Case 3: NetFlix

In this day and age every major business that wants to have a shot at being competitive somehow incorporates the Internet into its business model. There are different levels of Internet use, ranging from basic activities such as e-mail communication and online purchasing, known as the activity level, to the Pure Play level, where the entire business is online. Either way, in order for a company to be successful they need to use the Internet.
One company that uses the pure play web business model very effectively is NetFlix. NetFlix is a movie rental company that offers DVD rentals through the mail and online streaming of movies. Customers pay a flat monthly rate and when they are done watching a DVD they mail it back and get another one. This model has proven to be extremely effective with NetFlix having over 100,000 movies available and over 10 million subscribers. On February 25, 2007 NetFlix announced that it had delivered over one billion DVDs, and NetFlix claims to spend about $300 million per year on postage.
Even though there is an actually tangible product that customers receive, NetFlix is considered to have a pure play business model because their company exists on the Internet only. They have no stores or outlets that someone can visit to exchange DVDs or ask a question. All of their business transactions are done entirely online and that makes them a Pure Play company.
A pure play company has to operate a lot differently than a traditional company in order to make a profit. No longer can people see you store, come in, and buy your product. These companies are forced to come up with creative ideas and business models in order to make their business a success. NetFlix’s primary business model is the subscription model, where customers pay for the content services that are offered. Prices range from $4.99 a month, which entails you to two movies per month, to $47.99 which allows you to have eight movies out at a time and exchange them an unlimited number of times. The most popular plan they have is their three DVDs out at a time with unlimited exchanges for $16.99 per month. Most of these also come with unlimited streaming videos online.
It is obvious that NetFlix’s subscription model is very effective and generates a large amount of their revenue, but that is not their sole source of revenue. NetFlix does dabble into the Advertising business model by allowing movies to be advertised on their website. They also put ads on the actual packaging that they mail the DVDs in. While advertising is not their primary model, it does generate a good amount of revenue.
In the past NetFlix also tried the merchant model by allowing users to purchase used DVDs. Apparently this wasn’t very successful and was disallowed in November of 2008. In addition, while NetFlix clearly does not have a community business model, it does have some aspects of one. Users are allowed to rate and review movies and share their opinions with other users.
NetFlix is a leader in the movie rental industry, but does face a lot of competition and must continually improve. A way to keep track of a company is to set up performance metrics in order to measure how successful your company is in meeting its shareholders, employee’s, and customer’s needs. While financial metrics are easy to establish and track and are very useful it is important to keep in mind that some are focused on customer satisfaction.
The first things that NetFlix can easily measure are their number of subscriptions, number of actual deliveries made, market share, and total revenue. These are all easily traceable and provide good information about where the company stands and how it is growing/not growing
Some other performance metrics that would be valuable to NetFlix would be ones that track customer satisfaction. An easy way to do this would be to measure delivery time on DVDs. Another metric could be how long people have to wait for popular new releases. Also NetFlix could see if people are searching for movies that they do not offer.
By using these performance metrics NetFlix will be able to track their progress and improve their business model in order to meet all of their customer’s needs.