Netflix-ification of Your Business Model

Netflix-ification of Your Business Model shares how the future is hiding in plain sight.Ever notice how a handful of companies, Netflix, Amazon, Uber and Apple, already occupy the future we discover? Your online marketing model is hiding in plain sight on your TV – Netflix-ificaiton.

We won’t all become Netflix. We can all learn from Netflix’s stages, pivots and barrel rolls. This post examines each of four “growth” stages sure to impact every digital marketer:

  • Disruptive Technology – Use of Technology to engage and disrupt an existing market.
  • Community – growth and gamification of online community.
  • Twin Engines – Tune Content Curation & Creation Engines Creating Scale.
  • Become Content Creators Again – Re-enter New Market As Creator.

Netflix-ifcation Disruptive Tech icon

Disruptive Technology

Netflix understood the all-important Amazon lesson – all businesses are INFORMATION businesses first and foremost. Netflix creates the $1,000,000 prize to improve their rating algorithms. In quick succession Netflix masters and then de-prioritizes shipping DVDs through the mail in favor of streaming.

Blockbuster held on and hoped the future wouldn’t arrive or be as disruptive as the future always becomes. Blockbuster’s business model was flawed. Blockbuster made their profits from late charges. Not a model to win customer hearts, minds, advocacy, and loyalty. The “late charge” business model invited price and subscriber disruption.

Netflix’s use of monthly subscription financing was HIGHLY disruptive. Netflix’s benefits were HUGE. Monthly subscriptions assume scale, but Netflix understood the web’s vicious CATCH-22 – you can’t achieve scale without having scaled. The way around the web’s CATCH-22 was clear, at least to Netflix, monthly subscriptions below $100.

With cable and phone bills coming in above $100 now for many potential “VIP” Netflix customers keeping monthly pricing below $100 would entice scale. $8 a month was also about the cost of two “late fee” movies from Blockbuster.

Low prices are cost of playing web poker, but they aren’t enough. Netflix had to create a proprietary information system too. Without an investment (in reviews) and an algorithm to use that investment to cut through clutter and make recommendations engagement could wane, churn (of their membership) increase and competitive vulnerabilities increased.

Neither PRICE or TECH is enough to disrupt a market, but the combination of price and tech can be highly disruptive. Netflix’s master stroke? Creation of a review archive to feel their algorithm. Netflix made providing reviews easy. Click on a star rating and add another review to the pile.

As a Netflix customer’s reviews grow their investment does too. After “reviewing” hundreds or thousands of movies are Netflix customers likely to leave? Nope. Thinking long-term is key. Netflix knows cable systems and Amazon are vulnerable long-term. The system with the highest customer satisfaction and broadest inventory should win.

Currently movies are split between great value (Netflix) and broad but often expensive archive (Amazon). Cable plays too with DVRs and their “On Demand” service. Cable has an installed base. Easy for cable companies to offer “On Demand” “feature” films.

Feature is in quotes since TIME seems to be what makes a film worth $6.99, $4.99 or $1.99. Cable’s On Demand isn’t as successful with “evergreen” or “new wave” movies. The further cable moves from “feature” the more their poor User Interface and internal search limit their ability to compete with Netflix and Amazon’s Prime streaming.

Netflix-ificaiton Engine Stage icon

Community

Building online community is a challenge. Listening, curating and moving focus from technology to people is THE important challenge any tech startup faces as outlined so well by Medium’s founder Ev Williams:

Today, we all understand the Internet business is not the software business. We strive to build networks and platforms. We compete on user experience (and marketing, to some extent). Features and flexibility are far down the list of competitive tactics, at least when you’re dealing in consumer software (make that, services).

These people love writing on Medium, even if they see it as just a tool to create a nice page to point people to from Twitter.

However, that’s not the point. Or, at least, that’s not the end. In the last few months, we’ve shifted more of our attention on the product side from creating tool value to creating network value. What does this mean? Obviously, one form of that value is distribution. And there’s no doubt that something published on Medium has a higher likelihood to find an audience than the same thing published on an untrafficked island on the web.

But the more interesting bit of network value we’re starting to see a lot more of is qualitative feedback.

Tools without communities lose engagement over time. Loss of engagement over time is the web’s natural state. Habituation, competitive pressures and rising expectations mean tools must become networks, networks must become communities, communities must be gamified to encourage engagement and participation over time and community curators should begin to create content based on “big data” mining.

Community grows fast WHEN customers sell each other. Community means finding your site and content’s personas, segments and knowing your 1:9:90 Rule:

  • 1% of a site’s visitors will contribute meaningful content.
  • 9% of a site’s visitors share content especially if it comes from 1%ers.
  • 90% of a site’s visitors read and are important to traffic metrics but hard to engage.

Netflix has beginnings of social community. Their closed loop site (they don’t allow your reviews or comments out to the web at large so they won’t show up in Google) is not as socially sophisticated as it could be.

Netflix wants to create a walled garden. Possible, but internal nets are not as inherently engaging as external ones. With close to 30M streaming customers Netflix may believe social and community isn’t important. They’ve achieved scale after all.

Such an assumption, that social and community isn’t important, is correct until it isn’t. The moment the assumption goes south PAIN happens fast. Scaling community isn’t something easy to do under pressure. Netflix doesn’t want to give up leadership to a WaNeLo.com, Fab.com or Folkes.com.

“Social shopping” sites are gaining millions of subscribers based their social play. Adding digital content streaming (with a partner like Amazon) would be easy and a potential Netflix killer unless Netflix’s tribe can own more of the “means of production”. Who consumes anything passively anymore. We want to grab, spin and manipulate content (any content) and share our take with our friends. Netflix thwarts “content curation” at their peril.

Amazon isn’t very adroit at social shopping or social networking either.

A partnership with WaNeLo.com (or something similar) could kill several birds with a single genius collaboration. Holes in Amazon’s social media marketing would be plugged (with a social shopping collaboration) even as Amazon helps their social shopping partner tap an infinite inventory of digital movie and book downloads.

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Engines

Once community forms and scale is achieved DATA is coming in at a fast clip. Creating a tuned “virtual cycle” engine becomes possible. The web lives on “virtual cycles” were big become giant and giant become massive.

These “positive virtual cycles” are easier to see with massive amounts of user preference, behavior and purchase information. As an online system scales data increases exponentially. Big Box competitors online know how to corral and optimize user experiences across a variety of “personas” or customer “wants and needs” segments.

Less input generates more return. Once Blockbuster was out-of-the-way Netflix could look for more robust competitors – Amazon and cable TV systems. Once Netflix knew their customers loves it was easy to keep minting “coin of the realm” faster and better.

Virtual Cycle “do less, get more” engines don’t hedge the web’s inevitable entropy.

Customers will leave to follow a new shiny thing if / when the new shiny thing disrupts the now established and scaled brand. Gamification needs to be added during the Engine stage.

Gamification is use of games and game theory to keep customers engaged over time. Without some “reason to play” customers become bored and loyalty fades. Fantasy football is a great demonstration of gamification’s power.

Investment (in a team) is easy to optimize and compete with other “like me” players in fantasy football. Those same dynamics are needed by any site, brand or company who seeks continued online growth, acquisition and customer advocacy even as their brand enters the “do less, get more” stage.

Community provides the answer. Asking members for help makes scale and Return On Investment (ROI) live together, keeps brands aligned with customer expectations and makes sure games and competition aren’t too “brutal” (i.e. sure to increase membership churn).

Netflix-ification Become A Creator icon

Become A Creator

After creating a site and then stepping back to form community Netflix can now step up their “production house” creation and branding. Mining customer trends thanks to Netflix’s twin engines (scale and community creating engagement) Netflix can place knowledgeable bets on what movies and series to create.

One “big data” bet is obvious already – series. They bet on series because Netflix sees “bingeing” or watching entire new series or new episodes in short time frames. When House of Cards brings a new year to Netflix many customers watch an entire year of episodes in junkie fever.

Is your content BINGE WORTHY? Do you have every piece of the Netfix-ification engine? What are you, your website or company missing and why? What “growth hacking” stages did we miss?