The ‘Know your audience’ lesson: Netflix inspiring success story

Now everyone can recognize this logo but not so many know how long the actual story is. Today Netflix is a streaming giant that has grown so exponentially that it no longer needs an introduction. So we wanted to look through this 20 years story of success and take the most from it.

How it all began?

Marc Randolph and Reed Hastings (founders of future Netflix) met after Randolf’s company Integrity QA was acquired by Pure Atria which was a debugging company founded by Hastings. In 1997, the company was acquired by Rational Software for $850 million. So later in January 1997, they both had to decide the future way. Reed originally planned on going back to school, while Randolph was looking for the next big launch. 

Then the story of how the Netflix idea was born gets a bit blurred. From the beginning, Reed Hastings told in several interviews that he got the idea after Blockbuster (their direct future competitor) charged him a $40 late fee for ’Apollo 13’. But later Marc Randolph, who left the company in 2002, told this story was just a “convenient fiction” to show how they standing out from the competitors.

The other version of the story is that the company was started when they decided to create “the Amazon of something” in 1997, according to the Washington Post.

They come up with a movie rental company that should operate via mail. And decided to validate the idea in a creative way – buy a CD and send it to each other a few blocks away. And when they saw the CD was undamaged Randolph and Hastings understood that the idea has the potential. The overall versions changed a few times so there’s no confidence in what story is the actual truth.

The Journey

At the time they began the niche was monopolized by Blockbuster so launching Netflix – created the other option for the customers that were unique and convenient. Yet the CD rental was never a final focus for Netflix, Randolph and Hastings saw the internet as an opportunity to decentralize the whole entertainment industry.

In late 1997 Netflix launched a video library of approximately 900 titles, with a 7-day return policy. In the next few years, they actively grew the number of available films. And then in 1999 presented its new subscription model. For the price of  $15.95, Netflix users could rent up to 4 films at a time.

Later in 2000 they rethought the model and came up with a subscription plan without late fees and return-by dates. 

While many actually had doubts about the viability of Netflix’s new model in 1999- early 2000th’s, this was an important point to the company’s success. Which showed their focus on the client’s convenience and differ them from the competitors.

2000-2006 Were the up and down years for Netflix. Yet the company is experiencing consistent growth of total revenue and the client base is still operating at a loss. But it didn’t stop Randolph and Hastings from further work on the user experience – they added the new innovative functionality using the Cinematch ranking algorithm to create the movie recommendations/suggestion for the subscribers.

At the time it was an innovative tech solution that benefited the concept in many ways. The algorithm analyzed 3 factors to make recommendations – Netflix’s catalog of movies, the ratings that subscribers had given to movies they had already watched, and the combined ratings of specific titles based on the ratings of all Netflix subscribers.

By the end of 2006, Netflix had more than 6.3M subscribers and had finally become profitable. At this point, Randolph and Hastings knew that their growth strategy was working. By focusing on the client’s needs and making it more convenient to find and rent the movies the users specifically will like – they won the target audience. And not like the competitors, Netflix actually was interested in new technical solutions and actively invested in them.

Next, 2007 became a revolutionary year for Netflix. Although the first DVD direction was growing rapidly, the company decided to move with the radical solution – permanently transform the business into the first streaming platform.

Netflix’s fundamental goal has always been to reduce friction to accessing entertainment so on another hand this step was rather logical.
Consumer demand for streaming video was practically nonexistent and there was no technology that was a fit to implement Netflix’s vision.

Randolph and Hastings again took the risky turn and invested more than $40M in the development of new streaming technologies. And later that year introduced its online streaming service – Watch Now. 

In 2008 Netflix opened new opportunities by partnering with cable TV network Starz, which gave them access to more than 2,500 movies and TV shows.

A few years after in 2011, Netflix tried a new rebranding strategy – splitting the DVD rental from the streaming business into two distinct subscription packages: Netflix for streaming, and Qwikster for rentals. The decision was met negatively with subscribers and investors alike. Because splitting the business took away the convenience of the 1 subscription for 2 services. This and the price increase that followed caused ~800,000 subscribers to abandon the service.

It might have looked like a game over but Netflix promptly solved the problem. Hastings assumed full responsibility for the Qwikster incident and by that outlined his special attention to the client’s needs and opinions.

By 2012, Netflix had another problem. Starz canceled its licensing agreement with Netflix, which resulted in thousands of movies disappearing from Netflix’s streaming service overnight. 2013 was another revolutionary year for Netflix as they took another risky turn. After a canceled agreement with Starz they struggled to find another partner so sink in the new stream – original programming with its high-profile political drama House of Cards. And it actually gathered a lot of feedback, still continues so you can point it out as a crucial turning point in Netflix’s growth. 

Netflix had finally found their way and became a one-stop-shop for original content. It may look crazy for the company that started from DVD rental but it made perfect sense for Netflix.

From 2016 onward, Netflix grew exponentially, original content gained numerous awards and attracted famous actors and screenwriters from all over the world. 

 And this is how we know Netflix now.

In this story are lots of ups and downs but we can definitely outline the important points on how Netflix won the hearts of users.

Key factors behind Netflix’s success story

1. Innovative approach

It’s written all over this story. On its way, Netflix always thought about more creative and convenient solutions. And were up to invest their time, effort, and last but not less – money, even if it was risky. They questioned and rethought everything about the industry.

2. Flexibility

Netflix created a new experience and it allowed subscribers to watch content they want, on any screen, any time.

3. Huge database

At first, Netflix successfully partnered with Starzto scale the options for subscribers and later focus on original content. 

4. Investing in original content

Original content is a win-win for Netflix making it a one-stop-shop, on their terms. And totally unique content will definitely scale and attract a bigger audience. This creates a cycle – users interested in content in fact.

5. No ads

Netflix always paid attention to the comfort of its users and knew people wish to enjoy watching movies with no interruptions from annoying and loud advertising, often louder than the movie itself. So they provide an ad-free experience to its user base.

6. Netflix invented ‘’binge-watching’’

In 2016 Netflix started to put a show’s entire season online at once. This way the subscribers were not limited and could watch the show when they wanted and that much as they wanted. It differed them from the competitors that tried to

tie viewers to the time and amount of the series they wanted.

7. Attention to user convenience

There are a lot of small details that show the real attention to the users and all over the Netflix success story, this approach pushed the platform forward.

It starts from little things like – custom-created preview videos that automatically play when you scroll over a title card or download-and-go feature but all together they create a cozy and convenient space.

8. Personal approach to each subscriber

Now Netflix uses machine learning so algorithms could make suggestions for each user personally, based on their preferences and tons of other factors.

Without this functionality, users would spend a lot of time going through the huge Netflix base and this could definitely ruin the vibe. 

Lessons we can learn from Netflix story

1. Think big

As we mentioned Randolph and Hastings always saw the bigger potential in Netflix even when they started out as simple DVD rental, they never stopped and thought about new innovative ways. Look at them now – a platform well-known and loved all over the world!

2. You don’t need to reinvent the wheel all the time

Don’t make decisions only if they’re creative and unexpected – the best decisions are the ones that help your business grow. You should take the risks but not all the time in the long run it might come out that you lost everything just to impress the competitors with your ‘creativeness’.

Healthy and thought out balance is everything.

3. Attention to our audience

We believe that this lesson is one of the most important ones in this story. Looking through – this approach saved the company and helped it evolve so many times. As long as you will listen and care about your client as long they will pay you back with their loyalty and support.

4. Focus relentlessly on quality

Working out the solutions always focus on the healthy balance that we mentioned, the quality isn’t a thing that needs to be neglected. The problem with quality will definitely cost you if not today than tomorrow.

Remember – product quality isn’t just about how good your product is, it’s about how well you solve the client’s problems.

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Netflix’s journey is an inspiring story to learn from. Their success wasn’t luck but rather a keen understanding of its market and taking balanced risks. Hastings and Randolph may have built their initial business around DVDs, but they knew they would need to evolve, think globally – even if everybody else was stuck in today.

It doesn’t matter if there’s any truth to the story of how a $40 late fee forced the rise to one of the largest entertainment companies in the world. But it’s definitely an entertaining story.

How Netflix will evolve next? Will see.