, high-convenient approach”. This is how the unimaginable happened, Blockbuster collapsed. The users who Blockbuster had at hold with their content had now moved onto Netflix for better content and on-demand experience. Hence it can be said in conclusion to the above statements that the reason disruptive companies are often able to rise so quickly is that their larger competitors fail to notice them, they are not initially competing for the same customers, so that the big boys can shoot them off- and in Blockbuster’s case, they even refused to acquire them for a mere US $50 million. (McAlone, N. 2015, Business Insider Australia) ^[2]

1.2 Exploration of Adoption Categories

 The 5 adopter categories for Netflix in general (in order of priority) are as follows:

1) Innovators:  These They are always curious to try new products or innovations in the market and generally have an obsession for the same. They are generally not averse to taking risks so, if in case, Netflix ends up not being how it claimed to be, they would not face any kinds of losses.

The 3 most relevant characteristics (in order of priority) for this category of adopters are the following:

• Relative Advantage: Since the innovators are the very first ones to get hold of the newly launched Netflix platform they can test and review the same, this is the very first characteristic that would be taken into consideration from their viewpoint.

• Observability: Since an innovator would be dying to try out the features of Netflix and its various categories of entertainment that it has to offer, they would want the same to be less complex and easy to use and explore. Having too many menus and options would frustrate these users and test their patience.

• Compatibility: If Netflix has features and is based on a platform that someone is already using, then is would be perfect for the Innovators. For example, if this user has an Xbox 360 and wants to use Netflix on the same device, (which Netflix allows its users to) then it would not be an issue to them.

2) Early Adopters: This section comprises people who are willing to subscribe to Netflix when it is in the initial stages of its lifecycle. Like the innovators, they know about every new product launching in the market and are enthusiasts in trying what’s new. They would take advice from the Innovators, on how their experience has been and then would decide on subscribing to the service. However, the Innovator’s word would be anything to them as they would still go onto purchasing the plan.

The 3 most relevant characteristics (in order of priority) for this category of adopters are the following: –

• Relative Advantage – Early adopters would like a hassle-free experience when subscribing to this new platform. They would also have a look upon the various benefits of using Netflix and not Cable TV or DTH.

• Complexity: They would want to have an easy-to-use application or a web platform. They wouldn’t want things to be very complicated.

• Compatibility: The early adopters would also look for the service to be compatible on their existing devices, which would help them start using the service and its features immediately.

3) Early Majority: These take thesuggestions of the early adopters and are ready to buy a subscription plan only once the early adopters have approved of the same. This category of adopters usually has an average financial income, average social status and hence think twice before spending. Therefore, it usually will take some time (3 to 6 months) for these adopters to decide if they have to move top Netflix or stick to their old classic TV shows and DVD cinema.

The 3 most relevant characteristics (in order of priority) for this category of adopters are the following:

• This category would want Netflix to have their categories of cinema or TV shows to be similar more or less to their previous way of entertainment.

• The people in this category would only buy a subscription, after being confirmed that it was verified fine by the above adopters over a period.

• The early majority would want to be confirmed that the platform, Netflix is worth the shift since they would be moving from their usual TV shows and DVD cinema, they would want all the reviews and knowledge they could get on Netflix to be able to make that shift.

4) Late Majority: – These are the sceptical ones who are willing to purchase a plan only after confirming that the above 3 adopters have bought the same. They would only purchase a plan if or when they get major offers or discounts on the plan they are interested in. They usually have a below-average social status and less knowledge upon the latest innovations or tech in the market.

The 3 most relevant characteristics (in order of priority) for this category of adopters are the following:

• Trialability: The people in this category would only buy a subscription, after being confirmed that it was verified fine by the above adopters over a period.

• Complexity:  The late majority category is usually hesitant in learning or moving to new forms of technology and hence would only want to move to Netflix for their entertainment purposes only if it is simple to use and is cost effective compared to their ongoing TV subscription and DVD costs.

• Compatibility: The late majority would want the service to run on the device they currently have in hand. Since they do not have the latest technology in the market, chances are they would still be using something that is 2-3 years old. Hence they would look at if the Netflix application and the web platform would run on their existing machines.

 5) Laggards: They are the very last adopters of an innovation. This category would usually wait years before even knowing what Netflix is and what services it has to offer. They usually end up using the subscription of their family or friends who are one from the above categories and already have a subscription plan. They have lowest money potential and usually are averse to changes in the market. They are usually comprised of aged people.

The 3 most relevant characteristics (in order of priority) for this category of adopters are the following:

• Complexity: Since laggards are considered slow learners and adapt to new technology very slowly, they would want Netflix to be as less complex as possible for their ease of understanding and usage.

• Trialability: The people in this category would only buy a subscription, after being confirmed that it was verified fine by the above adopters over a period.

• Compatibility: The Laggards would want the service to run on the device they currently have in hand. Since they do not have the latest technology in the market, chances are they would still be using something that is 3-4 years old. Hence they would look at the Netflix application and the web platform would run on their existing machines. (The 5 Customer Segments of Technology Adoption) ^[3]

2.0 Retrospective Analysis of the Selected Innovation

2.1 Evaluation of their Design

There are two evaluation phases in the design of an IT artefact which, in this case, is Netflix.

Ex Ante: For the Ex Ante phase of evaluation, since it is the phase which is happening before the launch of Netflix, it involves the development of the website, the Applications for various platforms such as PlayStation, Xbox, PC, Android and iOS etc., the best evaluation method would be Artificial, since the features of the various applications and web platform developed have to be tested before releasing the official Product to the market. The method of evaluation that could be used are as follows:

1. Computer Simulation: Evaluation can be done with the help of various devices based on the platforms Netflix would run on. The website could be tested on a PC of a mid-configuration and satisfactory Internet speed. The Netflix Application for various platforms such as iOS, Android, PlayStation and Xbox could be tested on the respective devices, to ensure there are no bugs or errors within the app and the streaming service. This is most important for any Innovation before going live in the market, to be working with less bugs, glitches or errors. Also, if there is a failure during this process, there would not be much losses associated, and could be rectified easily and quickly.
2. Alpha & Beta Testing: Evaluation can then be continued in this phase where now the developers, the people within the Organisation can have Netflix on their respective devices/platforms and make sure that everything is working as expected. This is just after the development phase and finished and closing towards the testing phase. The employees under Netflix can have their subscription and check whether every category has the right information, and everything is working smooth and sound. Once the Alpha and Beta testing is done, the people at Netflix can prepare for the release of their product.

Ex Post: For the Ex Post phase of evaluation, which is the phase after the launch of Netflix and it being in the market, it involves the recording of the reviews from various users, their complaints, and request to changes, request to add features and more. Hence the best method of evaluation would be Naturalistic. This is also an important part of an Innovation in terms of its development by the addition of new features and become better and better in the coming years of its life cycle. The method of evaluation that could be used are as follows:

1. Surveys: By conducting surveys amongst the people who are already using Netflix and have subscribed to the same, and noting down their feedbacks to the questions in the survey, the company would be able to understand the mind-set of their customers even better. This would also help identify the weaknesses in their design and work towards rectifying the same in the future update.
2. Participant Observations: Developers involved in the development of Netflix could sit with a few of the people who used Netflix instead of their usual TV channels and DVD’s, and get insights on what could be added or removed, any changes to the design and how the user moves around the Netflix website/application can be implemented. Similarly what more categories of TV shows or Movies people would want can also be added. This would help the platform have more data and release better updates which better features.

2.2 Evaluation of original Entrepreneurship and Start-Up Potential:

The Strategies that can be used in the case of a start-up for bringing up a disruptive innovation like Netflix are as follows: (Rogers. Lecture 5) ^[8]

• Crowd sourcing of operations/tasks and ideas: Outsourcing would be one of the huge benefits for a start-up, building something as disruptive as Netflix, since it wouldn’t have the funds and financial support at the early stages and nor the manpower. A start-up building an innovation like Netflix could use this very effectively to cut down on budgets, and hence concentrate on the core developments for the future. If thee budget of a start-up goes south then there would be very few chances of it surviving. Hence this would be a relevant category in terms of a start-up making something like Netflix. And as and when the start-up would reach a upright stage, it can attract investors who would look for potential, and this would solve the financial side of the start-up making it use better resources and technologies for development in the later stages. (Handsontable – Why Outsourcing is Important for Your Startup.) ^[5]

• Free, open-source and cheaper software and applications: By using Free and open source software’s for development and other functions, the startup can again save a lot on the financial side at the early stages. This also allows the startup to use the full potential of its investments and again concentrate on the major development of the product. There are also huge benefits of using OSS (open source software’s) such as,
  • The ability to get the source code without a licence fee and the ability to modify the same in the product offering or service, which would allow the start-up to cross the development phase faster.
  • There is a community supporting the code, so anywhere the start-up gets stuck with an issues during the development, a community of people are always there for help. This would help the start-up especially when it has limited resources and employees. Developing the code for a product like Netflix is important, hence the algorithm would be the backbone for any future decisions to be taken.
  • A few examples of (OSS) include – Trex for planning, OrangeHRM for human resources planning, SugarCRM for customer relationship management, SQL database systems for database development and sorting/storing. These could be well utilised by the start-up in the early stages for Human Resource, Customer relationship management and to build a database since a platform like Netflix has a database of what people like to watch and how to produce them the same.

• Cloud-based solutions: Start-ups can use the application’s services or resources made available for the users on demand via the Internet from a cloud computing provider’s servers. These are essential for a start-up who would be developing something like Netflix, which is based completely on the cloud. By using such providers, start-ups can save time and investment by not having to set-up their own Servers, Database systems and more. This would also require specific employees to handle the servers and make sure that there are no errors present, and hence would be a tedious job for the start-up in the early days. By using such Cloud Computing Provider’s start-up have virtualized IT resources, able to rent computing capacity, and also eliminate the capital costs associated with buying their own server. Cloud computing is a fundamental for a platform like Netflix which itself is an online video streaming service, and works on numerous devices of different platforms. Cloud computing providers are not tad expensive as well and would be helpful for that jump start to get the start-up going. (Sweeney, D., Alton, L., Resnick, N., Oracles, T., Resnick, N., & Mehta, D. et al. (2016). How Cloud Computing Can Help Your Start-up Company – StartupNation) ^[6]

2.3 Evaluation of their Application of Business Analytics:

Netflix, being a video streaming and on demand provider of entertainment has used Big Data analytics in the best way possible. This is to understand and help Netflix achieve the right content for its users. Ever since its days of being a DVD-by-mail service Netflix placed prime importance on collecting user data and building a recommendation system. After launching their streaming service in 2007, it took Netflix 6years to collect enough data to predict the sure-shot success of their first original production “House of Cards”. This was how Netflix set the biggest example onto how analytics used in the right direction can literally spell success for a business, in a domain as unpredictable as content production. (Success, H. (2017). How Netflix uses Big Data Analytics to ensure success – UpX Academy) ^[7]

1. Designing the Innovation: Business Analytics is mainly used for data-driven decision making. It includes Descriptive analytics. While designing and developing Netflix all of this will play an important role. The descriptive analysis benefits the UI and the content aspect of Netflix, for this the present state of business trend is important while designing so that some of the key factors can be common throughout the Netflix applications on various platforms. The way users move around the user interface, the content on the website and the various applications etc. This would also help Netflix fix any of the issues within their applications an make it even better for the upcoming update releases. (Lecture. 05) ^[9]
2. Supporting the Efficient Management of the Innovation: This requires looking at 3 issues for any Innovation, they are – efficient customer relationship, management and customer service.
3. Efficient customer relationship: This could be achieved using Predictive analysis, since the company has to have customer data to enable an efficient relationship between the both. By analysing customer data, in the case of Netflix, their favourite actors, the type of series or movies they like watching, the types of plan rates they would be willing to take up and more will help the company understand its users better and predict their behaviours over the same. This would help Netflix in building their own Recommendation’s for various users depending on their likes and interests. Which in turn helps maintain and widen customer relationship.
   • Management: Here Predictive analysis would help the company manage its developments for the future, without which Netflix wouldn’t stick around for a long time, especially when a similar disruptive innovation rises, people would tend to move to that, similarly how they moved from Blockbuster to Netflix. By understanding the needs of its users, and making the required changes in terms of plans, content and UI, Netflix would be refreshing its platform and this would result in users being used to it. One move that Netflix has already made in this respective category is by the introduction of their “Netflix Originals” which contains TV shows and now movies that cannot be found anywhere else, hence the users would stay with Netflix for the unique category of shows and others.
   • Customer Service: One of the key factors for a company to keep its existing users/customers is to provide them with hassle free service. Any Innovation is blameless until it cannot handle the issues and problems faced by its customers at a point of time. In the case of Netflix issues such as subscription, payments, in app bugs and other things play a factor. By using Predictive analysis, a company like Netflix can understand its customers better and deal with their issues quicker and in a less amount of time. In an example where a customer calls the customer care and is not able to put through his issues  on the table with the call centre executive can lead to them withdrawing their subscription no matter how good it was, just because the executives couldn’t solve or put his/her issues through the table. By using such cases and being ready for the worst, Netflix can provide better solutions to its customers and maintain its relationship and honesty with them at the same. A company not achieving this particular category would lead to it affecting its Customer Relationship which in turn would lead to fewer users by the fall. (Lecture. 05) ^[9]

Conclusion

The case study has explored a disruptive innovation, Netflix by reviewing its adoption categories, analyzing its design in the phases before and after its release, evaluating its entrepreneurship and start-up potential and using analytics to understand and predict consumer behavior towards the same. Companies should always try to satisfy all adopter categories for an innovation to boost revenue and should never overlook any specific category. Significant research should be done both before and after design phases based on simulations, alpha and beta testing, surveys and participant observation to know what customers want in their products and how to implement the same. The introduction of cheap prices, exclusive content, the “Netflix Originals” category and by maintaining good customer relationship and service, Netflix was doing better than any of its competitors back then and now. The unique content and design of how information was given to the users made Netflix none like the others. The paper helps understand the various aspects that have to be looked upon for any Innovation to be Disruptive in terms of its developments, analytics and the start-up potential for a similar Innovation. Companies should utilize analytics to understand customer behavior in relation to past and current trends of an innovation and predict downtimes to enable smart management of customers and resources.

Bibliography

1. Netflix. (2017). En.wikipedia.org. Retrieved 21 September 2017, from https://en.wikipedia.org/wiki/Netflix

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3. The 5 Customer Segments of Technology Adoption. Retrieved from https://ondigitalmarketing.com/learn/odm/foundations/5-customer-segments-technology-adoption/

4. Disruptive Innovation: How Netflix revolutionised the video market – SEIER CAPITAL Retrieved 25 September 2017, from http://www.seiercapital.com/disruptive-innovation-how-netflix-revolutionised-the-video-market/

5. Handsontable – Why Outsourcing is Important for Your Startup. (2017). Handsontable.com. Retrieved 25 September 2017, from https://handsontable.com/blog/articles/why-outsourcing-is-important-for-your-startup

6. Sweeney, D., Alton, L., Resnick, N., Oracles, T., Resnick, N., & Mehta, D. et al. (2016). How Cloud Computing Can Help Your Startup Company – StartupNation. StartupNation. Retrieved 26 September 2017, from https://startupnation.com/grow-your-business/cloud-computing-can-help-startup-company/

7. success, H. (2017). How Netflix uses Big Data Analytics to ensure success – UpX Academy. UpX Academy. Retrieved 26 September 2017, from https://upxacademy.com/netflix-data-analytics/

8. Rogers. Lecture 5.   Retrieved from https://blackboard.qut.edu.au/bbcswebdav/pid-6948457-dt-content-rid-9264135_1/courses/IFN502_17se2/502wk05_17%281%29.pdf

9. Lecture.   Retrieved from https://blackboard.qut.edu.au/bbcswebdav/pid-6948457-dt-content-rid-9435480_1/courses/IFN502_17se2/502wk08_17.pdf