Netflix is a company that provides streaming media to people in USA, Caribbean and some parts of Europe. It was established in 1997 and headquartered in California where it started distributing digital products using email addresses (Villarroel & Taylor 2013). Within a period of 12 years, the company was capable of having ten million subscribers and distributing one hundred thousand DVD titles (Zeng & Gualdi 2013).
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In fact, it is among the most successful companies in terms of revenue, development and market share. This paper will discuss the company’s business model, identify the impacts of internet technologies on its business, and analyse opportunities alongside the challenges of the venture.
A business model refers to the architecture that shows the framework of production, flow of information, and a description of various business players. It is described using its key elements which include value proposition, market, revenue models, competition, value chain, organisational structure, and management. When discussing the business model used by Netflix, the individual elements will be discussed in particularity.
Netflix provides customers with streaming media, such as videos and songs, through online platform especially email addresses. Particularly, they use a Permit Reply Mail system that allows customers to give feedback, report problems, and make complements. The channel creates an interactive environment where customers can communicate with the providers easily. In essence, this is one of the ways that the company adds value to their services bearing in mind that communication is as important as the quality of products.
For the customers to receive Netflix services, they must secure a subscription with the company. This implies that members can surf in the company’s website without worrying about the cost. This has been portrayed in one of their latest service provided under a model known as All You Can Read.
The company allows subscribers to access e-books that have put in their bookstore. Since it works under their subscription platform, members are capable of reading the books without the fear of cost. Subscribers thus prefer using Netflix rather than getting those books from typical bookstores. This approach enables the company to compete effectively with its competitors.
Netflix targets the nationals of various countries, including North and South America, Caribbean and European countries. Its paradigms include business-to-customers, business-to-customers and also profitable. Importantly, Netflix dwells on business-to-customer strategy since the services are consumed by individuals.
However, it also targets other companies by coalescing with them to promote products such as e-books and others. Since the company provides these services to make money, it is evident that it is a profitable business. Another crucial aspect of the market is communication channels that are used to reach customers. In this regard, Netflix uses an emailing system to send media and also get feedback from subscribers.
Cost Base and Revenue Model
One of the most conspicuous costs incurred by Netflix, is the licensing expenditure since the copyright law requires it to pay for the streaming media and DVDs. The cost of establishing online streaming channels and mailing DVDs had been demanding to its stakeholders in 2003. The high cost of had destabilised the company’s solvency to a point where its shares went to five-fold. This triggered pricing changes that forced customers to refrain from the company massively.
In order to reduce this expenditure and reduce cost of licensing, Netflix explored beyond its capabilities of innovations and developed skills that enabled it to make its own content. Instead of distributing content from other developers, it was capable of providing customers with products developed internally.
They adopted this self-production ideology that helps them to manage cost and compete with major competitors such as HBO. This system became very special since it led to reduced expenditure and a concurrent rise in the revenue. This condition was based on the premises that the income, which was obtained from subscribers, was not cut by licensing cost since they distributed their own content. This ideology has been working for the company since 2004 to the present time.
Netflix works in an environment of competition which includes business rivals such as HBO Go, Amazon Instant Video and Vudu. In fact, these are the three main competitors of Netflix. In this environment, Netflix is positioned a large-scale operator, HBO Go is seen as centre that provides limitless access of media through cable subscription, and Amazon makes free shipping of the products once they are purchased.
HBO Go has been posing great challenges and threats to Netflix by forging tactical alliances with companies such as universal. Netflix has been capable of meeting this challenge due to the combination of various aspects such as authenticity and ability to adapt to rising demand.
This has enabled them to maintain a position of conquering monarch in the industry. Additionally, the competition arena is also characterised by new entrants in the business. Although there are many companies that have started offering online media services, some of the notable ones include Hulu and Hulu Plus.
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Value Chain and Marketing Position
Netflix services are placed favourably on the basis of convenient delivery within the value chain. In this regard, the company has managed to shield the impact of its competitors by choosing convenient mail delivery system (Ransohoff 2010). In comparison, with the three competitors, it has an extremely efficient way of delivering services since the customers receive media products through emails (Roebuck 2012).
On the contrary, Amazon ships the products to customers taking a lot of time for delivery. This becomes a crucial gain to the Netflix due to the affliction of its competitors. Subscription platform is another factor that has put the company at a better position than its competitors (Lusted 2013). In this regard, members are allowed to access services without any additional cost.
Physical and Virtual World Representation
Essentially, the company exists as an exclusive online platform where customers receive and access products through emails and streaming (Linden & Conover 2009). These customers are influenced by a constant subscription rate which enables them to access unlimited content (Healy 2010). This has been the force behind the successful creation of massive membership as compared to other companies.
The company has partnered and forged alliances with other organisation including Scribd. This alliance impedes customers to access unlimited e-books written by Smash-words authors (Harris 2010). Most of their members prefer using the company’s website since they read the books without worrying about additional cost that could be charged in a typical bookstore (Harmon 2007).
The management of Netflix has a firm, visionary, and experienced leadership of their CEO known as Hastings. He has been coming up with innovative ways of coping with financial depression and stiff competitions (Goldfayn 2011). For example, he has sent a clear message to the competitors where he stated that they must be afraid about Netflix. Particularly, he pointed out that they will be forging new alliances with other companies like HBO Go has done. This implies that he does not allow competitors to have an additional advantage over them.
Internet Technology and Netflix
Availability of Internet
The access of Netflix products depends on the availability of internet to customers. If customers do not access internet connection, it is very difficult to seek the company’s products (Gallaugher 2010). On the other hand, people with efficient connection to the internet are capable of them subscribing and accessing services from the company (Feuerverger & He 2012).
As a result, it could be concluded that internet availability determines the company’s income. In fact, this could affect the expansion of the business and its globalisation. This condition arises because the company cannot seek to provide services to people living in areas without efficient internet connection.
The use of internet connection comes with issues regarding security and privacy (Feher & Towell 1997). Customers must have assurance that using Netflix and its products does not pose security issues. This is one of the factors that could affect the number of customers who are willing to play streaming videos.
In the modern world, people are concerned about the possibility of receiving malware that could be used to obtain private information (Delimitrou & Kozyrakis 2013). As a result, people could be afraid of joining the company due to that fear. This affects the development of Netflix negatively as an online based company.
Database Storage and Management
Netflix requires a database with a large memory to facilitate the storage of online products needed by customers. This is conjoined with the fact that the company keeps on receiving and creating new media content leading to increased memory (Rettie 2001). It requires the company to have highly qualified technicians who can handle the systems. This increases the cost of services and demands for human resource, as opposed to selling them manually.
Creating Large Audience
Internet is a better advertisement platform than any other advertisement methods. A considerably large number of people visit the internet at any given time.
This implies that Netflix can get more subscribers easily through the internet contrary to physical environments that operate in fixed locations (Bransley 2010). This could be accomplished by sponsoring online adverts and links that redirect to the company’s website. This is one of the reasons explaining why the company has obtained about 10 million members over a very short period.
The idea of internet streaming has not taken root in all parts of the world including places like Africa. This implies that there is a huge part of the world with potential customers, but it has not been exposed to this technology (Barr 2011). In addition, the company has not ventured into these areas where the technology has not been adopted profoundly. This presents a good opportunity for Netflix since it has the chance of introducing their products to these parts of the world.
In the past, Netflix had emphasised on streaming videos and sending them through email addresses. However, the games have become a central point of concern especially when it comes to children. Since this has become a crucial and marketable product, Netflix should harness the opportunity to earn more customers (Bell & Koren 2007). In fact, targeting the youth could provide a new dawn for the company since they comprise a large part of the world’s population.
Challenges of the Company
Customers’ Inability to Adjust to Price Increase
Netflix customers have portrayed a conservative behaviour in regard to price fluctuations. When this company increases prices, it experiences a severe backlash due to customers’ mentalities. In 2004, the company increased the price of services, but customers refrained from continued subscription (Bell & Koren 2010). In fact, this led to a severe financial deterioration due to lack of enough sales that could maintain it.
Increasing Cost of Licence
The copyright law requires Netflix to pay for a license in order to sell content developed by other people. Over the past years, this cost has been rising gradually and leading to increased expenditure. This has forced the company to develop content internally and satisfy the customers. It enables the company to avoid the licensing cost when distributing other people’s media products (Berry & Fazzio 2010).
Cost of Internet
The cost of internet bandwidth has increased drastically in Europe and USA. As a result, Netflix has incurred a profound affliction since it has to use the internet connection when distributing media product to customers. This has also posed great challenges to customers since they use the internet connection when surfing and accessing services.
Young and major companies are posing stiff competition to Netflixting segment (Tuzhilin & Koren 2008). This implies that the company must use a lot of money to keep their standard beyond others leading to high expenditure.
It is evident that Netflix has a strong business model which elevates it beyond the level of other companies (Vickers & Fearn 2010). In addition, the internet has profound impacts on the functionalities and prosperity of the company since it is entirely online. It cannot also be disputed that the company has various challenges and opportunities.
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