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Chapter 4

Chapter 4 BU415.docx

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Wilfrid Laurier University
Phil Cutter

BU415Chapter 4Netflix in Two Acts The Making of an ECommerce GiantWeek 3and the Uncertain Future of Atoms to BitsIntroductionReed HastingsCEO of Netflix has been appointed to the board of directors of two of the tech industrys most influential firmsMicrosoft and Facebook Netflixs profits customer base and stock have each hit an alltime high Hastings is correct in understanding that digital streaming is where consumers technology and the industry are headed Why Study NetflixGives us a chance to examine how technology helps firms craft and reinforce a competitive advantage While Netflix emerged he victorious underdog at the end of the first show there will be at least one sequel with the final scene yet to be determined A highly successful firm can still be challenged by technical shifts Netflix started out as a DVDsbymail business and then shifted to streaming The firm now only offers its streamingonly subscription as the default option for consumers Act I David Becomes Goliath Crafting Killer Assets for DVDbyMail DominanceWhen Netflix went public too early they were forced to disclose their financial position and the whole world soon learned that Netflix was on a profit march with a remarkable growth trajectory Blockbuster and WalMart were both attracted because of this but David knocked off both Goliaths Understanding how the dotcom worked won the DVDbymail business Netflix was able to create a critical and mutually reinforcing resourcebrand scale and a data assetrivals scores simply could not match this Timing and technology are critical in nurturing assets for competitive advantageBrand Strength from BestinClass Customer ExperienceBrands are built through customer experience This is especially critical online where opinion spreads virally and competition is just a click away Reed Hastings early market entry and effective execution made Netflix the first firm consumers thought of in regards to DVDs by mail Everyone else in the space had to spend big to try to create awareness alongside the mindshare leader Scale from the Distribution NetworkNetflix had a nationwide network of 58 highly automated distribution channels and could deliver movies overnight to 97 of the US population No one else had a comparable network at launch so the lack of scale among rivals harmed their customer experience weakening their brand Scale from SelectionThe Long TailNetflix appeal also came from the scale of the firms entertainment selection Internet businesses are free of the limitations of shelf space and geography which troubles traditional retailers When delivery happens via postal or package services customers are freed from limiting their product selection to only those items offered by shops close enough to drive to Long tailan extremely large selection of content or products The long tail is a phenomenon whereby firms can make money by offering a nearlimitless selection Theres more money to be made selling obscure stuff if you can reach the greater customer base provided by the Internet
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