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SNHU - IT-515 - Innovations in Information Technology
Written by: Chris Bell - October, 2015

Creative Technological Innovation - Netflix



Introduction


Reed Hastings, founder and CEO of Netflix, is a creative innovator that twice changed how people rent movies and, according to Investopedia, took and held the market share ever since (Moskowitz, 2015). Reed Hasting started mailing DVDs to people's homes because he knew at least some of them were lazy enough to pay for such a service. However, that service ended up costing the same, or less, than it cost to drive into town and rent a movie, so people began to think, "Why not use Netflix?" As Reed Hastings was putting Blockbuster locations out of business one by one, he was also investing millions of dollars into streaming videos because he knew that was the next creative innovation coming.

Creative Technological Innovation - Netflix

Blockbuster


Before 1997 people were forced to drive into town to rent a movie and watch it in their homes. There were thousands of mom-and-pop video rental stores that carried the latest titles, and they made a living at it for years. Then Blockbuster, backed with millions of dollars from investors, started opening locations all around the world. Blockbuster had a better atmosphere than most of the grungy mom-and-pop stores, and they had prices that were lower than competitors as well. Once Blockbuster put most of the small video rental stores out of business they had the market share, however the only approach they were taking to increase revenues was to put up more stores.

The Next Millennium


The next millennium was the start of a technological revolution similar to machines in the industrial revolution. In those days, people couldn't keep up to the massive producing power of machines, so companies with machines put labor intensive companies out of business. In 1997 Reed Hastings founded Netflix that mailed DVDs to individual's homes for a monthly charge instead of an individual rental charge. The monthly charge was only about $8.00 USD which was the cost of about two movie rentals. As people started to use Netflix, fewer people needed to leave their homes to rent a movie. Not only that, Netflix offered some interesting options such as automatically sending you Episode 2 of your favorite show after you sent back Episode 1. The subscription allows subscribers to rent as many movies as they can possibly watch each month without any increase in price. Furthermore, Netflix was able to carry thousands more movie titles and sitcoms than Blockbuster which drew in many subscribers. Netflix says that more movie rentals came from less popular titles rather than the most popular titles, which was a big problem for Blockbuster to compete with.

Around the year 2003-2005, Blockbuster's S-curve was starting to flatten out after increasing at a rapid rate for over 10 years. As a company's S-curve starts to flatten it's important to start adapting or changing in order to sustain their business. However, Blockbuster had run out of ideas and simply died out just like all of the mom-and-pop stores they had previously put out of business. People didn't adapt to Netflix all at once, it was a rapid acceptance over a few years of time. As it got more popular more people started to subscribe and Netflix became the leader in the industry of renting movies.

Top of the S-Curve


It seems to be automatic for every company to have an S-curve that they have to adapt to at some point in their growth spurt. For Netflix it was around the time that streaming videos and "On-Demand" television were starting to become more prominent. Unlike Blockbuster, and unknown to the public at the time, Reed Hastings had been investing millions into streaming video research and rights to stream sitcoms and movies.

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Reed came out swinging again with a second subscription charge that allowed users to watch streaming videos directly on their TV. A competitor, Hulu, allowed users to watch online, while On-Demand television cost money for each movie or show, but Netflix was a monthly subscription that allowed the user to watch endless amounts of TV. And another S-Curve is born; Reed Hastings does it again! The NYSE symbol, NFLX, started to soar for a second time!

Adaption to Technology


Netflix proved that they could adapt. Instead of pushing their DVD mailing program, they saw the technology innovation going on and adapted to it by changing their entire business model. Not only did Reed Hasting put most of the annual profits into further research instead of in his pocket, he also had to trash all of the DVDs that he invested in during the years of growth.

In conclusion, Reed Hastings and Netflix together have adapted to creative innovation twice, and now working on their third. Currently, they are working on creating their own shows that they can broadcast and charge cable television companies for the right to air. Instead of paying the fee to broadcast shows from cable networks, they can now charge the fee to networks instead, yet another creative way to stay at the top of the market share. I personally will invest in any company that Reed Hastings has a part of because he has an innovative mind along with the courage to put the idea into action. He has also proven three times that his idea, plan of action, and business model work in a profitable way, so he is a creative innovator of our time and I'll follow in his footsteps.


References:


Dan Moskowitz (May, 2015). Who Are Netflix's Main Competitors? NFLX. Retrieved from:
http://www.investopedia.com/articles/markets/051215/who-are-netflixs-main-competitors-nflx.asp