Netflix: From DVD in the mail to Streaming from the Cloud

Transcript

1. Netflix: From DVD in the mail to Streaming from the Cloud 1
2. Netflix Business Strategy 2 Remove Late Fee Provide Choice from Long Tail Ubiquitous Anytime access
3. Incumbents in 1997 ¨  Blockbuster, Hollywood Videos, Movie Gallery ¤  Rented DVDs out from prime locations ¤  Kept inventory of about 2000 titles with 3 to 4 copies of each ¤  Mostly expensive DVDs with new movies and some long time hits ¨  New movies typically release to big screen and then release via DVD ¨  DVDs rent while its new ¨  DVD availability window is relatively small ¨  Charged late fee to maximize turns 3 Must impose steep rental fees and steeper late fees
4. The Red Envelope (1999-2008) ¨  Removed late fee as they saw opportunity in long tail of DVDs ¨  Stocked 120,000 movies mailed out from 50 hubs ¨  Matched renter interest with a low cost movie from the long tail ¨  Announced $1M prize: Help find a better recommendation algorithm ¨  4 years and a team of 10+ PhDs solved that ¨  In 8 years, Blockbuster, Hollywood video et. Al. are almost out of business 4 Recommend movies in the long tail, personalized to the customer, lowering costs
5. Streaming Movies – 2008 and beyond ¨  Netflix lets users manage their DVD queue for what they would rent next ¨  Netflix had their own problems ¤  DVD theft ¤  DVD piracy ¤  FBI involved in the US ¤  Could not grow internationally with DVD renting model ¨  Streaming model looked very appealing ¨  Cost to stream out DVD via CDN was a few pennies but postage is 10-100 times more ¨  Streaming lets them grow internationally ¨  20M US subscribers ¨  Started streaming to US subscribers from their datacenter ¨  Datacenter faced cooling issues and downtime ¨  They issued customer refunds which directly impacted their bottom line ¨  Netflix at that time was making about 1.6 billion in revenue and had 400 employees 5
6. Netflix Decisions 6 ¨  Who will manage the streaming backend? ¨  What devices will users watch streaming content on? ¨  On the client end ¤  What should be the client experience? ¤  Should Netflix create their own device? ¤  Should Netflix partner with device makers? ¤  If so, which device makers should Netflix pursue? ¤  What about DRM to prevent piracy and honor IP? ¨  On the cloud end ¤  Who will manage the streaming backend? ¤  Who will maintain and upkeep the data center? ¤  How to deal with data center growth?
7. 7 Thank you.
8. Decided against creating own device 8 ¨  HDMI ports on household TVs were already occupied by a variety of devices ¨  Introducing one more Netflix device wasn’t the best
9. Partnerships with Device makers 9 ¨  Grew subscribers 2008-2010 by partnering with device makers ¤  Game Consoles n  Xbox 360, Wii, PS3 ¤  Mobile Devices n  Apple iPad, iPhone, iPod Touch, Windows Phone 7 n  Android (later)
10. 10 ¨  What happened to NFLX a few years after the transition?