Select your language

Suggested languages for you:
Log In Start studying!
StudySmarter - The all-in-one study app.
4.8 • +11k Ratings
More than 3 Million Downloads
Free
|
|

All-in-one learning app

  • Flashcards
  • NotesNotes
  • ExplanationsExplanations
  • Study Planner
  • Textbook solutions
Start studying

Netflix Innovation Strategy

Save Save
Print Print
Edit Edit
Sign up to use all features for free. Sign up now
Business Studies

"Companies rarely die from moving too fast, and they frequently die from moving too slowly."

- Reed Hastings, co-founder of Netflix

Let's take a look at how Netflix manages to stay one of the most innovative companies by pursuing an innovation-focused strategic direction in addition to a variety of innovation strategies.

Introduction to Netflix

Netflix Inc. is an American subscription-based video streaming platform. The platform is used internationally to stream movies and TV shows from numerous different countries and genres. Other than operating as a streaming service, Netflix is also a production company producing movies and television series under the Netflix Originals brand name.

Netflix is available in 190 countries, in 30 different languages, and oftentimes the movies and shows available to stream will differ based on your location. The cost of a subscription to the platform also varies depending on the customer's location and the amount they wish to use the service. The company's mission is to 'entertain the world'.

At Netflix, we want to entertain the world. Whatever your taste, and no matter where you live, we give you access to best-in-class TV shows, movies, and documentaries. Our members control what they want to watch, when they want it, with no ads, in one simple subscription…We are the world's biggest fans of entertainment, and we're always looking to help you find your next favorite story.”

Netflix originally started as a DVD rental company that, over the years, through technological advances, turned into the streaming platform it is today. Let's examine how Netflix has managed to become one of the most widely used movie and video streaming platforms through its innovative strategy.

Netflix innovation strategy

Innovation strategy refers to a company's plan on how it will achieve its objectives, such as increasing profits or market share through the innovation of products or processes.

The Netflix innovation strategy focuses on maximizing its competitive advantage through its product and process innovations. The innovations are aimed at making the Netflix streaming service high quality and accessible for the majority of consumers. Netflix aims to achieve this by always looking for ways to make operations more cost-effective so that the majority of consumers are able to afford the subscription price.

Strategic direction to achieve innovation

A strategic direction is a set of activities and decisions that a firm must make to accomplish its goals and objectives.

In order to understand Netflix's innovation strategy and process, we need to understand the strategic direction that the company followed to achieve its innovations. Prior to that, it is important that we understand the key actions that contribute to forming a strategic direction.

Firstly, a business needs to be aware of its overall purpose. This can be in the form of a business vision or mission. For example, it can be becoming a market leader or creating innovations that will improve the lives of consumers.

Secondly, business needs to make a plan on how they are going to achieve their goal. This may involve setting a plan that includes decisions and activities that will assist in achieving the overall business's purpose.

Now let's have a look at an example of strategic direction so that later we can apply it to the Netflix case.

Firstly, let's assume that the business's goal is to be a profitable company. Currently, there is a market for products however the business spends a lot of time and money on production, which leaves the business with a low profit margin. The business's strategic aim would be to lower the costs of production by investing in new technology, this strategic direction must be supported by the market research to ensure that this technology is effective and improves production efficiency.

Strategic direction matrix

Another effective way to assist companies in setting strategic direction is making a strategic direction matrix. There are two main types of matrices:

Outsourcing matrix - An important part of this matrix is to assist the company in deciding whether they should outsource some of their organizational tasks or keep them in-house. The matrix analyzes each of the main operational tasks and assesses which ones would be more beneficial for the organization to outsource and which ones would be better to be done by the company.

Ansoff matrix - This matrix assists companies in forming their growth strategy, by analyzing various scenarios. For example, the Ansoff matrix can help a business decide if it would be more profitable for the company to increase sales in the existing market or enter a new market and develop new products.

To find out more about the business's strategic direction, take a look at our explanations on Strategic Direction.

Netflix Product Innovation

To further understand the company's innovation strategy, we will examine its operations and product offerings throughout the years.

In 1997, the founders of Netflix had an idea to rent DVDs by mail and tested out whether the idea would physically work. They sent a DVD in the mail and once it arrived intact, the company was born. A year later they launched the netflix.com website where customers could rent DVDs which would then be mailed to their house. This is an example of disruptive innovation that the company undertook, as the company developed a completely new service that added significant value to customers.

As a reminder on the different types of innovation in business, check out our explanation called assessing innovation.

In the following year, the company developed a subscription service whereby customers could rent an unlimited number of DVDs per month. Shortly after, the company introduced an algorithm that assessed customers' previous ratings of movies they have watched to predict which movies they would choose to watch and rate highly in the future. These two steps in Netflix's development represent a form of product innovation, as they introduced two new options that added value to customers and increased the quality of the user experience.

In 2003, the company announced that there are over 1 million Netflix subscribers. To protect its innovation and intellectual property, the company issued a patent for its subscription rental services.

In 2007, the company introduced streaming which allowed its customers to watch movies and series instantly (rather than waiting for the rental DVD to arrive). This was one of the most significant innovations from both the product and the process point of view, as well as another example of disruptive innovation. Moving the rental platform online allowed customer experience with the company to increase as it completely eliminated the waiting time to watch a movie or show. It also allowed the customer to stream wherever they wanted (within their region) and allowed for more freedom of choice in entertainment.

The customer could start watching a movie and if they didn't like it change to another movie instantly, rather than waiting for a different DVD to arrive.

From a process point of view, the innovation started making Netflix's operations more streamlined. The company initially had to spend less time on shipping products (DVDs), packaging costs eventually became obsolete and the company no longer had to store inventory, making distribution and overall physical operations more efficient.

Product innovation refers to when a company creates products or services that have not been previously available or existed.

Process innovation refers to improvements that are made to existing processes to increase business efficiency.

Study tip: to find out more about the different factors that determine a company's operations, take a look at our explanations on operations management.

As seen throughout the service and product innovation process, the strategic direction that Netflix took was to innovate its service, to achieve their overall purpose of making it convenient and accessible for consumers to watch TV shows, movies etc. At first Netflix was an online DVD renting service and although it was convenient, consumers had to wait a while for their DVDs to arrive to watch their requested content. To achieve the set goal, the activities and decisions that were involved were to transform Netflix into an online video streamlining platform so that consumers could watch their chosen content instantly instead of waiting for DVDs to arrive.

Netflix disruptive innovation

Disruptive innovation refers to a change in the availability of services that were previously expensive and only available to a select group of highly-skilled consumers, becoming accessible to a wider audience.

In Netflix's case, the disruptive innovation was from the start by introducing the DVD rental service, which allowed customers to get their DVDs mailed to their house. Later, in 2007, Netflix transformed from an online DVD rental company by mail to an online entertainment streaming platform, which is the biggest disruptive innovation that Netflix implemented. Due to this innovation, rather than renting DVDs individually, consumers could subscribe to Netflix online and access all the content. Moreover, this innovation not only made TV shows, movies etc. more comfortable to watch for consumers but also lowered Netflix's cost of production, which lowered the prices of the service. This innovation made Netflix's cost lower, therefore, more accessible and affordable for the majority of consumers.

Moreover, to make services cheaper and have a broader variety of content, Netflix outsources the production of most TV shows, movies, etc, however, in recent years Netflix has been producing more of its original content.

If we look at the strategic direction analysis we can see that according to the outsourcing matrix, Netflix had made a decision that for the company it may be cheaper to outsource the TV shows and movies as it is more beneficial to the company rather than producing them all in house Moreover, if we take a look at the Ansoff matrix we can see that Netflix set a strategic direction to achieve its growth by product innovation. This was done by introducing a new service product of an online video streaming platform available to consumers through subscription. This helped Netflix in achieving its growth, as more users were reached globally.

Netflix innovation process

An innovation process refers to a process of starting from an idea and translating it into a market solution. Moreover, the continuous innovation process describes constant improvements (incremental innovations) that are added to an existing product or service.

In this section, we will cover the continuous innovation process of Netflix, which is illustrated as an innovation timeline, as seen in Figure 1.

Netflix Innovation Strategy, Netflix innovation process, StudySmarterFigure 1. Netflix Innovation Process, StudySmarter

Netflix innovation process timeline

This innovation process timeline shows how the Netflix service product was improved by incremental innovation and completely transformed through radical innovation.

1. Netflix started as a DVD start-up where the idea was to make the process of renting movies more convenient to the consumers. The concept was that consumers would order a DVD to rent through the internet and get it delivered to their doorstep. This was a product/radical innovation as this service did not exist before.

2. Netflix noticed that the DVD renting service that involved a process of paying for each rented DVD was quite uncomfortable as consumers had to pay each time they order a DVD. In order to resolve this problem, Netflix has introduced a subscription model, which allows subscribers to take advantage of the service as frequently as they like, without having to pay for each DVD rental.

3. The introduction of Netflix Queue in 2000 was an innovation that improved the experience for many. Consumers had the option of selecting a list of movies, TV shows, etc that they would like mailed to them after they have finished watching a DVD. This way consumers did not have to spend time and effort selecting what they would like to watch next.

4. In 2003 Netflix received a patent that allowed it to protect its intellectual property and its users' data regarding renting DVDs, as well as to manage other aspects of the business to make it safe. The patent is another example of Netflix's incremental innovation that improved the company's service security.

5. The video recommendations algorithm is another innovation that has improved the Netflix service significantly. The subscription model that was introduced earlier has helped this innovation to thrive, as Netflix was able to make personalized recommendations to customers, based on their watching history and the ratings of movies, TV shows, etc from previous customers.

6. The biggest radical innovation of Netflix is when Netflix transformed from a DVD rental service into an online streaming platform. This means that customers no longer had to wait for their DVD to be delivered, as they were now able to watch Netflix content through its online streaming platform. This has increased the consumer base, which leads to Netflix becoming the most-visited internet website during non-working hours.

7. Netflix increased their selection of entertainment by producing original content referred to as 'Netflix originals'. This new improvement to the service made Netflix seem original and exclusive as the Netflix original movies, TV shows, series, etc cannot be watched anywhere else.

Incremental innovations refer to small improvements made to an existing product or a service whereas radical innovation refers to creating a new invention that did not exist previously.

Pros and cons of Netflix innovation strategy

The innovation strategy that Netflix pursues is gaining a competitive advantage through producing high-quality content and being accessible to a majority of people. Now let's have a look at the pros and cons of this innovation strategy.

Pros of Netflix innovation strategy

Simple to use – The innovation strategy of making it accessible for the majority, means that Netflix develops its service in a way that is easy and simple for everyone to use. To use this platform users do not need to download additional software, they can simply access it through the web or an app on a phone, tablet or computer.

Affordable –The Netflix service is affordable to a majority of the public costing only £5.99 to £13.99 per month, depending on the subscription package that users choose to use. The innovation strategy of cutting costs where possible allows Netflix to be able to offer these low monthly costs to its consumers as well as giving a 1-month free trial.

Available offline – As part of Netflix's strategy to make itself accessible to most users, Netflix now allows consumers who previously downloaded content to watch Netflix via offline mode.

Offers original content – In order to produce high-quality content, Netflix creates original content that cannot be found anywhere else, making Netflix original and exclusive. This gives Netflix a competitive advantage over other streaming websites.

Cons of Netflix innovation strategy

New content is not available – Even though Netflix's innovation strategy is to create and offer high-quality content, the Netflix innovation strategy has not succeeded in making new shows and movies available soon after their release, unless it is a Netflix original production. Usually, users can only access older content from previous seasons, which puts competitors such as cinemas at a competitive advantage.

Content varies depending on the geographical location – Netflix content is tailored based on the location of the user, aiming to suit the consumer's taste in different regions. Despite this, Netflix content may be better in certain regions than others, causing some Netflix users to be disappointed. In order to gain a greater competitive advantage, Netflix's innovation strategy should consider distributing equally high-quality content across all regions of its operations.

In this case study, we have examined Netflix's innovative strategy and how it has allowed the company to become one of the most widely used video streaming platforms in the world. Netflix's innovation strategy was designed to gain a competitive advantage by making Netflix's services widely accessible and offering an overall high-quality service. This was the strategic direction that Netflix took. The innovation process took time, it involved incremental and radical innovations. The biggest Netflix innovation was a transformation from a DVD rental company to an online video-streaming platform which allowed Netflix to become a global market leader.

Netflix Innovation Strategy - Key takeaways

  • Netflix Inc. is an American subscription-based video streaming platform. The platform offers content internationally from movies to TV shows to its original content.
  • Innovation strategy refers to a company's plan on how it will achieve its objectives, such as increasing profits or market share through the innovation of products or services.
  • A strategic direction is a set of activities and decisions that a firm must make to accomplish its goals and objectives.
  • Disruptive innovation refers to a change in the availability of services that were previously expensive and only available to a select group of highly-skilled consumers, becoming accessible to a wider audience.
  • The Netflix innovation strategy focuses on maximizing its competitive advantage through its service and product innovations.
  • The strategic direction of Netflix is achieving its objectives by making its service high-quality and accessible to the majority.
  • Netflix's innovation process involves product and process innovations. Starting from a DVD rental startup all the way to an online streaming platform offering its original content.
  • The pros of Netflix's innovation strategy are that Netflix is made simple to use, affordable, available offline and offers original content.
  • The cons of Netflix's innovation strategy is that Netflix does not make the newest content available and the content varies depending on a user's geographical location which affects the user experience.

SOURCES:

Nicholas Thompson, TECHNOLOGY; Netflix's Patent May Reshape DVD Rental Market, 2003

Vuk Mujovic , Netflix, 10 innovations that changed the world , 2018

Netflix, About Us , 2022

Netflix Innovation Strategy

The main innovation strategy of Netflix is maximizing its competitive advantage by implementing process and product innovations to make its content high quality and accessible to the majority of consumers.

Netflix falls into both product and process innovations, in addition to radical and incremental innovation.

Yes, Netflix is a product innovation as it was the first-ever online video streaming platform available to consumers through subscription.

Netflix has considered a disruptive innovation due to its mission which is to 'entertain the world' meaning that Netflix aims to make its service accessible to everyone. Therefore, Netflix first made a DVD rental service through an online platform that can deliver DVDs to consumers houses by mail, which was a more accessible and affordable way for consumers to watch DVDs. Later Netflix transformed into an even more accessible and affordable video streaming platform available through subscription.

Final Netflix Innovation Strategy Quiz

Question

What is meant by the innovation strategy?

Show answer

Answer

Innovation strategy refers to a company's plan on how it will achieve its objectives, such as increasing profits or market share through the innovation of products or services.

Show question

Question

What is Netflix's innovation strategy?

Show answer

Answer

The Netflix innovation strategy focuses on maximising its competitive advantage through its service and product's innovations. The innovations are aimed to make Netflix streaming service high quality and accessible for the majority of consumers.

Show question

Question

What is meant by the strategic direction?

Show answer

Answer

A strategic direction is a set of activities and decisions that a firm must make to accomplish its goals and objectives. 

Show question

Question

What are the main actions that contribute to forming a strategic direction?

Show answer

Answer

There are two main actions that contribute to the strategic direction's formation. These are:


1) Business should first identify its overall purpose which can be in form of a mission or vision.


2) Lastly, business needs to make a plan on how they are going to achieve their goal/purpose that was set previously (this plan will involve activities that will be considered as a strategic direction that the business will take to achieve its purpose).

Show question

Question

What are the main types of strategic direction matrices?

Show answer

Answer

There are two main types of strategic direction matrices. these are:

  • Outsourcing matrix
  • Ansoff matrix

Show question

Question

What is meant by the outsourcing matrix?

Show answer

Answer

Outsourcing matrix is a tool used by companies to is to assist the company to decide whether they should outsource some of their organisational tasks or keep them in-house. 

Show question

Question

What is meant by the Ansoff matrix?

Show answer

Answer

Ansoff matrix is a tool used by companies to form their growth strategy, by analysing various scenarios. For example, the matrix will assist the company in deciding if it would be more profitable for the business to increase sales in the existing market or enter a new market and develop new products.

Show question

Question

What is meant by product innovation?

Show answer

Answer

Product innovation refers to when a company creates products or services that have not been previously available or existed. 

Show question

Question

What is meant by process innovation?

Show answer

Answer

Process innovation refers to improvements that are made to existing processes to increase business efficiency.

Show question

Question

Can you explain Netflix's product innovation?

Show answer

Answer

Netflix's product innovation started one year after Netflix was founded, as a company, introduced a service with which, consumers can order DVDs online, and get them mailed to their houses. Later in 2007 product innovation continued as Netflix transformed its services from the DVD rental to an online video-streaming platform. 

Show question

Question

What is meant by disruptive innovation?

Show answer

Answer

Disruptive innovation refers to services/products, that were previously expensive and only available to a select group of consumers, becoming accessible to a wider audience.

Show question

Question

How Netflix makes its service more affordable to consumers?

Show answer

Answer

Netflix has a cost-efficient production process as they offer completely digital services.

Show question

Question

What is meant by the innovation process?

Show answer

Answer

An innovation process refers to a process of starting from an idea and translating it into a market solution.. 

Show question

Question

What is meant by the continuous innovation process?

Show answer

Answer

Continuous innovation process describes constant improvements (incremental innovations) that are added to an existing product or service.

Show question

Question

Can you briefly describe Netflix's innovation process timeline?

Show answer

Answer

1. The Netflix innovation process starts in 1997 where the DVD rental start up was born, offering DVDs that can be delivered to consumers doorsteps.

2. In 1999 Netflix introduced subscription model in which consumers can use DVD rental service as much as they like without having to pay for each DVD.

3. In 2000 Netflix introduced queue which meant consumers had the option of selecting a list of movies, TV shows, etc. that they would like mailed to them after they have finished watching a DVD. 

4. In 2003 Netflix received patent which helps for Netflix to protect its intellectual property and its users data.

5. In 2006 Netflix introduced video recommendations algorithm, which meant that consumers can get personalised recommendations regarding movies, TV shows etc.

6. In 2007 Netflix transformed from a DVD rental service into an online streaming platform. This was the biggest product innovation that Netflix has done throughout this continues innovation process.

7. In 2011 Netflix increased their selection of entertainment by producing original content referred to as 'Netflix original'.



Show question

Question

What is meant by incremental innovation?

Show answer

Answer

Incremental innovations refer to small improvements made to an existing product or a service.

Show question

Question

What is meant by incremental innovation?

Show answer

Answer

Incremental innovations refer to small improvements made to an existing product or a service.

Show question

Question

What is meant by radical innovation?

Show answer

Answer

Radical innovation refers to creating a new invention that did not exist previously.

Show question

Question

What are the pros of Netflix innovation strategy?

Show answer

Answer

The pros of Netflix innovation strategy are that Netflix is made simple to use, affordable, available offline and offers original content.

Show question

Question

What are the cons of Netflix innovation strategy? 

Show answer

Answer

The cons of Netflix innovation strategy is that Netflix did not make the newest content available and the content varies depending on users geographical location which affects the content's quality.

Show question

Question

Strategic direction matrices include:

Show answer

Answer

The Ansoff Matrix

Show question

Question

The Ansoff Matrix assist the company in deciding whether they should outsource some of their organizational tasks or keep them in-house.

Show answer

Answer

Flase

Show question

Question

The Ansoff Matrix assists companies in forming their growth strategy, by analyzing various scenarios

Show answer

Answer

True

Show question

Question

The ________ can help a business decide if it would be more profitable for the company to increase sales in the existing market or enter a new market and develop new products.

Show answer

Answer

Ansoff Matrix

Show question

Question

__________ refers to when a company creates products or services that have not been previously available or existed. 

Show answer

Answer

Product innovation

Show question

Question

Process innovation refers to improvements that are made to existing processes to increase business efficiency.


Show answer

Answer

True

Show question

Question

________ refers to a change in the availability of services that were previously expensive and only available to a select group of highly-skilled consumers, becoming accessible to a wider audience.


Show answer

Answer

Disruptive innovation

Show question

Question

The continuous innovation process describes huge improvements (disruptive innovations) that are added to an existing product or service.

Show answer

Answer

False

Show question

Question

Radical innovation refers to:

Show answer

Answer

creating a new invention that did not exist previously

Show question

Question

__________ refers to a company's plan on how it will achieve its objectives, such as increasing profits or market share through the innovation of products or processes.

Show answer

Answer

Innovation strategy

Show question

Question

The Netflix innovation strategy focuses on maximizing its _________ through its product and process innovations. 

Show answer

Answer

competitive advantage

Show question

Question

List the two steps involved in forming a strategic direction.

Show answer

Answer

1. The business needs to be aware of its overall purpose. This can be in the form of a business vision or mission.

2. The business needs to make a plan on how they are going to achieve their goal

Show question

60%

of the users don't pass the Netflix Innovation Strategy quiz! Will you pass the quiz?

Start Quiz

Discover the right content for your subjects

No need to cheat if you have everything you need to succeed! Packed into one app!

Study Plan

Be perfectly prepared on time with an individual plan.

Quizzes

Test your knowledge with gamified quizzes.

Flashcards

Create and find flashcards in record time.

Notes

Create beautiful notes faster than ever before.

Study Sets

Have all your study materials in one place.

Documents

Upload unlimited documents and save them online.

Study Analytics

Identify your study strength and weaknesses.

Weekly Goals

Set individual study goals and earn points reaching them.

Smart Reminders

Stop procrastinating with our study reminders.

Rewards

Earn points, unlock badges and level up while studying.

Magic Marker

Create flashcards in notes completely automatically.

Smart Formatting

Create the most beautiful study materials using our templates.

Sign up to highlight and take notes. It’s 100% free.