1. By Austyn Shepherd The leading provider of on-demand Internet streaming media and flat rate DVD-by-mail in the United States

2. WHY STUDY?  Examine how technology helps firms craft and reinforce a competitive advantage.  Look at how new technology continues to shift this competitive landscape.

3. ABOUT Netflix is an online subscription-based movie and television show rental service that offers media to subscribers via Internet streaming and US mail (PURE PLAY) Largest service provider with 26 million subscribers worldwide Approximately 2 million DVD’s are shipped daily 88% of subscribers watch streaming content

4. ABOUT Offer more than 100,000 movie titles Dependent on their growing number of subscriptions in order to offer their unique selection Maintains strong ties with various entertainment video providers and major studios Proprietary technology

5. HISTORY Founded in 1997 by Marc Randolph and Reed Hastings Worked together at Pure Software Company Hastings thought of idea after being charged $40 late fee for a movie rental

6. RANDOLPH Received his BA from Hamilton College VP of Corporate Marketing at Pure Software President & CEO of Netflix until 2002 Served as Director of the Board for Netflix until 2004 Currently an advisor on several high- tech boards

7. HASTINGS Received his BA from Bowdoin College in 1983 Received an MSCS in Artificial Intelligence from Stanford in 1988 Founded Pure Software which he sold in 1997 Current CEO of Netflix Serves on the board of Microsoft and Facebook

8. TIMELINE  1998 - Netflix website launched  Original version was a pay-per-rent model on a fee per use basis with late fees  1999 - Introduced monthly subscriptions  2000 – Launched personalized movie recommendation system  2002 – Netflix went public  2007 – Introduces streaming option  2010 – Launches internationally (Canada, UK, Ireland & Latin America)

9. CONCEPT

10. FEATURES No Due Dates No Late Fees No Cancellation Fees No Per Title Rental Fees Free DVD Shipping & Handling  Both Receiving & Returning

11. SERVICES *Blue-ray Discs available for an additional $2 per month

12. LOYALTY  Consistently maintains 84% of existing customers – low churn rate  Ranks at the top of customer satisfaction surveys - 94% recommend to others  Achieved through:  Huge Selection (over 100,000 titles)  Ease of use & convenience of site  Fast Delivery (97% receive in one day)  Fair price

13. GROWTH

14. LONG TAIL  The “Tail” is the demand for less popular items that are not offered by tradition shops  75% of DVD titles shipped are from back- catalog titles, not new releases  Long tail works because it is economically viable to offer a huge selection

15. LONG TAIL  Internet allows for large selection inventory efficiencies that other firms cannot match  When geographic constraints go away, untapped markets open up  Foreign films - Bollywood  Independent films - Bable  Documentaries – Daughters of Danang (PBS) *Able to distribute movies that no other retailer would carry

16. BUSINESS MODEL  Netflix obtains DVD for a low initial cost  Studios earn a percentage of the subscription revenue for every disk sent out  The content of movies available for streaming are licensed directly from studios and distributors for a specific amount of time

17. TECHNOLOGY  Netflix merchandising technology creates a powerful method for catalog browsing  Proprietary technology manages processing and distribution of DVD’s from shipping centers  Proprietary recommendation software offers a quick and personalized way of finding content based on viewing preferences  Website provides information on each title such as factual data, trailers and editorial information

18. IMPROVEMENTS October 2006, Netflix offered $1,000,000 prize to whoever could devise a system that was 10% more accurate than the company’s current system, Cinematch, for recommending movies Netflix was able to incorporate many innovations offered by contest participants Team won contest in 2009 Saved company money, improved software and generated significant publicity for Netflix globally

19. CINEMATCH

20. OPERATIONS  58 ultrahigh-tech distribution centers  Located strategically next to USPS  DVD’s are hand inspected for cracks/scratches  DVD’s are fed into custom-built sorters  Sends email confirmation of returned DVD  Moves desired DVD’s directly to outbound pile to be sent directly to other subscriber  Turnaround DVD in 8 hours

21. OPERATIONS

22. EMPLOYEES Known in the industry to pay higher salaries to attract and keep the best talent Employees choose how much of compensation they want in cash vs. stock Average performers are let go as they only want to keep the top performers Everyone tries to improve the firm processes

23. VALUE CHAIN

24. IPO Netflix went public on May 29, 2002 selling 5.5 million shares at $15 per share Data disclosures required by public companies attached larger rivals to the firms market

25. COMPETITION Movie Rental Stores  Blockbuster, Wal-Mart  Local Rental Stores Move Rental Kiosks  Red Box, Blockbuster Downloadable Movies  Apple, YouTube, Hulu  “On Demand” Networks

26. COMPETITION

27. BLOCKBUSTER Forced to drop late fees – Lost $400 million Launched Blockbuster Total Access Couldn’t sustain subscription rates

28. GOING DIGITAL  Issues with the change in technology from “atoms to bits”  Streaming model is limited by:  Access to content  Methods to get content to televisions  Increase cost of licensing rates  Windowing – content is available to a given distribution channel for a specified window

29. WINDOWING

30. STREAMING

31. SWAT

32. QUESTIONS