Get an in-depth look at the strategies, technologies, and best practices used to grow Netflix into a streaming giant. Discover what you can do to replicate their success and stay ahead of the competition.
In 1997, a small company was founded by two men named Reed Hastings and Marc Randolph in a small town in California named Scotts Valley.
The true story started when Marc discovered how DVD—a new product invented in Japan—would send the timely VHS packing.
So after brainstorming on what they could do with this new DVD product and successfully pitching the idea to Reed Hastings, both Marc and Reed walked into a record store in Santa Cruz, California, and purchased a CD. Then they proceeded to mail the CD to Reed’s house across town.
When the CD arrived intact, Reed and Hastings knew they had struck gold with this idea; and on August 29, 1997, Marc Randolph and Reed Hastings launched a subscription-based business model that afforded customers unlimited content for $19.95 (£16.31) with no due dates and late fees.
They would call it Netflix, and it would go on to epitomise the true essence of digital transformation over the years while changing the course of TV culture forever.
But to understand how Netflix went from a small eCommerce business model to a giant Software-As-A-Service company, the question you should ask is:
What Is Digital Transformation, and How Did It Work for Netflix?
To answer both questions, let’s consider the “what?” before the “how?”
To put it succinctly, “digital transformation” is the process of shifting away from a more traditional business model and toward those that use more cutting-edge digital technology and processes.
Contrary to popular belief, digital transformation is a strategy implemented through the use of new and advanced technologies to bring about developmental changes in the way business is conducted, improve the customer experience, and scale a business model.
How Did It Work For Netflix?
Netflix is a great example of how digital transformation has worked for a company. It has proven that digital transformation isn’t a sprint; it is a marathon. A journey of digital evolution over the course of time
Since Netflix was just a DVD rental service, it has had to resort to physical stores and mailing DVDs to serve its customers.
However, when it shifted its focus to streaming services, it was able to reach an even wider audience and expand its reach globally.
The success of Netflix can be attributed to its early adoption of digital transformation methods that allowed it to make the most of new technologies and maximise profits.
To fully understand how Netflix leverages digital transformation, we must first ask:
What Steps Has Netflix Taken in Their Digital Transformation Journey?
Netflix Developed A Recommendation Algorithm
Before Netflix introduced streaming services, they were using a recommendation system called Cinematch for their DVD rental service.
However, the transition to video-on-demand would mean that they could replicate that for their streaming services and even make it better.
To do this, they;
Used available cache data from their former system of customers and users to execute a proper recommendation system.
Used metadata to categorise movies under similar or the same genres to make recommendations easier for users.
Used A/B testing to test and improve their customer experience.
Netflix used cloud computing to improve their storage processes.
One of the perks of going digital for any business is that you get unlimited storage for data. And for a company like Netflix with an outrageous amount of data to store, cloud computing was the smart choice to proceed.
Netflix integrated with Amazon Web Services to manage this issue.
Netflix’s Pioneering Approach to Monetizing Content and Generating Revenue
Before Netflix, subscription-based content wasn’t a popular model. The emergence of Netflix disrupted the industry and sent Blockbuster, which was using the traditional method of disrupting content and generating revenue, into bankruptcy.
It was a classic illustration of how businesses can be left in the dust when they fail to evolve with the times. Also discussed is how businesses can scale through effective digital transformation.
Netflix pioneered a subscription-based model for DVD rentals and eventually revamped the idea into a streaming service business model.
Today, Netflix’s pioneering approach to monetizing content and generating revenue has only just evolved.
Based on the desired video quality, Netflix offers three different pricing tiers: basic, standard, and premium. Typically, the first month of the subscription is free.
Basic with the normal resolution is $7.99 a month, but only one device may utilise it simultaneously.
On the other side, paying $13.99 a month gets you access to Ultra HD streaming on four devices in addition to HD content on two devices.
The Use of Data Analytics by Netflix to Improve Decision-Making
With the help of data analytics, Netflix has been able to gain new insights into their customers’ likes and dislikes, helping them make more informed decisions when it comes to content development and marketing strategies.
Data analytics have played a pivotal role in Netflix’s digital transformation, giving them an edge over its competitors.
This is evident from the fact that Netflix uses advanced data analytics techniques such as predictive modelling, sentiment analysis, customer segmentation, and natural language processing to gain deeper insights into customer behaviour.
By understanding their customers better, they have been able to create personalised recommendations and optimise content for each customer segment.
Monumental Netflix Milestones To Illustrate Their Digital Transformation Journey
The 1990s–2000s: At the time that Netflix launched, Blockbuster was already the leading giant in the movie rental business.
However, a subscription-based DVD rental service was a genius business model in the 90s and maybe in the early 2000s. But this didn’t stop Netflix from facing a financial crisis due to, the high cost of shipping DVDs through the US postal service.
Netflix solved this logistics problem by cutting ties with postal services and developing a web-based chain with warehouses for DVD distribution.
This move catapulted Netflix subscribers from around 300,000 to 6.3 million in 2006 and generated $80 million in the process.
2007: What makes Netflix’s story admirable and worthy of imitation is how well it adapts to changing times. Which is what digital transformation is all about.
Netflix, seeing how the world of technology keeps on advancing and how much speed the 21st century brought to internet users around the world, launched the next facet of their business model—the video-on-demand (VOD) model.
And for the first time ever, Netflix reimagined their identity and introduced streaming services into its business model.
2012: Five years later, after introducing and focusing on streaming services, Netflix starts creating original content for their subscribers.
2013: In August, Netflix launches user-profiles and makes this service available to all users.
2015-2016: Netflix reaches monumental milestones of 50 and 130 countries, respectively, in both 2015 and 2016.
2021: 24 years after it was founded in a small town in California, Netflix hits 209 million subscribers in 190 countries while generating an annual income of over $25 billion.
How Can Digital Socius Help You With Your Business’s Digital Transformation Journey?
Digital transformation is not a goal; it is a journey.
So it is no surprise that businesses have been struggling to keep up with the rapidly changing digital landscape, often feeling overwhelmed and confused by the many options that are available.
As a business owner, it can be hard to stay on top of the latest trends, know what digital solutions are best for your company, and figure out how to get started with digital transformation.
Digital Socius is here to help! Our team of experts can guide you through the entire journey of digital transformation, from assessing your current situation to setting goals and creating a plan of action to reach them.
We’ll provide you with tailored strategies that are specific to your business, so you can move forward confidently and quickly.
Join our many satisfied and returning clients, and let us walk you through the journey step by step and show you how to get it right the first time. Click here to book a free discovery call to get started.