Netflix’s Business Model & Design
Netflix Inc. is one of the companies in the Fortune 500 list. Its overall business model is a combination of various business models. This hybrid business model system is due to the company’s operations which involve on-demand streaming of entertainment content on the internet and the production of new content such as movies and web series. Netflix's business model determines Netflix’s value chain and the associated competitive advantages. It is a strong example of how online business modelling extends the capability for large-scale high-efficiency operations with the least production costs. Netflix’s operations include the following business models:
- Platform (digital media or Internet) and Pipeline (content production in regards to entertainment, etc.) business models
- Ignoring-out-the-middleman business model (production to distribution)
- Unlimited subscription business model (profit model for unlimited online access)
Pipeline and Platform Business Models- Netflix mostly uses a platform business model for its online streaming of entertainment content. With the help of the company’s platform, which is filtered to some extent, content producers are able to reach customers. Customers access their preferred entertainment content through this platform. The platform business model states that Netflix’s generic strategy is most significant, after considering the competitive advantages which are based on cost efficiencies. The Pipeline business model also applies to the company’s content production framework. For example, with the help of generic strategy, Netflix Inc. is using the traditional pipeline approach to create new movies and series on the internet. The pipeline business model gives an edge to the company for controlling entertainment content production.
Ignoring the Middleman Business Model- Netflix Inc. ignores middlemen and intermediaries by directly distributing its entertainment content to customers through its own streaming service. The company uses its competitive abilities and capabilities to apply this business model. Its efficient capability is in direct relation to the company’s efforts in implementing its generic strategy. In this business model, other entertainment content producers can also directly deal with Netflix to reach target customers on the internet, it also supports the company’s intensive growth strategies. Along with the generic strategy, this situation eliminates some intermediaries or middlemen that are traditionally involved in the distribution, sales, and marketing in the entertainment industry.
Unlimited Subscription Business Model- Netflix’s operation design includes unlimited subscriptions, which is a profit model that improves the company’s overall business. In unlimited subscriptions, customers don’t have limited access to entertainment content on the platform. This unlimited aspect is an outcome of Netflix’s cost minimization strategy, in connection to the company’s generic strategy for a competitive edge. For example, the company is dependent on cost efficiencies to confirm profitability despite such an unlimited subscription offer. This revenue model helps in attracting, retaining customers and increases the achievement rates of Netflix’s intensive growth techniques.
Partners
The most important partner of Netflix is one of the biggest shopping website giant Amazon, whose AWS cloud servers gives crucial support and it is hosting all the digital needs of the company. If this server is down, then the customers cannot access their content on the internet, so this relationship must be maintained.
Netflix also works with various global telecommunications providers in the US. For example, it communicates with Verizon, AT&T, and Comcast at exchange points to confirm that users receive a smooth service. It also works heavily with content providers and entertainment content production companies. The company has built relationships with many host of television networks and distribution studios all over the world, especially given the frequently revolving content which features from month to month.
Netflix’s Generic Competitive Strategy
Cost Leadership- Netflix’s generic strategy is cost leadership. It confirms the competitive edge through minimized costs and minimized selling prices. This generic strategy improves the online entertainment company’s business model’s competitiveness based on low costs and the ability to sell content at affordable prices, without any necessity of being a best-cost provider. In this generic strategy, Netflix majorly acquires more customers in the online entertainment market, in contrast, to focus strategies that talk about specific market segments. For example, the media streaming company uses its competitive skills to reach more customers in the international market. This vast approach of the generic strategy coordinates with Netflix’s intensive growth plans which also prioritize market penetration.
Differentiation- Netflix mainly uses cost leadership as its main strategy for competitive advantage, the business is also using differentiation in its operations. As a generic strategy, differentiation involves developing the online business and its products in various ways that make them unique from the competition. For example, Netflix develops its competitive advantage by producing its own entertainment content, instead of streaming content from third parties. The differentiation strategy helps the business model to attract and retain customers, thereby supporting intensive growth plans for further improvement in the online operations.
Netflix’s Intensive Growth Strategies
Market Penetration- It is the main intensive growth tactic of Netflix Inc. in expanding its business operations and multinational market reach on the internet. This growth strategy’s objective of growing profit and market share depends on how Netflix’s generic strategy maintains a competitive edge to attract and retain more customers in current markets. Other strategic areas also influence how the generic strategy and intensive growth strategies are applied as part of the online business model.
Market Development- It supports the organizational development of Netflix but just as a secondary intensive growth strategy. Market development occurs by selling the company’s current online streaming service and original content to new markets. For example, in applying this growth strategy, one of Netflix’s aims is to expand the business by entering more countries, which serve as new markets. The company’s cost leadership generic strategy contributes to the success of this intensive growth strategy by making the online service attractive on the basis of cost affordability. Competitive edge is essential in improving the business model of Netflix business model efficient in generating revenue in these new markets.
Product Development- It is another secondary intensive growth plan that coordinates with Netflix’s development and expansion. This growth strategy’s objective is to develop and sell new products in the online company’s current markets. For example, Netflix uses its generic strategy for a competitive edge to efficiently produce new entertainment content for current subscribers. Success in the product development intensive growth plan is dependent on how Netflix is using organizational culture to support relevant product innovation processes.
Diversification- It is rarely applied to grow Netflix’s online operations which are because of the high risks involved in this strategic direction. This intensive growth plan is having the goal to grow the business through new operations outside the company’s current business of online streaming and original entertainment content production. This growth is possible through Netflix’s generic strategy and the business model’s capacity for new online operations. Considering its competitive edges, the enterprise is likely to be focused on businesses or industries related to online media streaming when applying this intensive growth strategy.
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