Some time ago I saw this video where Reid Hoffman, the founder of LinkedIn, interviewed Reed Hastings, one of Netflix’s founders. I link the video here, it is worth watching.
This video has been the starting point for some consideration about Netflix strategies to became the world’s leading internet television network.
So how did Netflix become Netflix? Long ago, late 90s, leader in the home movie rental services was Blockbuster. On the other hand, there was Netflix, competing on the same field. Netflix was incomprehensible, they said, “we send the DVD home,” and they said also this madness, “you will watch the movie on streaming internet!”. It was unthinkable at the time.
Move forward for 20 years and see Netflix today, making nearly 9 billion revenues a year, it has a myriad of users all around the world.
But how did these gentlemen of Netflix do?
The first important concept is that they are focused on content, which is a strange thing for Silicon Valley (in the past, today providing contents has become normal).
Imagine then the day Netflix offered $100 million for “House of Cards”. People in Silicon Valley were skeptical about it. Instead, Netflix was right and at this time, 2017, its spending for original content is around $6 billion a year.
Second feature of Netflix is definitely perseverance.
At the beginning, 1997, they had foreseen that within 5 years all their distribution would have been streamed, no DVD. They had this vision from the beginning, but in 2002 streaming sold was zero. Then they corrected and said, “In 5 years’ half of our distribution will be streamed”, but they found streaming in 2007 even worse than zero. Finally, they said, “well, then in 5 years’ from now half of our distribution will be streamed “, and in that case the streaming was 60% and it would explode from there.
Especially in the IT industry, the best forecast for the future you can make is that most predictions for the future are false.
Next, they had the courage to launch new things without testing them. As Seth Godin said some years ago:
“A culture of testing
Netflix tests everything. They’re very proud that they A/B test interactions, offerings, pricing, everything. It’s almost enough to get you to believe that rigorous testing is the key to success.
Except they didn’t test the model of renting DVDs by mail for a monthly fee.
And they didn’t test the model of having an innovative corporate culture.
And they didn’t test the idea of betting the company on a switch to online delivery.
The three biggest assets of the company weren’t tested, because they couldn’t be.
Sure, go ahead and test what’s testable. But the real victories come when you have the guts to launch the untestable.”
http://sethgodin.typepad.com/seths_blog/2011/01/a-culture-of-testing.html
Testing is important, but they did not test important things: they have not tested the vision of streaming videos, movies around the world. They did not test the idea that the business model was the one – no advertising, subscription, pay for content (it was a fool to think that stuff years ago). Testing everything is fine, but about really important things have the courage to launch, because the really important ones in most cases you cannot test them.
Netflix’s made a lot of mistakes over the years, but they had the ability to always return to its core. When they tried to attack Blockbuster on its own field they lost. They were good at going back to the core, asking themselves the questions, “what do I do? What are my strengths? I do that. I spend my 6 billion on content and gain from subscriptions, easy.”
Another winning key was probably the culture. They managed to create a new culture of enjoying movies, television shows, binge-watching: that is when you immerse yourself in a week in “House of Cards” all released right away. It is addictive, it is a new culture of fruition of those contents, a culture as well as a different business.
The theme of culture is also summarized by the founder of Box Aaron Levie, when he says that you cannot create a different product unless you first create a different culture. And Netflix did create a culture of innovation.
http://ecorner.stanford.edu/videos/2616/Maintaining-a-Culture-of-Innovation