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Digital Disrupt: What We Can All Learn From the Netflix Model

Chad Brooks
Chad Brooks
Editor
business.com Staff
Updated Sep 20, 2022

Adopting new digital technologies can catalyze business success, and spotting trends is critical for survival.

Netflix in the mail

The past 20 years have been a fantastic journey in the world of technology, drastically changing the complexion of most businesses that survived the ride. For example, Netflix went from a modest DVD movie-rental subscription model to a digital media powerhouse that forever changed how we view entertainment.

Netflix’s ability to pivot, stay ahead of the competition, and set trends provides lessons for all businesses seeking success, growth and longevity in the digital age. We’ll take a closer look at Netflix’s journey, how it disrupted the media landscape, and what we can learn about digital transformation and innovation.

The evolution of Netflix

Netflix’s evolution is a modern tale of pivoting, staying ahead of the competition, and recognizing opportunities. Here’s a brief history of Netflix:

  • Snail-mail DVD subscription service. Netflix started its snail-mail subscription service in 1999. Internet speed was slow, and there was nowhere near today’s digital infrastructure. Streaming technology as we now know it didn’t exist, and Netflix was about ordering your movies online and having them delivered to your mailbox.
  • Almost an early exit. Most people felt Netflix’s DVD-rental business wasn’t a scalable model and would die on the vine. Netflix didn’t disagree; in 2000, the company sought a $50 million buyout from Blockbuster, but Blockbuster wasn’t interested.
  • Fine-tuned business model. Netflix figured out how to fine-tune its distribution model for fast mail delivery. Still, users had to plan their entertainment at least two days ahead of time – for example, by ordering movies on a Wednesday to arrive for weekend viewing. Video stores like Blockbuster continued to prosper for last-minute needs.
  • Pivot to streaming video. As technology improved, Netflix started providing streaming video for its ballooning customer base. Its customers enthusiastically welcomed the new model. Streaming video wasn’t a new idea, and competitors lurked on the sidelines. Still, Netflix’s ample, established customer base gave the company an advantage in this burgeoning arena. Blockbuster tried to follow Netflix into streaming, but it was too late for both Blockbuster and its movie-rental competitors.
  • Content giant. With viewers enjoying more streaming entertainment, Netflix branched out into original content, creating award-winning movies and series. It has fierce competition from the likes of Hulu, HBO Max, Apple TV and many more services.

Did you know?Did you know? Netflix uses big data to learn subscribers’ viewing habits and behaviors to drive future production decisions and user experiences.

What can we learn from Netflix’s success?

Here are some lessons we can learn from Netflix’s continued success:

  • Stay ahead of competitors. Netflix has been an innovator throughout its history. Being the innovator meant it was ahead of the competition at every step. Netflix revolutionized how people rented DVDs, innovated with viewer subscriptions, pivoted to online streaming, and turned itself into an award-winning content producer. Netflix is a household name and industry marker. Similarly, businesses should try to beat the competition by staying one step ahead in technology, service, operations and more.
  • Set trends. Netflix introduced the concept of binge-watching, so consumers didn’t have to wait for a new episode of their favorite show each week. Binge-watching became an entertainment cornerstone, particularly during the pandemic. But setting trends means mixing things up, and Netflix is showing signs of new watch models. For example, with high-interest shows such as Stranger Things, Netflix is testing weekly releases. In your business, monitor technology trends and see how you can implement them to set new standards in your arena.
  • Be opportunistic. Netflix took the leap into independent film production and distribution with hit shows such as Orange Is the New Black and The Umbrella Academy. Going from a streaming service to a filmmaker was a big step, but Netflix saw an opportunity to meet the demands of its target audience. Similarly, look for ways your business can seize opportunities and stay ahead of the competition.
  • Focus on the consumer experience. Netflix makes the experience about the consumer. The navigation menu is intuitive and highly praised, and the system tracks what you watch so Netflix can recommend similar content. These elements help to improve the user experience and build customer loyalty. In your business, get customer feedback and insights to improve your systems and services.
  • Expand wisely. When Netflix decided to go global, it didn’t just roll out the same platform of shows and movies to everyone; the company researched each country’s target audience to customize the user experience. Today, Netflix streams in more than 190 countries. In your business, scale carefully. Ensure you don’t grow your business too quickly, and research your customers’ needs.

Did you know?Did you know? Customer survey data is a great tool for staying ahead of the competition. Well-formulated surveys can help you identify consumer needs so you can innovate and lead.

What can we learn from Netflix’s growing pains?

Recent choppy waters indicate there may be additional digital media and business pivots ahead for Netflix.

In August 2022, Netflix lost more than 200,000 users – the first time it lost subscribers since 2011 – and its stock spiraled. Although those lost subscribers represented only 0.1% of Netflix’s customer base, the loss caused the company to assess content strategies in new ways.

For example, at the Cannes Lions advertising festival, Netflix co-CEO Ted Sarandos said the company plans to partner with Microsoft to test an ad-supported, lower-priced subscription level. It has also begun releasing some shows weekly or monthly instead of all at once – a departure from its “binge” reputation – and has started cracking down on rampant password sharing.

Netflix must also contend with other streaming platforms that produce excellent original content – an area where it once stood unchallenged.

As Netflix faces industry changes and pressure from the competition, it will likely strike a balance between continuing to do what made it successful and staying ahead of the competition by pivoting and identifying new trends. Netflix is sure to remain a streaming and original-content leader, but it also must continue to innovate.

Examples of industry disruptors like Netflix

Netflix isn’t the only digital disruptor. Here are some other major examples of innovation by industry leaders:

1. Apple’s iTunes changed digital content distribution.

iTunes was the first major system for providing widely distributed digital content, and the concept turned the music industry on its ear. An antiquated system of music production, distribution and sales gave way to the new method of paying for only what you wanted and accessing it immediately.

Industry resistance to the iTunes distribution model was fierce, but iTunes prevailed. Artists could even self-produce and release music without studios or physical music stores.

Today, iTunes has pivoted to become the Apple Music app, which lets you stream and download millions of songs and access your music library.

2. eBay’s auction marketplace was one of the first “killer apps.”

eBay was founded in 1995 as AuctionWeb and went public in 1998. It was, in fact, the first “killer app.” The online auction model quickly took hold and became a favorite of internet-savvy users.

Initially, traditional retailers weren’t concerned because eBay was considered a place where people sold their “junk.” However, eBay became an e-commerce player with PayPal digital payment integration and took on the features of more traditional online sellers, such as implementing a “Buy It Now” button to avoid auction haggling.

Did you know?Did you know? PayPal, once an eBay subsidiary, has done some digital disrupting of its own. The payment solution has grown to include PayPal business loans, and businesses can accept credit cards via PayPal.

3. Amazon started with books and became an e-commerce powerhouse.

Amazon’s book sales proved that the internet was a hugely scalable retail platform that didn’t require a massive real estate and workforce investment. Still, many retailers didn’t see the promise. The thought of shipping costs, packaging and returns gave them a headache, and adoption was slow.

However, Amazon began selling more than just books, and the concept exploded. At the same time, shippers such as UPS and FedEx saw the promise of this digital retail world.

Today, Amazon is the undisputed e-commerce leader, with offshoots such as Amazon Prime, Amazon Prime Video and its own digital devices. There are even Amazon business features to help small businesses.

What other industries are being disrupted?

Here’s a glance at some other industries undergoing digital disruption.

Industry or corporationDisrupterWhy?
Credit cards (Visa, Mastercard, American Express)Mobile payments, like Apple Pay and Google PayMobile payments and omnichannel payments are here, and the infrastructure rails of major card providers are soon to be the “horse and buggy” of the digital age. Be prepared to have the middleman cut out of the payment game.
Traditional technology companies (HP, Intel, IBM, Cisco)Amazon Web Services, cloud IT infrastructure servicesCloud infrastructure (computers and network) providers support a pay-as-you-use model (like renting movies). While traditional tech companies will always have a market, no longer will there be half-utilized hardware on the data center floor of large corporations. Get ready to sell less – much less.
Airlines and transportationSkype, Zoom and other video communication technology; Uber, LyftWith the use of video teleconferencing services such as Skype and Zoom now commonplace, business travelers are becoming less inclined to travel for meetings and presentations.
Recording studiosApple’s Garageband and similar productsThis disruption has already happened. Recording studios across the world have seen their profits dip dramatically. Amateur production engineers can now record their own music with “good-enough” quality and release it. However, studios likely will always be around for musicians who don’t want to do it themselves.
KodakDigital photographyThis disruption story is over. Kodak reinvented itself as a manufacturer of print production technology. Still, Kodak’s workforce shrunk from 60,000 in the 1980s to only 3,500 today.
Comcast, Time Warner, VerizonSatellite, wireless, cellular technologyWhile these businesses are deeply entrenched, they’ll need to adjust how they do business. One day, our wired infrastructure will be defunct, and we will see more of what Google is doing with Google Fiber.

Keep an eye on innovation in your industry

Digital technology has been a massive disruptor in many industries, including retail, entertainment, communications and travel. Trying to track industry trends and predict their impact is complicated. However, seemingly unrelated or new innovations can damage your business or industry if you don’t take notice – and you can be sure someone will.

Sometimes, businesses have invested so much in infrastructure that it’s almost impossible to turn the ship, so getting an early start is crucial. Digital makes everything fast; it won’t take 30 years to scuttle an outdated business concept. No matter your industry, keep an eye on digital innovations and look toward the future.

Kimberlee Leonard contributed to the reporting and writing in this article.

Image Credit:

GaudiLab / Getty Images

Chad Brooks
Chad Brooks
business.com Staff
Chad Brooks is a writer and editor with more than 20 years of media of experience. He has been with Business News Daily and business.com for the past decade, having written and edited content focused specifically on small businesses and entrepreneurship. Chad spearheads coverage of small business communication services, including business phone systems, video conferencing services and conference call solutions. His work has appeared on The Huffington Post, CNBC.com, FoxBusiness.com, Live Science, IT Tech News Daily, Tech News Daily, Security News Daily and Laptop Mag. Chad's first book, How to Start a Home-Based App Development Business, was published in 2014.