If there’s any doubt as to its efficacy in delivering value, just look to its yearly customer churn: at 9%, it’s less than half of Amazon Prime and less than one-fifth of Hulu Plus. This capability is so critical that Netflix spends $150M per year and has 300 full time employees working exclusively on the recommendations engine. The engine supports their business model on the content acquisition side (creating and buying content) as well as retention (curating content to keep the content fresh and relevant every time a user logs in). This crowd-sourcing happened on the engineering side as well: they offered a $1M prize in 2006 to come up with a better recommendation algorithm. It’s crowd-sourced: users contribute with their ratings knowing that it will get them more personalized results while inadvertently improving the system’s data points for other users. Netflix informs its purchases and recommendations via its trove of data. Their combination of technology and people ensures that Netflix buys and develops the right content and then tailors the content library to an individual user’s preferences. Anyone with the know-how can host content. Anyone with deep enough pockets can buy and develop content. To match the ambition of its business model, Netflix has created an operating model that continually invests in its enablers: technology and people. Pathways to Just Digital Future Watch this tech inequality series featuring scholars, practitioners, & activists Making sure that they have value-creating content available and easy to access retains the customer against competitors or convinces new customer to stay after the free trial period expires. Every time the user opens the app, they need to find value in something to watch in any given genre. The business model is to make sure that, in just those 1-2 minutes, they serve up fresh licensed and original content. Netflix has a short window to prove itself: the average Netflix user will spend 1-2 minutes browsing the app before either exiting or committing to watch. This all means that Netflix’s business model cannot just stream content, it has to consistently win the ‘moment of truth’ (in Netflix parlance) against its competitors: when a user sits down to be entertained, what will they choose? What will be their go-to service ? None of the services lock in customers for more than a month at a time and, unlike cable/satellite, there are no additional hardware components. Most subscribers use only one streaming service and switching costs are low. Keeping and acquiring customers is a constant battle. Netflix’s market is full of well-funded competitors (Amazon Prime, Hulu, YouTube Red, HBOGO), yet they continue to win by aligning 1) a business model model that creates value via compelling, tailored content and 2) an operating model that invests in technology and maximizes human capital.īusiness Model: Winning the ‘moment of truth’
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |