Activity 2.2 Business Model Patterns

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Activity 2.2Business Model PatternsNetflix

Activity 2.2 Business Model Patterns

Background

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1999

2007

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2013

TODAY

1997: Netflix was founded by Reed Hastings and Marc Randolph in California as a DVD rental-by-mail service.

1999: Launched a subscription model allowing customers to rent unlimited DVDs for a monthly fee, gaining advantage, but was not fully profitable until the mid-2000s.

2000: Attempted to sell the company to Blockbuster for $50 million; Blockbuster declined the offer.

2007: Transitioned from DVD rentals to a streaming service, allowing subscribers to watch movies and TV shows instantly online, which boosted its popularity.

2013: Began producing original content with the launch of "House of Cards," marking its entry into content creation.

Today: Netflix has over $150 billion in market value, is a global leader in streaming services, and offers a wide variety of movies, TV shows, documentaries, and original programming to millions of subscribers in over 190 countries.

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Business Model Patterns

Subscription

Digitalization

Long Tale

Cash Machine

Flat Rate

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Guaranteed Availability

Integrator

Mass Customization

Subscription: Netflix operates on a monthly subscription model. Price is determined by the amount of screens used to stream in parallel.

Long tale: wide range of content, allowing the company to increase the audience and make all content available; also includes niche content.

Cash machine: Netflix’s subscription customers pay a monthly fee upfront; this increases the liquidity to operate the business and obtain new customers.

Subscription: Netflix operates on a monthly subscription model. Price is determined by the amount of screens used to stream in parallel.

Digitalization: launched online subscription service after digital content started growing. This brought content to everyone through the internet.

Long tale: wide range of content, allowing the company to increase the audience and make all content available; also includes niche content.

Cash machine: Netflix’s subscription customers pay a monthly fee upfront; this increases the liquidity to operate the business and obtain new customers.

Guaranteed availability: The company content is available 24/7 allowing to scale the user base.

Integrator: Netflix mainly provides the streaming platform and licensed content, as well as producing its own shows. Its focus is on platform technology, user acquisition, and content licensing

Mass customization: Netflix offers a wide range of content, allowing users to tailor their experience with personalized recommendations based on their viewing history.

Flat rate: Consumers pay a monthly fee that allows them to consume an unlimited amount of content on the platform.

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Business Patterns for a New Entrant

Freemium Model

Experience Selling

Business Patterns for a New Entrant

Freemium ModeL

Offer a free version with limited access to content, enticing users to upgrade for premium features like exclusive content, ad-free viewing, and higher quality streaming.

Available in:

Advantages

Challenges

Advantages:

• Large User Base: Attracts a broad audience with low entry barriers.
• Premiumization: Converts free users to paid customers as they find value in premium features.
• Brand Awareness: Freemium offers broad exposure, increasing brand recognition.
• User Data Collection: Improve services and target premium features.

Challenges:

• Monetization Pressure: Difficult to balance free and paid offerings
• User Retention: Keeping free users engaged while encouraging them to upgrade.
• Cost Management: High costs to support free users without compromising service quality.
• Potential Overload: Risk of servers being overloaded by non-paying users, impacting service for premium users.

Business Patterns for a New Entrant

Experience Selling

Improve the platform by providing unique experiences like virtual events, personalized content journeys, and exclusive interactions with creators.

Available in:

Advantages

Challenges

Advantages:

• Differentiation: Sets your service apart from competitors by offering more than just content, an entire experience.
• Emotional Connection: Creates a deeper, more emotional connection with users, leading to higher loyalty.
• Premium Justification: Users are more willing to pay for premium features when they feel they are getting a unique experience.

Challenges:

• Cost of Experience Creation: Developing and maintaining high-quality experiences can be expensive
• Consistency: Ensuring a consistently high level of experience across all users
• Managing Expectations: High expectations can lead to disappointment if the experience loses hype, which could harm the brand.