Netflix surpassed yet another milestone this week: It now has more subscribers than the largest cable TV operator in the U.S. You heard right…that’s 23.6 million users to be exact… an awful lot of subscribers. Their subscription base grew over 70% last year and that means that more than 7% of Americans now subscribe to Netflix. So, how did they do it?
I’m not a business analyst, but as someone who worked at Netflix a few years ago, I’m intrigued by this company’s unstoppable growth and what we can learn by what they’ve done right. I’m also interested with those companies that fail and are left in the wake of the stronger business model, product, or service. Many of the top selling books over the last decade have focused on management principles, leadership development, and developing a culture of innovation. Interestingly, these resources weren’t enough to save the myriad of businesses that have gone under the last decade due to a problem with their business model (Hollywood video, GM), customer base (Crispy Cream Doughnuts, TiVo), or management effectiveness (Enron). In short, their boat took on too much water for any one person, strategy, or “tiger” team to bail out the water fast enough. So, how does a company like Netflix start strong and leave so many able competitors in its wake? And how might these principles or values be transferred to your business environment? Here are a few thoughts.
1. Core business. Netflix is about delivering movies to customers in the most efficient and convenient manner possible. Yes, they’ve added Hulu, Pandora, and Vimeo integration—and videos can be streamed via some Blu-Ray players and video game systems, but, don’t hold your breath if you’re waiting for Netflix to ship toys with their movies or start selling hardware. They’ve dipped their toe into these peripheral areas a few times (Roku box), but think of the In and Out Burger menu as their nearest of kin when it comes to business models—they provide a singular service and do it better than anyone else.
2. It’s about the software. Sure, they ship movies and answer customer calls and emails, but they’re primarily a small group of highly educated programmers focused on instantiating a customer-focused service. Their algorithms crunch numbers and predict movie preferences while their queues organize user choices and ensure your time spent “on site” is maximized and translates to a steady stream of movies. Their primary strength is the competency of their cadre of programmers from the CEO down. Ironically, I heard many times while at Netflix that Reed Hastings runs his company similar to how a coder writes code.
3. Their price is hard to beat. While Blockbuster kiosks seem to be exercising a “bait and switch” tactic by raising newer movie rentals to $2.99 from 99 cents, Netflix has largely kept their subscription prices fixed—with one nominal increase several months back.
4. Their main asset is their employee base. This is obviously tied to item number two and reflected in their attempt to pay employees above everyone else’s cap. Where else will you find an “open” vacation policy where you simply take time off when you need it? I also remember rolling into the office and arguing with their IT person that I didn’t need the most expensive equipment. There is rarely an expense spared when the implementation of a project is in focus. In all honesty, working at Netflix wasn’t my favorite job by any stretch of the imagination, but their focus on pay, vacation, and equipment spoke to their commitment to the employee as an asset.