Netflix Business Model Analysis
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This essay analyzes Netflix's business model, determining if it aligns with a Blue Ocean Strategy or Porter's Generic Strategies. It examines Netflix's competitive advantage, considering factors like its original content, global reach, and brand identity. The essay also discusses the sustainability of Netflix's competitive advantage in the face of increasing competition and evolving market dynamics.
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CRITICAL ANALYSIS
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Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Netflix’s original business model was an example of a Blue Ocean Strategy or described in
terms of one of the generic strategies..........................................................................................3
2. Netflix has competitive or sustainable competitive advantage...............................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Netflix’s original business model was an example of a Blue Ocean Strategy or described in
terms of one of the generic strategies..........................................................................................3
2. Netflix has competitive or sustainable competitive advantage...............................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9
INTRODUCTION
Blue ocean strategies involve risk, opportunity which simultaneously pursue
differentiation and low cost It is a set of models and fixed techniques for regulating and
executing blue ocean move. Tools include value innovation, strategy canvas, buyer utility map,
three tiers of non-customers (Kim and Mauborgne, 2014). It is distinct from generic strategies.
Porter's generic strategies are basically combined to achieve performance in industries like focus,
cost leadership and differentiation. Thus, this report describes whether Netflix has any
sustainable competitive advantage by investing larger portion of its budget into real films and
moving towards other studios or it is a good example of Blue Ocean Strategy.
MAIN BODY
1. Netflix’s original business model was an example of a Blue Ocean Strategy or described in
terms of one of the generic strategies
Netflix was introduced in 1997 and is running provider of contents which enables users
to watch small films, motion pictures, t v shows and also provides wide variety of Internet
associated gadgets. It also provides their customers with pay per movie service where they have
to pay money for films rented. Then it moved to fees on monthly basis. After 2003, Netflix
became successful and started streaming various videos on net. It rents movies to its customers
and became the world premiere movie streaming website that earned $3.6-billion-dollar revenue.
Porter's Generic Strategies could be described in a way company achieve competitive advantage
in chosen market scope (Alam and Islam, 2017). There are four elements specified known as
lower cost, differentiated or focus. Differentiation shows value cost trade-off in a provided
market structure. On the contrary Blue ocean strategy breaks it open up new market space.
Netflix pursues both low cost and differentiation. Netflix used Blue Ocean Strategy components
described below:
SIX PATH FRAMEWORK
Blue Ocean Strategy Logic
Strategic group Concert organizers, book publishers, virtual reality developers
Industry Music, educational videos, live concert streaming
Buyer Group People who do not have Internet access, Seniors and children
Blue ocean strategies involve risk, opportunity which simultaneously pursue
differentiation and low cost It is a set of models and fixed techniques for regulating and
executing blue ocean move. Tools include value innovation, strategy canvas, buyer utility map,
three tiers of non-customers (Kim and Mauborgne, 2014). It is distinct from generic strategies.
Porter's generic strategies are basically combined to achieve performance in industries like focus,
cost leadership and differentiation. Thus, this report describes whether Netflix has any
sustainable competitive advantage by investing larger portion of its budget into real films and
moving towards other studios or it is a good example of Blue Ocean Strategy.
MAIN BODY
1. Netflix’s original business model was an example of a Blue Ocean Strategy or described in
terms of one of the generic strategies
Netflix was introduced in 1997 and is running provider of contents which enables users
to watch small films, motion pictures, t v shows and also provides wide variety of Internet
associated gadgets. It also provides their customers with pay per movie service where they have
to pay money for films rented. Then it moved to fees on monthly basis. After 2003, Netflix
became successful and started streaming various videos on net. It rents movies to its customers
and became the world premiere movie streaming website that earned $3.6-billion-dollar revenue.
Porter's Generic Strategies could be described in a way company achieve competitive advantage
in chosen market scope (Alam and Islam, 2017). There are four elements specified known as
lower cost, differentiated or focus. Differentiation shows value cost trade-off in a provided
market structure. On the contrary Blue ocean strategy breaks it open up new market space.
Netflix pursues both low cost and differentiation. Netflix used Blue Ocean Strategy components
described below:
SIX PATH FRAMEWORK
Blue Ocean Strategy Logic
Strategic group Concert organizers, book publishers, virtual reality developers
Industry Music, educational videos, live concert streaming
Buyer Group People who do not have Internet access, Seniors and children
Function Producing entertainment through virtual reality
Scope Selling educational contents
Time New trends in old shows, Portability
Netflix has ability to look and comprise in small segments of consumer demands .
Regarding virtual reality industry, it is developing and new trend that was projected by Super
Data to be a $40 billion industry by 2020 (Gomez-Uribe and Hunt, 2016). It has shifted to blue
ocean strategy and collaborated with airlines for better results. Netflix encourages friends and
offer fitness videos. Customers experienced 3D shows and Netflix is accessible through table and
mobile application.
THREE TIERS OF NON CUSTOMERS
First tier: Customers who find virtual content more interesting increased demand and had reason
to join on Netflix.
Second tier: People who take entertainment as leisure are second tier non customers.
Third tier: This tier consists of population who do not have access to electronic devices.
FOUR ACTION FRAMEWORK:
This include eliminate, raise, create and reduce phase. For example, zapping is a problem
in advertising: so advertisements are required to be eliminated in first phase. In raise phase, all
exclusive contents are progressing and its main strength is in diversity of things. Netflix has been
a mastermind by indulging in partnership with airlines (Adhikari and et.al., 2015). In order to
obtain more revenue various packages are offered by Netflix and it went global in some
unprofitable markets in reduce phase. Lastly, it organises live concerts, kids shows and emerged
with original content.
STRATEGY CANVAS
Strategy Canvas is main element of Blue Ocean Strategy. Netflix identified itself still as a
leader among its competitors like Amazon, CBS and HBO Plus. It is not good as Amazon but
provides safe platform to watch television shows and films (Ghasemkhani, Soule and
Westerman, 2014). In self-created content it has proved a leader and offline matter is another
Scope Selling educational contents
Time New trends in old shows, Portability
Netflix has ability to look and comprise in small segments of consumer demands .
Regarding virtual reality industry, it is developing and new trend that was projected by Super
Data to be a $40 billion industry by 2020 (Gomez-Uribe and Hunt, 2016). It has shifted to blue
ocean strategy and collaborated with airlines for better results. Netflix encourages friends and
offer fitness videos. Customers experienced 3D shows and Netflix is accessible through table and
mobile application.
THREE TIERS OF NON CUSTOMERS
First tier: Customers who find virtual content more interesting increased demand and had reason
to join on Netflix.
Second tier: People who take entertainment as leisure are second tier non customers.
Third tier: This tier consists of population who do not have access to electronic devices.
FOUR ACTION FRAMEWORK:
This include eliminate, raise, create and reduce phase. For example, zapping is a problem
in advertising: so advertisements are required to be eliminated in first phase. In raise phase, all
exclusive contents are progressing and its main strength is in diversity of things. Netflix has been
a mastermind by indulging in partnership with airlines (Adhikari and et.al., 2015). In order to
obtain more revenue various packages are offered by Netflix and it went global in some
unprofitable markets in reduce phase. Lastly, it organises live concerts, kids shows and emerged
with original content.
STRATEGY CANVAS
Strategy Canvas is main element of Blue Ocean Strategy. Netflix identified itself still as a
leader among its competitors like Amazon, CBS and HBO Plus. It is not good as Amazon but
provides safe platform to watch television shows and films (Ghasemkhani, Soule and
Westerman, 2014). In self-created content it has proved a leader and offline matter is another
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competitive aspect. But CBS is the largest provider of innovative content. Below is the chart of
showing grading of its strategy.
Netflix CBS
Original content 3 4
Innovative content 0 4
Offline Content 4 0
Kids shows 3 1
BUYER UTILITY MAP
This map consists of information about customer awareness, research, purchase, delivery
and use of Netflix.
It takes care of customer demands and makes its presence through the use of strong social media
like Twitter, Facebook and Instagram. Research work involves proposals offered by friends, co-
workers about Netflix. It has three plans for payment system: Basic, Standard and Premium.
Customers make their account by making payment (Augusto, Lisboa and Yasin, 2014). They are
more interested in delivering DVD rental to many states. It is user-friendly and shows customer
preferred films on first login. Thus, this strategy attracts more of them to create accounts on it.
On the contrary, Netflix competes on Cost Leadership Strategy suggested by Porter. This
focuses on scope which is wide and not only provides unique service to its customers but also
appeal for regular low cost renters as compared to traditional video rental store. They have
effective reputation as well as distribution channels for creativity. Netflix is well positioned on
Porter's matrix by retaining heavy users for their service as well as differentiation strategy is
emphasized. This is made for those who cannot spend time in going out. Its focus remains on
quality films and TV shows. In order to compete with other players like Amazon in market, it
uses positioning and differentiating strategy. These things help Netflix to create brand value that
impact consumer perception. Thus, it can be argued that budget of its competitors are close to
Netflix and it establishes its identity as on-demand content provider instead of live streaming
player by the use of generic strategies (Lev, 2017). Thus, it can be explained that effective
strategy emphasize on creating value to be unique and not just beating competitors. It is making
showing grading of its strategy.
Netflix CBS
Original content 3 4
Innovative content 0 4
Offline Content 4 0
Kids shows 3 1
BUYER UTILITY MAP
This map consists of information about customer awareness, research, purchase, delivery
and use of Netflix.
It takes care of customer demands and makes its presence through the use of strong social media
like Twitter, Facebook and Instagram. Research work involves proposals offered by friends, co-
workers about Netflix. It has three plans for payment system: Basic, Standard and Premium.
Customers make their account by making payment (Augusto, Lisboa and Yasin, 2014). They are
more interested in delivering DVD rental to many states. It is user-friendly and shows customer
preferred films on first login. Thus, this strategy attracts more of them to create accounts on it.
On the contrary, Netflix competes on Cost Leadership Strategy suggested by Porter. This
focuses on scope which is wide and not only provides unique service to its customers but also
appeal for regular low cost renters as compared to traditional video rental store. They have
effective reputation as well as distribution channels for creativity. Netflix is well positioned on
Porter's matrix by retaining heavy users for their service as well as differentiation strategy is
emphasized. This is made for those who cannot spend time in going out. Its focus remains on
quality films and TV shows. In order to compete with other players like Amazon in market, it
uses positioning and differentiating strategy. These things help Netflix to create brand value that
impact consumer perception. Thus, it can be argued that budget of its competitors are close to
Netflix and it establishes its identity as on-demand content provider instead of live streaming
player by the use of generic strategies (Lev, 2017). Thus, it can be explained that effective
strategy emphasize on creating value to be unique and not just beating competitors. It is making
out of Blue Ocean Strategy and keeping watch on market trends which results in new
opportunities for low cost differentiation.
2. Netflix has competitive or sustainable competitive advantage
Netflix is famous entertainment company which offered millions of people online
entertainment globally. Its portfolio includes documentaries, big films, TV shows etc. There are
many features which distinguish it from other competitors. This company helps in streaming
without any interruption of advertisement. Netflix also use Porter's five force model which
includes threat of substitutes and entrants, bargaining power of suppliers and rivalry of
competitors. It has increased its revenue each year inspite of avoiding lots of endorsements and
advertisements. One of the important feature that counts in its competitive advantage in market is
being innovator in the online entertainment industry and has been evolved as phenomenon
among all other major competitors in same market. Despite of entering new companies it is the
leader from past few years (Pfeifer, Conroy and Pfeifer, 2017). Though, many other companies
have emerged with same type of online business but are unable to achieve their goal. Netflix
anticipates high rated movies and TV shows and is capable of developing partnerships with these
successful shows so that users are able to access them on easily. It also produces its own shows
which are ultimately available on Netflix. Thus, these types of strategies make it different from
other companies and help to increase market share and revenue every year. This can be counted
as one of the biggest advantage from differentiation point of view which provide valuable
experience to its customers.
Another important factor is its approach to many countries. Its distribution and reach is
wide and vast as compared to other competitors. This increases Netflix' s customer base line all
over the world. There is lot of investment in expansion due to which their approach has been
increased in coming year with profits and revenues along with market share. It has been
successful in providing services to its customers at affordable prices so that large numbers of
users at global level operate it easily. From its establishment, Netflix is successful in maintaining
its brand name in competitive market. It has almost seven hundred shows in 2018 and its service
is expected to stream till $8 billion (Wenzel, Mahle and Pätzmann, 2016). Netflix is best
performing stock this year. It brought more than $1 billion revenue in one year and was
honourable innovative organisation in Silicon Valley. It started producing its exclusive shows
and films to get response with respect to rising costs of legal content. Its increase in original
opportunities for low cost differentiation.
2. Netflix has competitive or sustainable competitive advantage
Netflix is famous entertainment company which offered millions of people online
entertainment globally. Its portfolio includes documentaries, big films, TV shows etc. There are
many features which distinguish it from other competitors. This company helps in streaming
without any interruption of advertisement. Netflix also use Porter's five force model which
includes threat of substitutes and entrants, bargaining power of suppliers and rivalry of
competitors. It has increased its revenue each year inspite of avoiding lots of endorsements and
advertisements. One of the important feature that counts in its competitive advantage in market is
being innovator in the online entertainment industry and has been evolved as phenomenon
among all other major competitors in same market. Despite of entering new companies it is the
leader from past few years (Pfeifer, Conroy and Pfeifer, 2017). Though, many other companies
have emerged with same type of online business but are unable to achieve their goal. Netflix
anticipates high rated movies and TV shows and is capable of developing partnerships with these
successful shows so that users are able to access them on easily. It also produces its own shows
which are ultimately available on Netflix. Thus, these types of strategies make it different from
other companies and help to increase market share and revenue every year. This can be counted
as one of the biggest advantage from differentiation point of view which provide valuable
experience to its customers.
Another important factor is its approach to many countries. Its distribution and reach is
wide and vast as compared to other competitors. This increases Netflix' s customer base line all
over the world. There is lot of investment in expansion due to which their approach has been
increased in coming year with profits and revenues along with market share. It has been
successful in providing services to its customers at affordable prices so that large numbers of
users at global level operate it easily. From its establishment, Netflix is successful in maintaining
its brand name in competitive market. It has almost seven hundred shows in 2018 and its service
is expected to stream till $8 billion (Wenzel, Mahle and Pätzmann, 2016). Netflix is best
performing stock this year. It brought more than $1 billion revenue in one year and was
honourable innovative organisation in Silicon Valley. It started producing its exclusive shows
and films to get response with respect to rising costs of legal content. Its increase in original
content resulted in improvement for present and future subscribers. On the contrary it can be
argued that it has to pay for its content which makes members away. This problem is there only
on international expansion of company. In order to stay competitive it has to tailor a huge variety
of audience in many countries. This make distributed international offerings to customers.
Netflix can hit massive market and could make high margins from small users which put high
value on original content.
On the other hand sustainable competitive advantage of Netflix can be discussed by
analysing its brand name, its reach and stock rate. Netflix is regarded as one of the most
controversial shares in the market. It's decreasing pricing power, increasing content coast would
definitely weaken capability to meet targets of profit earning and reaching more subscribers. It
can be argued that price target of $130 has touched a level of sustainable scale, growth and
profitability. According to Porter competitive advantages can be delivered in two ways: it can be
described through price advantage or from differentiation point of view by providing good
experience or higher value at same price (Miles and Van Clieaf, 2017). Big brand name
differentiate it from other companies and newcomers in the market. Netflix knows very well that
it stand for ad-free films and everything is available on it with space. Its originals include Orange
is the New Black and house of Cards instead of traditional shows. On the other hand, company
like Hulu introduced some shows like multiple tiers with ads which could not be liked by
customers because they do not like shows which contains ads in between. Some programmes
with free programming and few are there with costs which results in brand less effective for
customers.
There were some companies like Amazon which offered ad-free shows but also rent
some of its contents. In 2015 Netflix's brand identity became stronger than other companies
which was indivisible from moving beyond in the market. It reached to many customers globally.
Its service is available only to small bunch of nations its reached more than 83 million
subscribers in last quarterly report. It has economic benefit because they spend $6 billion on
content and unmatch by media companies older or new ones. It should focus on attracting new
subscribers that could spend on content and make it more enthralling and virtuous. It is regularly
pushed for streaming by producing new content, expanding in various countries and involving in
partnerships with different technological channels like Comcast and Game systems.
argued that it has to pay for its content which makes members away. This problem is there only
on international expansion of company. In order to stay competitive it has to tailor a huge variety
of audience in many countries. This make distributed international offerings to customers.
Netflix can hit massive market and could make high margins from small users which put high
value on original content.
On the other hand sustainable competitive advantage of Netflix can be discussed by
analysing its brand name, its reach and stock rate. Netflix is regarded as one of the most
controversial shares in the market. It's decreasing pricing power, increasing content coast would
definitely weaken capability to meet targets of profit earning and reaching more subscribers. It
can be argued that price target of $130 has touched a level of sustainable scale, growth and
profitability. According to Porter competitive advantages can be delivered in two ways: it can be
described through price advantage or from differentiation point of view by providing good
experience or higher value at same price (Miles and Van Clieaf, 2017). Big brand name
differentiate it from other companies and newcomers in the market. Netflix knows very well that
it stand for ad-free films and everything is available on it with space. Its originals include Orange
is the New Black and house of Cards instead of traditional shows. On the other hand, company
like Hulu introduced some shows like multiple tiers with ads which could not be liked by
customers because they do not like shows which contains ads in between. Some programmes
with free programming and few are there with costs which results in brand less effective for
customers.
There were some companies like Amazon which offered ad-free shows but also rent
some of its contents. In 2015 Netflix's brand identity became stronger than other companies
which was indivisible from moving beyond in the market. It reached to many customers globally.
Its service is available only to small bunch of nations its reached more than 83 million
subscribers in last quarterly report. It has economic benefit because they spend $6 billion on
content and unmatch by media companies older or new ones. It should focus on attracting new
subscribers that could spend on content and make it more enthralling and virtuous. It is regularly
pushed for streaming by producing new content, expanding in various countries and involving in
partnerships with different technological channels like Comcast and Game systems.
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Netflix needs to focus on making end-user happier and so it emphasises on its customers
instead of competition (Augusto, Lisboa and Yasin, 2014). It can make use of the best choice and
evaluate new technology for them as compare to traditional companies because they use old
business models. But it doesn't benefit from network effects neither it possesses outstanding
infrastructure. On the other hand, other competitors are building digital flowing products which
will smartly compete with Netflix's business. It can be argued that Netflix doesn't have an
association with these competitors. Therefore, it cannot maintain sustainable competitive
advantage in the market.
CONCLUSION
It can be concluded that Netflix has adopted Blue Ocean Strategy instead of Porter'
Generic Strategies. It has earned revenue at large scale by applying different components of it. It
doesn't have any sustainable competitive advantage because it depends on networks which can
destroy it's long distance model. It can be concluded that Netflix can continue to thrive in the
future and its approach to what it streams has been flexible. It follows Porter's five forces and get
know its new competitors to maintain its pace in the market. But Blue Ocean Strategy helped it a
lot to become leader and grab customers by generating innovating and original content.
Therefore, to developed competitive advantage to great extent.
instead of competition (Augusto, Lisboa and Yasin, 2014). It can make use of the best choice and
evaluate new technology for them as compare to traditional companies because they use old
business models. But it doesn't benefit from network effects neither it possesses outstanding
infrastructure. On the other hand, other competitors are building digital flowing products which
will smartly compete with Netflix's business. It can be argued that Netflix doesn't have an
association with these competitors. Therefore, it cannot maintain sustainable competitive
advantage in the market.
CONCLUSION
It can be concluded that Netflix has adopted Blue Ocean Strategy instead of Porter'
Generic Strategies. It has earned revenue at large scale by applying different components of it. It
doesn't have any sustainable competitive advantage because it depends on networks which can
destroy it's long distance model. It can be concluded that Netflix can continue to thrive in the
future and its approach to what it streams has been flexible. It follows Porter's five forces and get
know its new competitors to maintain its pace in the market. But Blue Ocean Strategy helped it a
lot to become leader and grab customers by generating innovating and original content.
Therefore, to developed competitive advantage to great extent.
REFERENCES
Books & Journals
Adhikari, V.K. and et.al., 2015. Measurement study of Netflix, Hulu, and a tale of three CDNs.
IEEE/ACM Transactions on Networking. 23(6). pp.1984-1997.
Alam, S. and Islam, M., 2017. Impact of Blue Ocean Strategy on Organizational Performance: A
literature review toward implementation logic.
Augusto, M.G., Lisboa, J.V. and Yasin, M.M., 2014. The mediating role of innovation on
strategic orientation and performance. International Journal of Business Innovation and
Research. 8(3). pp.282-299.
Ghasemkhani, H., Soule, D.L. and Westerman, G.F., 2014. Competitive Advantage in a Digital
World: Toward an Information-Based View of the Firm.
Gomez-Uribe, C.A. and Hunt, N., 2016. The netflix recommender system: Algorithms, business
value, and innovation. ACM Transactions on Management Information Systems (TMIS).
6(4). p.13.
Kim, W.C. and Mauborgne, R.A., 2014. Blue ocean strategy, expanded edition: How to create
uncontested market space and make the competition irrelevant. Harvard business review
Press.
Lev, B., 2017. Evaluating Sustainable Competitive Advantage. Journal of Applied Corporate
Finance. 29(2). pp.70-75.
Miles, S.J. and Van Clieaf, M., 2017. Strategic fit: Key to growing enterprise value through
organizational capital. Business Horizons. 60(1). pp.55-65.
Pfeifer, P.E., Conroy, R.M. and Pfeifer, P.E., 2017. Valuation of Netflix, Inc. Darden Business
Publishing Cases, pp.1-13.
Wenzel, P., Mahle, I. and Pätzmann, J.U., 2016. Streaming Services & Service Design: An
Analysis of Netflix and Amazon Video Based on the Gap Model by Parasuraman, Berry &
Zeithaml. Markenbrand. 5(5/2016). pp.20-31.
Books & Journals
Adhikari, V.K. and et.al., 2015. Measurement study of Netflix, Hulu, and a tale of three CDNs.
IEEE/ACM Transactions on Networking. 23(6). pp.1984-1997.
Alam, S. and Islam, M., 2017. Impact of Blue Ocean Strategy on Organizational Performance: A
literature review toward implementation logic.
Augusto, M.G., Lisboa, J.V. and Yasin, M.M., 2014. The mediating role of innovation on
strategic orientation and performance. International Journal of Business Innovation and
Research. 8(3). pp.282-299.
Ghasemkhani, H., Soule, D.L. and Westerman, G.F., 2014. Competitive Advantage in a Digital
World: Toward an Information-Based View of the Firm.
Gomez-Uribe, C.A. and Hunt, N., 2016. The netflix recommender system: Algorithms, business
value, and innovation. ACM Transactions on Management Information Systems (TMIS).
6(4). p.13.
Kim, W.C. and Mauborgne, R.A., 2014. Blue ocean strategy, expanded edition: How to create
uncontested market space and make the competition irrelevant. Harvard business review
Press.
Lev, B., 2017. Evaluating Sustainable Competitive Advantage. Journal of Applied Corporate
Finance. 29(2). pp.70-75.
Miles, S.J. and Van Clieaf, M., 2017. Strategic fit: Key to growing enterprise value through
organizational capital. Business Horizons. 60(1). pp.55-65.
Pfeifer, P.E., Conroy, R.M. and Pfeifer, P.E., 2017. Valuation of Netflix, Inc. Darden Business
Publishing Cases, pp.1-13.
Wenzel, P., Mahle, I. and Pätzmann, J.U., 2016. Streaming Services & Service Design: An
Analysis of Netflix and Amazon Video Based on the Gap Model by Parasuraman, Berry &
Zeithaml. Markenbrand. 5(5/2016). pp.20-31.
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