The past 20-plus years have been a fantastic journey in the world of technology, changing the complexion of most businesses that survived the ride. Netflix, for one, went from a modest and now defunct, DVD movie rentalsubscription modelto a digital media powerhouse that has forever changed how we view entertainment.
Netflix’s ability to pivot, stay ahead of the competition, set trends and recover from downturns provides lessons for all businesses seeking success, growth and longevity in the digital age. We’ll take a closer look at Netflix’s journey, how it disrupted the media landscape and what we can learn about digital transformation and innovation from the company’s growing pains and successes.
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The evolution of Netflix and its history of disruption
Netflix’s evolution is a modern business success story with plenty of twists and turns. Here’s a brief history of the company and how it disrupted the entertainment industry:
- Snail-mail DVD subscription service:Netflix started its snail-mail subscription service in 1999 for movie and TV fans to rent films and shows via DVD.Internet speedwas slow and there was nowhere near today’s digital infrastructure, so watching entertainment via the internet was from being a reality. Streaming technology as we now know it didn’t exist and Netflix was solely about ordering your movies online and having them delivered to your mailbox — a new way to access DVDs.
- Almost an early exit:Many business experts believed Netflix’s DVD rental business wasn’t a scalable model and would die on the vine. Netflix agreed. In 2000, the company sought a $50 million buyout from Blockbuster, but Blockbuster wasn’t interested.
- Fine-tuned business model:In the years that followed, Netflix figured out how to fine-tune its distribution model for fast mail delivery. Still, users had to plan their entertainment at least two days ahead of time — for example, they had to order movies on a Wednesday for the DVDs to arrive in time for weekend viewing. Video stores like Blockbuster continued to prosper for last-minute needs.
- Pivot to streaming video:As technology improved in the late 2000s and then even more so in the 2010s, Netflix started providing streaming video for its ballooning customer base, which welcomed the new service enthusiastically and began ditching Blockbuster and its ilk. Streaming video wasn’t a new idea and competitors lurked on the sidelines, but Netflix’s ample, established audience and cutting-edge technology gave the company advantages in this burgeoning arena. Blockbuster tried to follow Netflix into streaming, but it was too late for both the video rental chain and its old-school competitors.
- Content giant:With viewers enjoying more streaming entertainment, Netflix branched out into original content in 2009, setting the company off on a new path of creating award-winning movies and series. In time, fierce competition emerged from the likes of Hulu, Max, Apple, and many more services. But the Great Netflix Correction in 2022, which involved a massive loss of subscribers, proved to be only a temporary hiccup.
- Closure of the DVD division: In 2023, Netflix became a streaming-only service as it finally ended its DVD-by-mail service. This came at a time when demand for streaming services greatly reduced the demand for physical media like DVDs and Blu-rays. Netflix was poised to focus only on the present — with an eye on the entertainment technology of the future.
Did You Know?
Netflix uses big data to learn subscribers’ viewing habits and behaviors to drive future production decisions and user experiences.
What can businesses learn from Netflix’s success?
Here are some lessons businesses can learn from Netflix’s continued success:
- Stay ahead of competitors:Netflix has been a disruptor throughout its history. Being the sector’s leading innovator meant it was ahead of the competition at every step. Netflix revolutionized how people rented DVDs, reimagined the subscription model, pivoted to online streaming and turned itself into an award-winning content producer and household name. Businesses that want to follow in its footsteps should differentiate themselves from the competition by staying one step ahead in technology, service, operations and more.
- Set trends:Netflix introduced the concept of binge-watching, where consumers didn’t have to wait for a new episode of their favorite show each week and could instead watch continuously. The trend took hold as binge-watching became an entertainment cornerstone across rival streamers, particularly during the pandemic. But setting trends means mixing things up, too and Netflix also experimented with other viewership models. For example, with some high-interest shows, Netflix opted for weekly releases that built buzz over time and, in some cases, the streamer even offered live programming specials to hook viewers. In your business, monitor customer behavior and preferences to find ways to better serve your target audience, continually evolving your distribution methods to keep your audience hooked.
- Be opportunistic:Netflix took the leap into independent production and distribution with hit shows, such asOrange Is the New BlackandThe Umbrella Academy. Going from a DVD-turned-streaming service to a production company was a big step, but Netflix saw an opportunity to identify and meet its audience’s interests in a way traditional studios weren’t. Similarly, you should look for ways your business can seize opportunities to expand its offerings and provide something unique.
- Focus on the consumer experience:Netflix makes its experience about the consumer. The streamer’s navigation menu is intuitive and highly praised and the system tracks what you watch so Netflix can recommend similar content. These all help improve the user experience while building customer retention and customer loyalty. Try getting customer feedback and insights into your business so you can improve your systems and services, retain existing customers and attract new ones.
- Expand wisely:When Netflix decided to go global, it didn’t just roll out the same platform of shows and movies to everyone; the company researched each country’s demographics to customize the user experience. Today, Netflix streams in more than 190 countries, but its specific offerings vary. In your business, scale carefully as Netflix did. Ensure youdon’t grow your business too quickly and research your customers’ varied needs instead of taking a one-size-fits-all approach.
Tip
Customer survey data is a great tool for finding out what consumers think and want. Well-formulated surveys can help you identify customer needs so you can innovate and meet their desires.
What can businesses learn from Netflix’s growing pains?
The Great Netflix Correction of 2022 was an eye-opener for the industry. Netflix lost more than 200,000 users in the first quarter — the first time it had lost subscribers since 2011. The value of its stock price had fallen by 68 percent by that June.
Perhaps more surprising than Netflix’s setback, however, was its comeback. Here’s what businesses can learn from the company’s growing pains:
- Target being lean: Netflix laid off hundreds of workers and canceled projects in an attempt to regain stability. It also worked to moderate its spending to make its costs more in line with decreased revenue.
- Build on existing success: Netflix began releasing some shows weekly or monthly instead of all at once — a departure from its previous “binge” approach. This was a masterstroke as it created anticipation for the next episode and fueled sustained engagement with the platform over a longer period. It also gave audiences the chance to discuss episodes in real time each week.
- Give customers options: Netflix introduced an advertising-supported tier in conjunction with Microsoft, providing an option for consumers who would be willing to watch ads in exchange for a cheaper subscription price. Audiences leaped at the opportunity. Netflix estimated that its subscriber base on the $7-a-month ad tier grew quickly to 15 million monthly active users.
- Diversify your offerings: Netflix now has almost 90 mobile games and is making them available on computers and internet-connected TVs. This includes tried-and-tested favorites like Grand Theft Auto and some inspired by its own shows, such as Squid Game and The Queen’s Gambit.
- Be price conscious: Netflix’s 2022 issues were partly due to price. What started out as a cheaper alternative to other viewing methods became the most expensive streaming service. Netflix reacted accordingly, adjusting its pricing while also cracking down on rampant password-sharing among users.
- Watch the competition: Once unchallenged, Netflix is watching its competitors closely. The company tries to strike a balance between doing what it knows works and staying ahead of the competition by pivoting and identifying new trends.
Thanks to these measures, Netflix looks to have turned itself around — the company had an operating margin of 21 percent in 2023, up from 18 percent in 2022. If it continues to innovate and disrupt the status quo, the brand will remain a leader in both streaming and original content.
Examples of industry disruptors like Netflix
Netflix isn’t the only digital disruptor. Here are some other significant examples of innovation by companies that today are considered industry leaders.
1. Apple’s iTunes changed digital content distribution.
iTunes was the first major platform for providing widely distributed digital content and the concept turned the music industry upside down. An antiquated system of music production, distribution and in-store sales gave way to a new method of paying for only what you wanted, such as a single song instead of an entire album and accessing it immediately via the internet.
Industry resistance to the iTunes distribution model was fierce, but Apple prevailed. Artists could even self-produce and release music without studios or physical music stores, thanks to the company’s innovations. Today, iTunes and the Apple Music app, which lets users stream and download millions of songs and access their personal music library, are essential for every music fan.
2. eBay’s auction marketplace was one of the first ‘killer apps.’
eBay was founded in 1995 as AuctionWeb and went public in 1998. It was one of the first “killer apps,” becoming the core of the burgeoning e-commerce industry. The site’s online auction model quickly took hold and became a favorite of internet-savvy shoppers.
Initially, traditional retailers weren’t concerned because eBay was considered a place where people sold their junk. However, eBay became a formidable e-commerce player with a PayPal digital payment integration and the addition of more traditional online sales features, such as implementing a “Buy It Now” button to avoid auction haggling. Today, shoppers and online merchants may prefer Amazon (see below), but there’s no denying how eBay changed the commerce game.
Did You Know?
PayPal, once an eBay subsidiary, has done some disrupting of its own. The payment solution has grown to challenge traditional lenders with its PayPal business loans and businesses can accept credit cards via PayPal instead of other payment methods.
3. Amazon started with books and became an e-commerce powerhouse.
Amazon’s online book sales proved that the internet could house a hugely scalable retail platform that didn’t require a massive real estate and workforce investment. Still, many retailers didn’t see the promise initially. The thought of shipping costs, packaging and returns gave them a headache and adoption was slow.
However, Amazon began selling more than just books and the concept exploded. At the same time, shipping companies, such as UPS and FedEx, saw the promise of this digital retail world boosting their businesses, too. Today, Amazon is the undisputed e-commerce leader, with offshoots such as Amazon Prime, Amazon Prime Video and its own digital devices like Amazon Alexa. There are evenAmazon business featuresthat help small businesses operate.
4. OpenAI unleashed ChatGPT and kickstarted the Artificial intelligence
(AI) boom.
AI was, for a long time, widely regarded as akin to robots taking over the world. But as it has developed and its use cases have grown, its value as a boost to human capabilities is gaining traction. Enter OpenAI’s ChatGPT, a chatbot released in late 2022.
Many have enthusiastically adopted the tool as the answer to creating original content at scale. It can output human-like text and engage in conversation with users, making it a helpful assistant for tasks, such as copywriting, dealing with customer inquiries and automating workflows. It can also offer insights and forecasts. Now, not only are other technology companies like Google, Microsoft and Meta racing to build a better chatbot, but everyday businesses are figuring out how best to incorporate AI tech into their operations for better efficiency.
What other industries are being disrupted?
The internet space isn’t the only sector undergoing massive changes. Here’s a glance at some other industries facing digital disruption, the companies doing the disruption and how businesses like yours may be affected.
Disrupted industry or corporation | Disrupter | Disruption |
|---|---|---|
Credit cards (Visa, Mastercard and American Express) | Mobile payments, like Apple Pay and Google Pay | Digital paymentsandomnichannel paymentsare increasingly popular and the infrastructure rails of major credit card providers are soon to be the “horse and buggy” of the digital age. Be prepared to have the middleman cut out of the payment game, leading to reduced processing fees and a streamlined sales process. |
Traditional technology companies (HP, Intel, IBM and Cisco) | Amazon Web Services, cloud information technology infrastructure services | Cloud infrastructure (computers and network) providers support a pay-as-you-use model (like renting movies). While traditional tech companies will always have a market, no longer will there be half-utilized hardware on the data center floor of large corporations. Instead, businesses will increasingly rely on cloud services. |
Airlines and transportation | Skype, Zoom and other video communication technology; Uber, Lyft | With the use of video teleconferencing services, such as Zoom, now the norm, businesspeople are becoming less inclined to travel for work meetings and presentations. If they do hit the road, they may skip the rental car and opt for a ride-share instead. |
Recording studios | Apple’s GarageBand and similar products | Recording studios across the world have seen their profits dip dramatically as amateur production engineers can now record their own music with “good enough” quality and release it themselves. However, studios will likely always exist for musicians who don’t want to do things do-it-yourself-style. |
Kodak | Digital photography services like Shutterfly and Google Photos | Kodak reinvented itself as a manufacturer of print production technology with a workforce of more than 60,000 at its peak in the 1980s. But it wasn’t able to keep up with the times and declared itself bankrupt in 2012, selling its Kodak Gallery site to Shutterfly — one of many digital image-sharing businesses that has changed how people interact with their photos. |
Comcast, Time Warner and Verizon | Satellite, wireless, cellular technology | While these businesses are deeply entrenched in internet operations, they’ll need to adjust how they do business. One day, wired infrastructure will be defunct and we’ll see more of what Google is doing with Google Fiber. |
Keep an eye on innovation in your industry
Digital technology has been a massive disruptor in many industries, including retail, entertainment, communications and travel. Trying to track industry trends and predict their impact is complicated. However, seemingly unrelated or new innovations from rivals can damage your business or industry if you don’t take notice — and you can be sure someone will. Netflix’s evolution is a prime example of that.
Sometimes, businesses have invested so much in infrastructure that it’s almost impossible to turn the ship, so getting an early start is crucial. Digital makes everything fast; it won’t take 30 years anymore to scuttle an outdated business concept. No matter what your industry is, keep an eye on digital innovations and look toward the future to keep your business not just afloat but ahead of the pack.
Mark Fairlie and Kimberlee Leonard contributed to this report.
