Research Paper on Netflix Technology

Netflix Technology Advantages

Introduction

Netflix is one of the largest online DVD rental services which are delivered to customers in the USA. It should be pointed out that the company occupies the leading position in its segment of the market and, what is even more important, Netflix keeps progressing and developing its services. In fact, the use of technological innovations, especially in the field of IT became one of the major factors that determined the success of the company. At the same time, it is also worth mentioning the fact that logistics also plays an extremely important role in the performance of the company.

Basically, Netflix may be viewed as a company that has reached a tremendous success in the development of online business. This company has revealed the extent to which online business may be actually effective. In such a situation, it is necessary to analyze the experience of Netflix in order to better understand the effectiveness of IT used by the company, its competitive position and possible advantages of the wide application of the new technologies. Moreover, the research of the development and services of the company can also reveal the major directions in the development of online DVD rental services and companies operating in the same segment of the market as Netflix.

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Traditional services of Netflix

On analyzing the development of Netflix, it should be pointed out that the company was traditionally oriented on the implementation of new technologies which the company successfully combined with the highly effective logistics. In fact, Netflix has started to operate in a relatively new market of online DVD rental services. Basically, the emergence of these services is closely intertwined with the development of Internet and DVD production. On the one hand, the development of DVD provided customers with the possibility to watch movies and shows of the highest quality, while the emergence of Internet, which has been observed within the last decade and even more, facilitated considerably the process of ordering and shipping of DVD by customers.

Naturally, Netflix could not fail to benefit from the development of new technologies and opportunities which these technologies had opened. At the same time, it is necessary to emphasize the fact that Netflix was one of the first companies that had managed to successfully implement an effective system of the online DVD rental services. Speaking about the system developed by Netflix, it should be said that it was rather simple but very effective, especially compared to its major competitors, such as BlockBuster, which though were few at the dawn of the development of online DVD rental services. In this respect, Netflix developed a different strategy compared to its major competitors. Unlike the major competitors of the company, including BlockBuster, which focused on customers that offered the largest amount of DVDs, Netflix attempted to develop an effective rental system and shipping of products to all customers.

In terms of this strategy, Netflix developed a monthly flat-fee service for the rental of DVD movies for different groups of its customers. Basically, the customers of the company may be divided into three major groups depending on the monthly plan they select. The customers create an ordered list, which is called a rental queue, of DVDs they would like to rent. Depending on the amount of DVDs the customers of the company are willing to rent at a time the monthly flat-fee varies from $4,99 for one disc ordered at a time, to $16,99 (plus tax) per month for up to three DVDs at a time, and up to $47,99 per month for eight discs a customer can order at a time (Blitstein, 2007). In such a way, a customer can chose any monthly plan that is the most affordable and convenient for him/her. The ordered DVDs are delivered to customers by mail to different parts of the USA. It is worth mentioning the fact that the company developed a comprehensible and effective system of delivery due to which a customer can rent DVDs for unlimited period of time but he/she cannot hold more than three discs at a time. If a customer orders new DVDs, he/she has to sent the previously ordered discs back to Netflix in a prepaid mailing envelop and it is after receiving these DVDs, the company ships new DVDs to the customer. In fact, a customer does not need to change an envelope to mail DVDs back since discs are returned to Netflix in the same envelops they were mailed to customers.

However, this system being very effective did not work perfectly well. In fact, the company focused on the customer satisfaction and its primary goals to ship discs to a possibly larger amount of customer in time. But such an approach caused certain inconveniences for customers ordering the maximum amount of discs. The main part of the customers of Netflix order up to three discs and they do not have any problems with shipping, but customers that order more DVDs do not always receive ordered discs in time and in a proper order. In this regard, the main competitors of the company focused mainly on customers that ordered the largest amount of discs. In such a situation, Netflix has got a competitive advantage due to the larger amount of satisfied customers, even though they ordered a lower amount of DVDs.

Advantages of IT use by Netflix

Nevertheless, the online DVD rental services were just a traditional set of services offered by the company to its customers. Even though it was and still remain to be quite profitable for Netflix, the company still tends to implement new technologies and approaches to increase the number of its customers, improve higher quality of services and, what is more, offer new services strengthening its leading position in the American market.

In this respect, it should be said that one of the recent developments of Netflix is the introduction of the new service known as “instant viewing”. Initially, this service was delivered only to a limited number of customers. The major reason for such limitedness of the supply of this service was the lack of technological opportunities of customers and partially of the company to provide the service of a high quality to a large number of customers. In the course of time, as technologies, especially IT, and Internet progressed this service became more and more available to a larger number of customers. In fact, the availability of this service is dependent on the technological opportunities of customers, such as their connectivity to Internet. At the present moment the “instant viewing” service is available to all eligible customers. Basically, this service allows subscribers, at no additional cost, to stream near-DVD quality movies and TV shows instantly, depending subscribers’ Internet connectivity (Liedtke, 2007). Nowadays, this service is really available to a large number of customers. For instance, the most popular $16,99 subscription plan provides customers with 17 hours of media streaming (Fisher, 2005). Obviously, this service puts the company into an advantageous position compared to its major competitors, such as BlockBuster. In this respect, it should be pointed out that the company has managed to provide the service of the high quality to a large number of customers at affordable price and, what is more important, the introduction of this service was really innovative. As a result, Netflix again became an innovator in its industry and, therefore, it can strengthen its leading position in the market, while its competitors have to overcome the established entering barriers and develop their own effective system of delivery of similar services to their customers.

Future projects and perspectives of Netflix

At the same time, Netflix has never stopped progressing. At the present moment the company keeps working on new projects, which it is planning to implement in the nearest future. In this regard, it is possible to mention HDTV set-top box project which the company plans to introduce in the second half of 2008. This project will allow users to download movies over broadband directly to HDTV set-top box.

In such a way, the company has an opportunity to introduce one more technological innovation that will allow the company to increase the number of its customers and provide them with new services. In such a situation, the company will naturally preserve its leading position since Netflix was traditionally positioned as innovator and as the company that provides the most advanced services to its customers.

Conclusion

Thus, taking into account all above mentioned, it is possible to conclude that Netflix has gained a considerable competitive advantage compared to its major rivals. This strategically important advantage was gained, to a significant extent, due to the effective implementation of new IT and the organization of an effective system of delivery of its services to customers. As a result, the company is one of the largest suppliers of online DVD rental services in the US, while new services introduced by the company strengthen its position in the market and open new perspectives for the further development and growth.

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