The relation between network ecology and value of Netflix

In this photo illustration a computer screen and mobile phone display the Netflix logo on March 31, 2020 in Arlington, Virginia.
In this photo illustration a computer screen and mobile phone display the Netflix logo on March 31, 2020 in Arlington, Virginia.

1. Introduction

Every company requires creating value for themselves depending on the shared relationships with other businesses. The interrelationship shared between businesses entities form an economic system which is defined as business ecology. Different businesses, despite their competition, depend on one another to survive and thrive in a market. Since the contribution and significance of the internet are undeniable, internet ecology is one of the most efficient platforms for business value creations (Park, 2017). Organizations are redefining and restructuring their business models by including the internet for creating values. The business transformation depending on the online ecosystem may be a source of significant profit for businesses. In this report, the internet ecology of Netflix will be discussed. The report will discuss how Netflix interacts with different actors and maps its function to create better value for themselves. The report will also include the internet ecology map of Netflix for better and concise comprehension of how online platforms are effectively used by the business to thrive in a highly competitive market.

figure: Courtesy of Netflix

2. About Netflix

Netflix, Inc. is currently the most successful online content streaming platform. The company was established in 1997 by mailing DVDs of movies, television shows, video games, and so on to customers on rentals. The business successfully adapted to technological changes and revised its business model from time to time (About Netflix, 2020). The business made the transition from DVD rentals to subscription services within two years since it was established. Rapid inclusion of technology resulted in presence of Netflix on online platforms within a decade. Currently, the business provides licensed as well as original content on its online streaming platform. The application-based streaming service is compatible in different operating systems. Currently, the company caters to 193 million subscribers in 190 countries. The Internet plays a major role in business it’s a business strategy.

figure: Everything you need to know about NETFLIX

 

3. Internet ecology business model of Netflix

Business ecologies are models allowing major actors to participate and interact with one another to survive. Netflix ecology has many crucial actors including investors, consumers, studios, the different platforms utilized, and competitors of the company. Every actor actively participates in the business ecology of the company since it contributes to their sustainability in the long run. Thus, by co-depending on one another, these actors create value for each other and help them survive. The contribution of internet platforms in creating business ecology is undeniable. The key actors interact with one another through different online mediums

3.1 Value Proposition

The value proposition is one of the most crucial aspects of business models. It refers to the precise descriptions of values the consumers may expect. Netflix provides value to consumers by offering entertainment or infotainment to consumers. There are different on-demand video streaming options made available for customers across borders. In addition to this, customer convenience is another major value offered. The business caters to wide ranges of audiences divided into varied segments. There are different other streaming services available (Rosenstand et al. 2018). However, Netflix is one of the oldest OTT platforms and has created a reputation for itself with its wide ranges of contents and high-quality connectivity. According to Park (2017), one of the major reasons for the rising popularity of video streaming services is that these can be enjoyed at the comfort of home. Additionally, in Netflix, there is exclusive Netflix original content available for streaming as well. In addition to this, there are different ranges of subscription options made available according to the feasibility of the customers along with 1 month free trial for the new signups.

One of the most notable aspects of Netflix application is the easy interface. It is compatible with every operating system and contents can be streamed on almost every smart device. Thus, the flexibility and excellent streaming technologies lead to efficient use of the internet by the customers, creating value for them. Moreover, it is one of the largest internet companies in the world in terms of revenue. Algorithmic and geographically relevant recommendations are given and users can avoid commercials as well. There are wide ranges of facilities offered by the company which may be regarded as one of the major reasons for the high numbers of subscribers.

3.2 Value Network

A value network refers to the interconnection of the different key players in internet ecology. Any business undertakes multiple processes to provide the end product or services for consumptions (Ab Rahman et al. 2017). These processes are facilitated by different entities coordinating and synchronizing with one another. In the case of Netflix as well, there are major players on which the business is depended.

Netflix and its subsidiaries hold the centre stage in the ecology of the company. It develops new contents in ABQ studios. The business has acquired StoryBots and MillarWorld for producing better quality content. Different intellectual property holders including Warner Brothers, Dreamworks, Sony Pictures, and so on are responsible for providing licenses to Netflix for streaming wide ranges of contents which are produced by different content creators and producers (McDonald  & Smith-Rowsey, 2016). Thus, these entities may also be accounted for as a major part of the ecology. There are major investors like Capital Group, Vanguard, and most importantly BlackRock makes huge investments on Netflix. Therefore, they should be regarded as other key players. Based on their investments, the business can ensure that technological innovations are continued to achieve set targets effectively. Another key factor in the value network is BMG which is responsible for managing the IP rights for the company (Aversa et al. 2017). Apart from that, there are a host of competitors functional in the market including Amazon Prime Videos, Disney+, Hulu, HBO, and many more. There are multiple platforms used by the company including the internet service providers, AWS for content storage, banks for feasible payment options, and social networks for connecting with the relevant stakeholders effectively. The different sets of Netflix users are also crucial players. This includes the regular customers spread all across the globe.

Figure 1: Netflix Ecology Map

The data centres remain one of the most important actors in the ecology. Netflix uses Big Data analytics for ensuring that the customers are provided with proper content which would be relevant to them. Depending on the same, the business maximizes user engagement, leading to consistency in their performances. Thus, it may be seen that multiple entities are coordinating and functioning with one another to establish a strong and viable network for the business. The smooth operation of Netflix is highly dependent on the actions and reactions of each of the actor. Their function directly impacts the business and contributes to its value creation. According to Tajeddini et al. (2019) Netflix the smooth ecology is maintained by any business depending on the technological capabilities in recent times. Therefore, overviewing the technological capabilities and viabilities may be regarded as important. The company in the discussion has an effective network sharing system. It is well connected with the customers and regards their feedback to be crucial. The core product of the business that is, the streaming facilities are of high quality and along with that, there are different support channels provided for the customers (Voigt et al. 2017). The software developers working for the business are constantly engaging in innovative practices to ensure that the business is one of the first to adopt any technological changes and updates. There is regular supervision to ensure enhanced and better user experience created. The business impressively uses artificial intelligence for recommendations and preferences based on algorithms (Daidj  & Egert, 2018). Thus, overall it may be assumed that the discussion business is technologically viable as well. The overall internet ecology on which the entire business model of Netflix is currently based is credible in elevating the position of the business and ensuring that it can hold on its market leader tag most credibly and efficiently. All the major actors are seemingly in synchronization in a well-designed and strategically curated ecology.

 

4. Disruptive Innovation by using Internet

Netflix has been considered as one of the prime examples of business success stories by integrating technology, particularly the internet, in their business model. Fernández-Manzano et al. (2016) state that the business shifted to the bandwagon of digital disruptions in its initial days which made it possible for them to hold the market leader position. The business which started with a modest website of DVD rentals and competed with the brick and mortar rental stores, Netflix embraced different options and continued innovating. The continually improving streaming services, high quality licensed as well as original contents, and other values as discussed above make the customer base to grow. Currently, the business holds the lead over conventional television as a mode of entertainment. Netflix was not the first company to barriers of watching programs on scheduled time, but it is arguably suggested that it was one of the earliest to make the shift and make this online streaming trend mainstream.

Netflix uses big data to measure the content consumption patterns of users. Thus, it can engage the customers by ensuring that the contents suitable to their tastes and preferences are provided to them. The use of Big Data analytics is also regarded as one of the many factors leading to Netflix deemed as the market leader. Thus, there is no denying of the fact that Netflix was able to revolutionize the ways consumers get their daily dose of entertainment owing to the proper internet facilitation and technological advancement (Rayna & Striukova, 2016). The business could see through the strategic value on these platforms and made an early shift and constant innovations. The revision of the business model and the creation of codependent ecology has been profitable for the business so far.

5. Conclusion

The above-mentioned discussion highlights how the internet has become the most significant and value-adding aspect of business across the world. Systematic business ecology is maintained by businesses like Netflix in which different key actors are codependent on one another. Netflix built a business model based on a similar ecology. It is highly dependent on the internet. The business has been constantly innovating to ensure that tit can survive in the long run. Therefore, establishing a systematic relationship with the associated entities is regarded to be crucial by the business. The business derived strong market value since it was one of the first to shift on digital platforms to revolutionize the world of entertainment. The risk-taking and strategic capabilities of the business make it a perfect example of how the internet is used for business transformation.

 

 

References:

Ab Rahman, A, Hamid, UZA & Chin, TA 2017, Emerging technologies with disruptive effects: a review, Perintis eJournal7(2), pp.111-128.

About Netflix, 2020. About Netflix – Homepage. [online] Available at: <https://about.netflix.com/en> [Accessed 11 November 2020].

Aversa, P, Haefliger, S & Reza, DG 2017, Building a winning business model portfolio, MIT Sloan Management Review58(4), pp.49-54.

Daidj, N & Egert, C 2018, Towards new coopetition-based business models? The case of Netflix on the French market, Journal of Research in Marketing and Entrepreneurship.

Fernández-Manzano, EP, Neira, E & Clares-Gavilán, J 2016, Data management in audiovisual business: Netflix as a case study, El profesional de la información (EPI)25(4), pp.568-576.

McDonald, K & Smith-Rowsey, D eds 2016, The Netflix effect: Technology and entertainment in the 21st century, Bloomsbury Publishing USA.

Park, EA 2017, Why the networks can’t beat Netflix: Speculations on the US OTT services market, Digital Policy, Regulation and Governance.

Rayna, T & Striukova, L 2016, 360° Business Model Innovation: Toward an Integrated View of Business Model Innovation: An integrated, value-based view of a business model can provide insight into potential areas for business model innovation. Research-Technology Management59(3), pp.21-28.

Rosenstand, C, Gertsen, F & Vesti, H 2018, June, A definition and a conceptual framework of digital disruption, In The ISPIM Innovation Conference–Innovation, The Name of The Game, Stockholm, Sweden.

Tajeddini, K, Wittmer, A & Merkel, T 2019, Can the Netflix business model actually work in commercial aviation in central Europe? It is complicated!, Journal of Hospitality & Tourism Cases9(2).

Voigt, KI, Buliga, O & Michl, K 2017, Entertainment on demand: The case of Netflix, In Business Model Pioneers (pp. 127-141). Springer, Cham.