Netflix establishes a strong footing in the online streaming business - Here’s how?

Founded in 1997 as a $2.5M trifling startup, Netflix has today successfully conquered the largest share of the filmed entertainment with a base of more than 7,000 employees and 158 million subscribers. What is surprising to note here is that Netflix has been able to retain its subscriber base despite charging the highest over-the-top (OTT) service rates in the country (almost double the rates of local competitors). People around the world stream 125 million hours of content on Netflix every day.

According to Forbes Report published in September 2019, Netflix is the world’s fourth-best regarded company after Visa, Ferrari and Infosys and the first in the category of Internet Catalog Retail with a market cap of $157.3B.

Available statistics indicate that Netflix had to come up with dynamic strategies and smart solutions to penetrate the internet market. Forbes stated that Netflix operates its business through domestic streaming, International streaming, and Domestic DVD. It collects content from various content providers through fixed-fee licenses, revenue sharing agreements, and direct purchases. It hosts its service through various channels, including online advertising, television, and radio and various partnerships.

Netflix has however carried out its journey of experiments and challenges to reach where it is today.

Some of the methodologies that worked for Netflix to create a vast niche are -

Adoption of Subscriber-based Model

Netflix originated with a modest idea to rent DVDs online. Users would browse and order the films they wanted on their website and Netflix delivers them at their door. The DVDs would be posted back when the renter wishes. When Netflix started earning revenue, it took the next step by converting from rent-by-mail DVD service into a subscriber-based model that let subscribers keep the DVDs for as long as they liked but could only rent a new DVD after returning their previous one.

So far, Netflix maintains the Subscription model with an added free monthly trial feature in which users can see all the premium content on the app free of cost and can make an experience-based decision for a paid membership.

Ads-free Content

Netflix has kept away from hosting unnecessary advertisements on the app. This is also how Netflix has pulled most of the traffic from YouTube because viewers prefer uninterrupted entertainment which they cannot find on another medium. In 2020, YouTube’s net advertising US revenues are expected to reach 5.5 billion U.S. dollars which Netflix has forsaken completely in exchange for more subscribers.

Content Personalization

A fascinating but true story is that Netflix subscribers in California were telephoned by the company’s staff to give their reviews about the software interface. Later, the real- time experience of those users was analyzed. The search algorithms of Netflix were carved out as per the user needs to enhance their experience.

Netflix knows consumers’ interests and tailors the content it offers to each subscriber based on the data it has about them. Every year, the company spends over $160 million on improving its recommendation system, sorting the shows based on what viewers might like. Netflix devotes considerable time in understanding the search pattern and the types of shows a user likes to watch based on their viewing habits. It uses this information to market similar content to the subscriber later.

Video Streaming

A gigantic leap could be traced back to the year 2007 when Netflix launched an on- demand streaming video. During that time, no mass-streaming service existed other than YouTube which led to a sharp rise in Netflix’s annual revenue from 1.37 billion in 2008 to around 15.8 billion in 2018. The number of Netflix subscribers has followed a similar trend, growing from less than 22 million in 2011 to nearly 150 million in 2019.

Fast globalization

Originally based in the U.S, Netflix first opted for universal presence in 2010. It launched its services (in chronological order) in Canada, Latin America, and the Caribbean, Nordic Countries, United Kingdom, Ireland, Austria, Belgium, France, Germany, Luxembourg, Switzerland until it reached 50 countries by 2015 and 190 countries by 2017.

But to spread quickly, Netflix had to adopt smart and unique strategies such as securing content deals region by region, and sometimes country by country, language translations for different countries and resolving the issues of national regulatory restrictions related to content availability.

Device-Optimized Content

Netflix knows the importance of the mobile market for content. It enabled viewers to watch movies and shows on smartphones by marking its availability on the Apple iPad, iPhone and iPod Touch, the Nintendo Wii, few Android phones and other Internet- connected devices. In July 2019, Tesla founder Elon Musk informed Tesla owners they would soon be able to watch Netflix in their cars. As of now, the services only work when the cars are parked. But the feature will be available in newer-model cars with more availability.

Creating Fascinating Content

Netflix knows that its subscribers like to binge-watch certain series. It tailors its content according to create the maximum curiosity amongst the subscribers. It makes its own high-quality shows where it designs interesting characters and engaging stories and often breaks the shows into series to maintain viewership.

Chaos Engineering

Netflix does not irritate its subscribers with app breakdown. The reason being a systematic approach called “Chaos Engineering”. In this model, the software system is tested well in advance during production against its capability to withstand turbulent and unexpected conditions. Netflix particularly started the use of a tool named Chaos Monkey (Apache 2.0 license) in 2012 to test the resilience of its IT infrastructure.  It works by disabling one of the three data centers in Netflix's network and redirects the traffic to two other regions to test how they respond to the failure.

(Inputs have been taken from Business World where the story has first appeared)