Netflix Innovation Strategy: A Step-by-Step Guide

Netflix Inc. is an American subscription-based video streaming platform that provides access to movies and TV shows from various countries and genres. In addition to streaming, Netflix also produces original movies and TV series under the “Netflix Originals” label.

Netflix is accessible in 190 countries and offers content in 30 languages. However, the movies and shows available for streaming may vary depending on your location. The subscription cost is also determined by your location and how much you use the service. Netflix’s goal is to bring entertainment to people all around the globe.

Netflix began as a DVD rental company, but with technological advancements, it has transformed into the popular streaming platform we know today. Let’s explore how Netflix’s innovative approach has helped it become one of the most widely used movie and video streaming platforms.

Innovation Strategy of Netflix

Netflix’s strategy for innovation prioritizes maximizing its competitive advantage through product and process innovations. Their goal is to make their streaming service high-quality and accessible to most consumers. This is achieved by continuously seeking out ways to make operations more cost-effective, ultimately making the subscription price affordable for most consumers.

Strategic Direction for Innovation

To fully grasp Netflix’s innovative approach, it is imperative to understand the strategic direction the company took to achieve its goals. However, it is essential to know the fundamental actions that shape this direction.

Firstly, a business must clearly understand its purpose, which can be defined through a vision or mission statement. This could involve attaining market leadership or developing innovative solutions that enhance the well-being of consumers.

Secondly, businesses should develop a strategic plan to attain their objectives. This plan should involve making decisions and implementing actions supporting the company’s mission.

Now let’s consider an example of strategic direction so we can later apply it to the Netflix case.

Example: First of all, let’s assume that the goal of the business is to be profitable. Currently, there is a demand for products, but the company invests significant time and resources into production, resulting in a low-profit margin. The company aims to decrease production expenses by investing in modern technology. However, this strategic decision needs to be backed by market research to ensure the technology is effective and enhances production efficiency.

Strategic Direction Matrix

Creating a strategic direction matrix is a useful method for helping companies determine their strategic direction. There are two primary types of matrices available for this purpose:

Outsourcing Matrix

The matrix is crucial in helping the company determine if it’s better to outsource certain organizational tasks or handle them in-house. It analyzes the main operational tasks and decides which ones would be more advantageous for the organization to outsource and which are better suited to be done in-house by the company.

Ansoff Matrix

Companies can use the Ansoff matrix to analyze different growth scenarios and develop a strategy. It helps businesses determine whether it’s more useful to increase sales in their current market or enter a new market and create new products.

Netflix Product Innovation

To better understand Netflix’s approach to innovation, it is important to analyze its operations and product lineup over the years.

In 1997, Netflix’s founders came up with renting DVDs through the mail and carried out a trial to ascertain its feasibility. The company was born after they sent a DVD through the mail, which arrived intact. One year later, Netflix launched its website, netflix.com, where customers could rent DVDs, which were then mailed to their homes. The company took on disruptive innovation by creating a brand-new service that gave customers great value.

The next year, the company introduced a subscription service that enabled customers to rent unlimited DVDs every month. The company later implemented an algorithm that evaluated customers’ past movie ratings to anticipate their future movie choices and high ratings. Netflix’s development involved introducing these two new options that added value to customers and improved the user experience, a form of product innovation.

In 2003, Netflix revealed that it had reached a milestone of 1 million subscribers. The company obtained a patent for its subscription-based rental services to protect its intellectual property and innovations.

In 2007, the company rolled out a streaming feature that enabled customers to instantly watch movies and series without waiting for rental DVDs to arrive. This innovation was significant in terms of both product and process and served as another example of disruptive innovation. By transitioning to an online rental platform, the company significantly improved the customer experience by eliminating the wait time for movies and shows. The service enabled customers to stream content of their choice from anywhere within their region. This provided them with greater flexibility in entertainment options.

Regarding process efficiency, the innovation implemented by Netflix streamlined its operations. They were able to reduce the time spent on shipping DVDs, eliminate packaging costs, and eliminate the need to store inventory. As a result, distribution and overall physical operations became more efficient.

Throughout the process of service and product innovation, Netflix strategically aimed to make their services more convenient and accessible for consumers to watch TV shows, movies, and more. Initially, Netflix operated as an online DVD rental service. Despite being convenient, customers had to wait a considerable amount of time for their DVDs to arrive before viewing their desired content. They implemented a plan to convert Netflix into an online video streaming platform to reach their objective. This allowed customers to immediately access their desired content without waiting for DVDs to be delivered.

Netflix Disruptive Innovation

Netflix’s disruptive innovation began with the introduction of the DVD rental service. In 2007, Netflix underwent a major transformation. It shifted from being a DVD rental service delivered by mail to becoming a dominant player in the online entertainment streaming industry. This shift was the most significant disruptive innovation that Netflix has implemented to date. Thanks to this innovative solution, customers no longer needed to rent DVDs one-by-one; instead, they could easily subscribe to Netflix online and gain access to all of its content. Moreover, this innovation has enhanced the viewing experience of TV shows and movies for users and reduced the production cost for Netflix. As a result, the prices of the service have decreased, making it more accessible and affordable for consumers.

When analyzing the strategic direction, it becomes clear that Netflix has followed the outsourcing matrix. This means that the company has found it more cost-effective to outsource the production of TV shows and movies rather than producing everything in-house.

When examining the Ansoff matrix, it becomes evident that Netflix pursued a product innovation strategy to achieve growth. They accomplished this by introducing a new service – an online video streaming platform – which consumers could access through a subscription. This move proved successful for Netflix, enabling them to reach a larger global audience.

Netflix Innovation Process Timeline

DVD Start-Up – 1997

Netflix was initially a DVD rental start-up that aimed to provide consumers with a more convenient movie rental experience. The idea was for customers to order their desired DVD online and deliver it to their doorstep. This service was a groundbreaking innovation as it was not previously available.

Subscription Model – 1999

Netflix observed that their DVD rental service, which required customers to pay for each rented DVD, was inconvenient. To address this issue, Netflix introduced a subscription model that enables subscribers to use the service as often as possible without paying for each DVD rental.

Netflix Queue – 2000

In 2000, Netflix introduced a new feature called the “Netflix Queue,” which greatly enhanced the viewing experience for users. With this feature, customers could create a list of movies, TV shows, and more that they wanted to receive by mail once they finished watching a DVD. As a result, users no longer had to spend time and energy searching for their next selection.

Issuing Patent – 2003

In 2003, Netflix was granted a patent that safeguarded its intellectual property and customers’ data about DVD rentals. The patent also facilitated the management of other aspects of the business to ensure safety.

Video Recommendations Algorithm – 2006

Netflix’s video recommendation algorithm has greatly enhanced the service. The introduction of the subscription model has facilitated the success of this innovation, as Netflix can now provide personalized recommendations to customers based on their viewing history and the ratings of movies and TV shows from past customers.

Video Streaming – 2007

With this advancement, customers no longer had to wait for physical DVDs to be delivered. Instead, they could access Netflix’s content through the online platform, leading to a larger consumer base. As a result, Netflix became the most-visited website during non-working hours.

Netflix Original – 2011

Netflix has expanded its entertainment options by creating content called “Netflix Originals.” This addition to the service makes Netflix stand out as unique and exclusive, as these movies, TV shows, and series can only be found on Netflix.

Pros and Cons of Netflix Innovation Strategy

Netflix’s innovation strategy aims to gain a competitive advantage by producing top-notch content and making it easily accessible. Let’s examine the advantages and disadvantages of this approach.

Pros of Netflix Innovation Strategy

Easy to Use

Netflix’s innovation strategy focuses on making its service accessible to the majority. This means the platform is designed to be simple and easy for everyone. Users can access the platform through the web or an app on their phone, tablet, or computer without additional software downloads.

Original Content

Netflix produces high-quality content that is exclusive and cannot be found on other streaming websites. This unique feature gives Netflix a competitive edge in the market.

Available Offline

Netflix has made itself more accessible to users by allowing those who have already downloaded content to watch Netflix offline.

Cons of Netflix Innovation Strategy

Unavailability of New Content

There is no new content available on Netflix. Although Netflix aims to provide top-quality content, its innovation strategy has not succeeded in making newly released shows and movies available to users, except for their original productions. Typically, viewers can only access older content from previous seasons, which gives cinemas and other competitors an advantage.

The Content Differs Based on the Location

Netflix personalizes its content according to users’ location to satisfy their preferences in various regions. However, some areas may have better content than others, which can disappoint some Netflix users. Netflix’s innovation strategy should include the equitable distribution of high-quality content across all regions of its operations.

Final Words

In this analysis, we have explored the innovative approach taken by Netflix and how it has propelled the platform to become a leading player in the video streaming industry. Netflix’s strategy centers around providing a high-quality, widely accessible service to gain a competitive edge. This involved a gradual yet significant innovation process that included minor and major changes. The most notable was the shift from a DVD rental service to an online video streaming platform, which ultimately helped Netflix attain a dominant global position.