Netflix’s Zero-Time Business Model

Posted on August 2, 2010. Filed under: Uncategorized |

I’m completely enamored with Netflix.  They have a business model that exemplifies the concepts of ‘instantly responsive’.  I wasn’t a big online-rental movie fan until I re-signed up last month.

You know Netflix.  They helped change the movie rental industry by offering customers the opportunity to pick their choice of rentals and have them delivered directly to their home.  I subscribed to Netflix many years ago when they first started in business but cancelled my subscription soon after when it was clear that I didn’t know what I wanted to rent until I read the movie covers at my local Blockbuster.  I preferred that business model…you walk in the store, you pick what you want from the available inventory on the shelves, you check out and go watch the movie.  You instantly get to watch what you want, as long as it was in their store.  I was a bigger Blockbuster fan after they implemented the monthly plan where I paid a fixed fee each month, and could keep a movie as long as I wanted without penalties (I know, I paid enough to buy the movie in some cases, but there is something emotional about avoiding late fees, which Blockbuster clearly understood.).   For those months when I was traveling, I could take movies with me and not worry about missing my return date.  But as time went on, it was more and more difficult to get to the store and browse the movies.  I cancelled that subscription, too.

Last week, a friend strongly suggested I watch a foreign film that was not available in theaters or to purchase in my local stores, so I checked into Netflix. They had it and I reactivated my account.  Bread and Tulips arrived a couple of days later, and my friend was right, I did like it.   Talk about instantly responsive…I put the film back into the little red envelope to send it back after I watched it.  I mailed it at my local post office that afternoon, and at 5:55am the next morning there was an email in my inbox saying they had received it.  Not only had they received it, but they had already processed it and let me know.  This is instantly responsive at it’s best.  I wish my daughter wrote thank you notes for her birthday presents that fast.

But even more interesting to me is the Netflix business model today.  It’s instantly responsive in many ways.  I know that in a day or two I’ll get a new movie.  How do I know? They send me an email a few hours after processing the returned movie telling me I will.   That’s really fast.  But that’s not fast enough for some, so Netflix has an even more ZeroTime process…you can watch movies instantly on your PC or TV.  We set this up using our Wii.  Now we have access to a good portion of the Netflix library ‘on demand’. So while I’m waiting for the next DVD to arrive, I can still watch a movie.  In fact,  I can watch any of hundreds of movies.

Even more fascinating is the analytics behind the website.  As I rate movies I’ve liked, Netflix’s analytics figures out other movies I might also like and suggests them to me.  So far, I’ve rated over 160 films (not that many, given how many I’ve seen over the years, but enough).  When I’m on their site, they have consistently recommended additional films that either I saw and loved (but hadn’t yet rated) or would like to see (but haven’t gotten around to it).  And they tell me how much they think I’ll like it (4+ stars, 5 stars, etc).  This is business analytics at it’s best…it’s predictive and useful to me, not just a glimpse of the past.  And, of course, it’s instant.

I know there are lots of competitors to Netflix and some, like RedBox, offer me a way to pick up a DVD at my local grocery or McDonalds (and they don’t have that algorithm to suggest movies I might like).  For me, Netflix has a brilliant business model.  It’s a hybrid of multiple delivery models and I get to choose which one I want.  Whether I choose the DVD or the download version, Netflix had optimized their processes and designed them to be instantly responsive.  It’s a beautiful thing.

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