Short Essay : A case study of blue ocean strategy - Netflix

Joanne Lo Pui Ching_ (1004600634)

   According to our previous class, Blue Ocean Strategy stated that blue oceans make the competition irrelevant, rather than creating a business modelled after its more established competition. I think Netflix is a good example of this. Netflix created a blue ocean, a decision that has certainly paid off. They didn't just make future competition irrelevant, but the competition in the nearby red ocean, which was offering something similar but through a different, less efficient channel.

Company History:

  Netflix was founded in 1997 in Silicon Valley by Marc Randolph and Reed Hastings. Initially, the company operated a pay per rent movie rental website with shipping services. In 1999, Netflix then moved to a monthly subscription model where you could request to be shipped a certain number of videos per month based on members' monthly fee. Sales began to grow and the company turned its first profit in 2003 with sales of $272 million and a profit of $6.5 million. At the same time, Blockbusters and HBO were the main competitors, cable companies, and satellite service providers competed in the market. It's not difficult to recognise how Netflix conquered their red ocean rivals: Netflix found a blue ocean. Netflix subscription model was a game changer, they began streaming movies and television so that subscribers could watch movies over the internet in June 2007. We are trying to apply ERRC Grid of the Netflix strategy plan on the following section:

The ERRC Grid of Netflix

1.Eliminate : 

   Netflix selling homogenous products as its competitors. For example, the rental of commercials, live sports, news programs, dramas and Hollywood or international movies, with the membership fee, shipping fee, the limitation of rental time and damage cost of physical products.

2.Reduce:

   Netflix needs to reduce the rental price of movies/dramas, technical support of local stores and reduces the number of retail stores, also installation process complexity of Netflix, switching to online streaming (OTT, Over-The-Top)platform.

3.Raise:

   Based on the online subscription model and OTT platform, Netflix has to extend its movie/drama selection, the number of types of devices members could watch, by technical improvement of streaming technology and searching different type of business partners such as Apple, Sony and Amazon etc.

4.Create:

   Based on the advantages and disadvantages of below, with an advance of online streaming technology, Netflix OTT platform allow members able to watch unlimited movies or dramas from any time, any location with a fixed subscription fee. 

Results:

      By using the blue ocean strategy Netflix becomes a dominant movie streaming service provider in the world with $3.6 billion in revenue and $17 million in profit in 2012. On the other hand, Blockbuster plummeted from $4 Billion in January 2009 to essentially nothing by December of the same year. After 2010, Blockbuster started to close retail stores, citing a lack of customer demand. On January 2016, Netflix reporting that it has 75 million subscribers, who combine to watch 100 million hours of Netflix per day. The average subscriber watches more than an hour of Netflix on a given day, 80 minutes to be exact. Netflix showed its prowess in the "hard" business disciplines by crowd sourcing an algorithm that recommended movies to subscribers based on their review of the movies they had watched. This was a strong difference than other competitors who didn't have the option of adding such offering. In addition, a connection to Facebook allowed subscribers to recommend movies to their friends on social media. In January 2016, Netflix become available everywhere worldwide outside of Mainland China, Syria, North Korea and the territory of Crimea

Blue Ocean Strategy of Netflix compare to Blockbuster and HBO (2011)

Challenge in the future:

Availability of Netflix up to Jan 2016

      Netflix started to enter Asia-Pacific market since 2015. As of October 2016, Netflix OTT platform officially supports 18 languages including Chinese (Simplified and Traditional), Japanese, Korean. However, similar to other US companies situations, there are two main obstacles to Netflix entering Greater China market: firstly, video streaming market is competitive in China, it seems a red ocean with many rivals in the market such as Youku, LETV, iQIYI.COM, etc. Another problem is content filtering mechanism by the Chinese government, which limited the choices of movies/dramas to the customers and the Chinese government still did not approve its application to China market. This might be a long way to Netflix expand to China market.

Reference:

1. “Netflix串流電影 10年來改變世界” (2016) , udn 聯合新聞網 - https://udn.com/news/story/7086/2238034
2. Nelson Granados (2016), “Netflix Is Putting Its Head In The Sand Over Rising Competition” , Forbes.com,http://www.forbes.com/sites/nelsongranados/2016/07/19/netflix-shares-tumble-as-subscriber-growth-slows-down/#34d389f762af
3. Pixel Ballads (2011) “Netflix: Living and Dying by Strategy“ , https://pixelballads.wordpress.com/2011/10/08/netflix-living-and-dying-by-strategy/