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

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.

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.

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.

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.

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.