E-COMMERCE ASSIGNMENT

BY: VARUN SAGAR

ROLL NO: 171156

NETFLIX is an American entertainment company founded by Reed Hastings and Marc
Randolph on August 29, 1997 in Scotts Valley, California. It specializes in providing streaming
media and video on demand online and DVD by mail. In 2013, Netflix expanded into film and
television production as well as online distribution. It is headquartered in Los Gatos, California.

Netflix's initial business model included DVD sales and rental, although Hastings jettisoned DVD
sales about a year after Netflix's founding to focus on the DVD rental by mail business. In 2007,
Netflix expanded its business with the introduction of streaming media, while retaining the DVD
and Blu-ray rental service. The company expanded internationally, with streaming made available
to Canada in 2010 and continued growing its streaming service from there; by January 2016,
Netflix services operated in over 190 countries.

Netflix entered the content-production industry in 2013, debuting its first series, House of Cards. It
has greatly expanded the production of both film and television series since then, offering "Netflix
Original" content through its online library of films and television. Netflix released an estimated
126 original series or films in 2016, more than any other network or cable channel.

As of October 2017, Netflix had 109.25 million subscribers worldwide, including 52.77 million in
the United States. Their efforts to produce new content, secure the rights for additional content, and
diversify through 190 countries has resulted in the company racking up billions in debt: $21.9
billion as of September, 2017, up from $16.8 billion from the same time the previous year.

Netflix's headquarters are in 100 Winchester Circle, Los Gatos, California, United States. They also
have other offices in the Netherlands, Brazil, India, Japan and Korea.
Founder & CEO:

Reed Hastings is an American entrepreneur and philanthropist. He is the CEO and

cofounder of Netflix and serves on the boards of Facebook and a number of non-profit
organizations. A former member of the California State Board of Education, Hastings is an
advocate for education reform through charter schools. In 1997 Hastings and Marc Randolph co-
founded Netflix, offering flat rate movie rental-by-mail to customers in the United States.
Headquartered in Los Gatos, California, Netflix has amassed a collection of 100,000 titles and over
93 million subscribers. Hastings got the idea for Netflix after his company was acquired. "I had a
big late fee for 'Apollo 13.' It was six weeks late and I owed the video store $40. I had misplaced the
cassette. It was all my fault. I didnt want to tell my wife about it. And I said to myself, 'Im going
to compromise the integrity of my marriage over a late fee?' Later, on my way to the gym, I realized
they had a much better business model. You could pay $30 or $40 a month and work out as little or
as much as you wanted."

Hastings said that when he founded Netflix, he had no idea whether customers would use the
service.

Co-founder:

Marc Randolph is an American tech entrepreneur, advisor and environmental advocate. He is the
co-founder and first CEO of Netflix. Randolph wanted to replicate the e-commerce model
pioneered by online bookseller Amazon.com. He had heard that digital-video-discs (DVD) were
being tested in several U.S. markets, and he wanted to explore the concept of selling the compact
new digital format online. He and Hastings could not find a DVD, so they tested the idea with
a compact disc.[21] Reed and I were in downtown Santa Cruz and we were saying, I wonder if we
can mail these things, Randolph said. We went in and bought a music CD and went into one of
the stationery stores and bought a greeting card and stuck the CD in the envelope and mailed it
to Reeds house. And the next day, he said, It came. Its fine. If there was an aha moment, that
was it. Randolph ceded the CEO post to Hastings in 1999 and turned to product
development. Randolph left Netflix in 2002 after helping guide the company through its initial
public offering two years earlier.
HISTORY:

Netflix was founded on August 29, 1997, in Scotts Valley, California, by Marc Randolph and Reed
Hastings. Randolph worked as marketing director for Hastings' company, Pure Atria Corporation.
Randolph was a co-founder of MicroWarehouse, a computer mail order company, and was later
employed by Borland International as vice president of marketing. Hastings, a computer scientist
and mathematician, sold Pure Atria to Rational Software Corporation in 1997 for $700 million in
what was then the richest acquisition in Silicon Valley history. They came up with the idea for
Netflix while commuting between their homes in Santa Cruz and Pure Atria's headquarters in
Sunnyvale while waiting for government regulators to approve the merger.

Hastings invested $2.5 million in start-up cash for Netflix. Randolph admired the fledgling e-
commerce company Amazon and wanted to find a large category of portable items to sell over the
internet using a similar model. They considered and rejected VHS tapes as too expensive to stock
and too delicate to ship. When they heard about DVDs, which were available in only a few markets
in 1997, they tested the concept of selling or renting DVDs by mail by mailing a compact disc to
Hastings' house in Santa Cruz. When the disc arrived intact, they decided to take on the $16 billion
home video sales and rental industry. Hastings is often quoted saying that he decided to start
Netflix after being fined $40 at a Blockbuster store for being late to return a copy of Apollo 13 but
this is an apocryphal story that he and Randolph designed to explain the company's business model
and motivation.

Netflix was launched on April 14, 1998, with only 30 employees and 925 DVDs available through
the pay-per-rent model with rates and due dates that were similar to its bricks-and-mortar
rival, Blockbuster.

A brief history of the company that revolutionized watching of movies and TV shows

1997 Reed Hastings and software executive Marc Randolph cofound NETFLIX to offer online
movie rentals

1998 NETFLIX launches the first DVD rentals and sales site, www.netflix.com

1999 NETFLIX debuts a subscription service, offering unlimited DVD rentals for one month
price.

2000 NETFLIX introduces a personalized movie recommendation system, which uses Netflix
members ratings to accurately predict choices for all Netflix members.
2002 NETFLIX makes its public offerings (IPO on Nasdaq under the name NFLX with
600,000 members in the US)

2005 The number of NETFLIX members raises to 4.2 million.

2007 NETFLIX introduces streaming, which allows members to instantly watch tv shows and
movies on their personal computers.

2009 NETFLIX partners with consumer electronics to stream on the X-box 360, PS3, TV set-top
boxes, internet connected TVs and other internet connected devices.

2011 NETFLIX launches throughout Latin America and the Caribbean.

2012 NETFLIX became available in Europe. NETFLIX wins its first primetime Emmy
Enginnering Award.

2013 NETFLIX expanded to the Netherlands. Netflix garners 31 primetime Emmy nominations
including outstanding drama series, comedy series and documentary or nonfiction special
for House Of Cards, Orange Is The New Black and The Square respectively. Netflix as the
first internet TV network nominated for the primetime Emmy.

2014 NETFLIX launched in 6 new countries in Europe (Austria, Belgium, France, Germany,
Luxembourg and Switzerland). Netflix wins 7 creative awards for House of Cards and
Orange is the New Black. NETFLIX has now over 50 million members globally.

2015 NETFLIX launches in Australia, New Zealand and Japan.

2016 NETFLIX is available worldwide and now (in 2017) it has approximately 103.95 million
subscribers globally.
STRATEGY:

6 Strategies NETFLIX can teach us for Dominating the Market.

Fill the Gap:

Hastings had a large amount of videos overdue and was facing a big fat fine a fine so large, he
was embarrassed to tell his wife about it! He couldnt believe that this was the best way for people
to borrow movies. His solution was to come up with a business model that let people keep the
videos as long as they liked as long as they paid a flat fee every month. Virtually every successful
business is based on satisfying some currently unmet need in the market.

Think Strategic Partnerships:

Strategic partnerships can be a win-win for both sides. For Netflix, a partnership with Apple is one
such example. Netflix allowed the owners of the Apple TV set-top box to sign up for Netflix
directly. They could even pay for the service through their iTunes accounts. For Netflix, it was an
opportunity to access Apples large customer base. For Apple, it was a chance to provide their
customers with more content in a convenient way. A win/win/win approach

Be Prepared:

Much has been made of Netflixs decision to offer streaming. What is less well known, however, is
how long it has taken consumers to catch up with the companys vision.

As Hastings notes:

In 1997, we said that 50% of the business would be from streaming by 2002. It was zero. In 2002,
we said that 50% of the business would be from streaming by 2007. It was zero Now streaming
has exploded We were waiting for all these years. Then we were in the right place at the right
time.
As Netflix shows, being in the right place at the right time has as much to do with preparation as it
does to do with luck.
Think Recurring Income:

One of Reeds inspirations for Netflix came from the gym he belonged to The gym only had to
attract a customer once, but it could continue to charge customers every month. As long as a
business is giving the customer something they want, subscription based buyers will stay on board.

The fruits of this business model were shown recently when Netflix was able to raise their prices by
just a $1 a month, but have an outsized impact on their profits.
Because Netflix was offering a great product that customers wanted, people were willing to pay a
little extra each month.

Learn From Others:

One of the principles I live by is the idea of modelling the successes and learning from the
failures of other business leaders. Experience is a great teacher, but you can shorten the learning
curve by learning from other peoples failures. Reed Hastings learned from AOL, who was slow to
adapt to the development of broadband and suffered as a result. It was a mistake he was committed
to not repeating with Netflix. Learning from the mistakes of others, Netflix has always carefully
observed changes in its industry and adapted as needed.

Add Value For The Customer:

One of the reasons that Netflix has proven to be so popular is, well, they are so good at giving the
customer exactly what they want. Hastings has noted that the real secret to Netflixs success is that
it adapts to its user. The Netflix recommendation engine is very good at predicting what types of
movies people are likely to want to watch. As a result, 60% of the movies that are added to
subscribers queues come from recommendations. Netflix is more than just a movie rental service,
its a place where you can find the right movie for you to watch. With hit shows Orange is the
New Black and House Of Cards, Netflix has even become an innovative creator of new content.
Its a development that few would have predicted when Netflix was simply the DVD by mail
service.

ALSO,
New Content Acquisition:

Netflix is expected to spend $5Billion on the content acquisition in 2016, out of which 10% will be
spent on original content. Investments into producing original content are expected to rise to 50%
of the total content spends. In 2016, Netflix decided to let go its deal with Epix, which means
Netflix will not stream Transformers - Age of Extinction and Hunger Games - Catching Fire.

Netflix is also investing in Real Estate (as of now leasing) to build its own studios. Recently, it
leased 200,000 square feet of office and pre-production space in Hollywood. Disney Studio has
partnered with Netflix to produce original content for Netflixs consumers in international markets.

Up until roughly two years ago, most of Netflix's content consisted of movies and TV series to
which the company had purchased streaming rights. Today, Netflix's commitment to original
content has resulted in 24 episodic series, dozens of documentaries and comedy specials, and its
first full-length feature film, "Beasts of No Nation." Additionally, Netflix has several dozen more
series and movies in development.

Technology Advancements:

Years ago when Netflix had started going the cloud way, it was operating in just one Amazon
region without a failover option. And on the Christmas Eve of 2012, it suffered a massive streaming
failure. Since then the company has come a long way and continues to strengthen its tech
infrastructure.

1. Netflix operates its own CDN called Open Connect. This helps Netflixs massive amount of
bandwidth cost over same content being accessed from the same region across multiple
consumer groups. And also helps in better streaming experience.
2. Last year Netflix launched the Chaos Monkey project that randomly takes virtual machines
offline to ensure Netflix can survive failures without any customer impact. In the
subsequent versions, towards redundancy planning, two new projects were launched. Chaos
Kong and Chaos Gorilla stimulates outage across an entire region of Amazon and shifts
workloads to other regions in real-time
3. Netflix has a backup of each content on Google Cloud Storage which means in the case of a
natural disaster, a self-inflicted failure it will take hours for Netflix to recover, but it will
surely be able to fix the issue.
Data Analytics - What customer wants:

1. Netflix uses data mining to arrive at a Cost per Hour viewed estimate for each piece of
licensed content. Netflix determines which content viewers pay to see and this data is
compiled to determine the expected hours of viewing of each movie or TV show. This data
is used to bring predictability into similar content arrangements on the basis of which final
pricing of exclusivity and time frame of the contract is determined.
2. Netflix mine for users data aggressively. It uses its powerful search algorithms to help its
users find the most contextual content and use this data to determine what type of original
content the company should create. This has led to Netflix having a higher success rate in
manufacturing hits.
3. Content decisions are taken by the show runners rather than business executives. Netflixs
secret sauce is in finding genres and talent that the audience already likes and creates
stickiness.

Line Extensions: creating new channels:

Netflix has tied up with premier Hotels across the United States and globally with likes of Marriot
International to provide high speed, interruption free content on hotel televisions. Netflix has added
a dedicated app to internet enabled television across these hotels. This app allows direct access to
Netflix content to hotel guests on large-screen Internet TV, which is expected to transform the in-
room entertainment experience. If they are an existing customer, they can continue using their
subscription, else signup for a new account. Which ensures new customer acquisition for Netflix.

Netflix business strategy and future readiness through advanced technology, and content vision, it
is not too difficult to envision Netflixs sales more than doubling in the next five years, which could
easily carry a market capitalization of $70 billion.

One learning that I have from Netflixs example, change in Business Model at the right time is far
more important than temporary loss in revenues and shareholder value. In the end, all depend on,
"what is more important, the journey or the destination".
SUCCESS STORY:

Netflix was founded by Reed Hastings and Marc Randolph in 1997. Both of them were
technology enthusiasts who had previous experience of setting up websites and running them
successfully. Now they had the idea of creating a website where it would be easy for people
to buy and rent DVDs sitting at their homes. Hastings invested $2.5 million in order to get
the business started in a big way.

The DVD player was a luxury in the American Household but with the DVD, picture quality
was much better. It was also easy to ship these DVDs as they were small in size and weighed
very less. It cost the company only a single first-class stamp in order to send a DVD across

The company started its first day of business on April 14, 1998. The company had 30
employees on its first day and offered nearly 900 titles for rent. The first scheme they offered
was a seven-day DVD rental for $4 and an additional $2 for shipping. They also put new titles
for sale giving an impressive 30% discount to attract customers. Their website provided users
with movie reviews and automatic suggestions to prompt them to rent additional DVDs.

They had very few competitors but the problem was that very little number of people in
America had access to DVD players. So Netflix went ahead and join hands with companies
like Toshiba, HP, Apple to promote DVD players and computers with DVD drives. They
made their first major sale in the September 1998, when they made available 10,000 copies of
President Bill Clintons testimony in the Lewinsky affair. They priced this DVD for just 2
cents plus $2 shipping which made it sell out within one week.

In 1998, Netflix stopped selling DVDs online as e-commerce giant Amazon had started
selling DVDs online. In 1999, Netflix had increased to 110 employees and had more than
250,000 discs available for rent. Even as Netflix concentrated solely on DVD rentals, its
revenues were not picking up as only 1% of the American population owned DVD players.

So they made a change to their scheme and allowed the customer to rent four DVDs for one-
time monthly fee of $15.95. This scheme proved to be a success and Netflix was now
processing more than 10,000 orders per day. In 2000, they changed the scheme to $19.95 a
month which allowed for unlimited rentals with 3 DVDs at a time. Soon their cus tomer base
had increased to 250,000 and they were processing more than 100,000 orders a week.
Soon they made partnerships with many production houses like Columbia Pictures, Warner
Bros. to release their films first exclusively on their website. Next they set up distribution
centres in Los Angeles, Boston, Atlanta, Houston, New York to make speed up delivery and
try ensuring delivery before midnight itself.

In 2002, sales revenues touched $150 million and had become the leader in the DVD rental
market with the advent of DVD players costing less than $100. It had increased its subscribers
to 670,000 and had tie-ups with more than 45 film distributors. In 2005 Netflix was shipping
nearly 1,000,000 DVDs by mail every day and had around 35,000 titles in its library. In
2010, Netflix launched paid online streaming of movies which soon made it one of the most
visited sites in the U.S.
BUSINESS MODEL:

Introducing a subscription fee to the video on demand service was certainly a risky move. Before
Netflix, this practice was still unheard of. Today, inspired by the success of this company, many
services are adopting this model. You can find everything from opera to BBC classic
shows available online in exchange for a subscription fee. However, the VOD (video on demand)
giant is still dominating the market, with more than 89% of total shows streamed online during the
first quarter of 2013 coming from this service alone.

The DVD rental business is actually one of the least lucrative services which Netflix offers.
Although DVD-mailing system was popular at first, with the development of modern technologies,
and streaming services becoming more popular over the years, today this business segment of
Netflix is actually in decline. On the other hand, the domestic streaming service and international
streaming service are both rapidly growing.

Apart from being one of the pioneers of the industry with their subscription model, the value
proposition is yet another element which helped this particular service to become as popular as it is
today. In fact, there are a total of three elements that are making all the difference.

1. Affordable price
2. Accessibility
3. Original content

While Netflix offers more than 20.000 episodes of various shows for an extremely affordable price,
it also delivers its content via multiple and various devices. There isnt a service on the market
which covers more electronic devices than this one. The rating algorithm is certainly a feature
which adds on the value, but the cherry on top is definitely the original content which Netflix
produces. In fact, the Fuller House show managed to get a total of 21 million of viewers in less
than a month.

However, being the first VOD service of this sort, Netflix had the unique opportunity to offer this
model to many studios and broadcasting networks. When faced with the possibility of selling their
content through this ingenious model, very few companies made the same mistake which
Blockbuster did, and almost none of them turned down Hastings offer. So before the actual
production of the original content, Netflix served as a side-channel for distribution to many other
companies, paying for licenses and exclusive deals in order to attract the crowd.

After this initial period, this company made another breakthrough with an ingenious idea. In 2013,
the good people of Netflix started developing their own production and shows, based on the
analysis of their own customers data. So as the people came to watch their favourite shows, the
company monitored rankings, popularity, and interest of their customers and invested in original
content production. A marvellous and yet unseen concept which proved to be extremely lucrative.
This truly changed the world of VOD for good.

In conclusion, you definitely have to be the first that will answer a demand as big as this one is if
you want to build a VOD service this big. Or any other service for that matter. Having that edge
over the competition, or not having any actual competition at all, is definitely a compulsory factor.
However, employing big data analysis in the production of original content is certainly a step
forward in this industry that will redefine it for good.
REVENUE OF NETFLIX:

This statistic shows the revenue of Netflix from 2002 to 2016. In 2008, the total revenue of the
video streaming site amounted to around 1.36 billion U.S. dollars and grew to 8.83 billion U.S.
dollars in 2016. The American media company's net income in 2016 stood at 186.68 million U.S.
dollars, with a total of 4,700 employees working at the company worldwide.

Netflix has been very successful in the last few years. The company not only leads the streaming
market in the U.S., but is effectively expanding its service outside North America. Along with
gaining numerous subscribers worldwide, Netflix has managed to produce and distribute high-
profile original shows, such as House of Cards and Orange is the New Black, challenging
traditional TV networks like HBO and CBS. In 2016, Netflixs original programs received
54 Emmy Awards nominations, 41 more than the number of nominations received in 2013. These
are just a few indicators of Netflixs success, which can be measured in a number of ways. Firstly,
as seen in the statistic, Netflixs annual revenue has consistently increased over the years, reaching
the highest figure to date in 2016 8.83 billion U.S. dollars. This figure is over 10 times higher
than Netflixs annual revenue in 2005.
The time that consumers dedicate to watching Netflix content is another way of indicating success.
One of Netflixs strategies has been to release TV series in bulk, so consumers are able to binge
watch their favorite shows. Indeed, as of December 2016, 32 percent of Netflix customers watch
original contentmost often, a significant increase from the 20 percent who did the same in
December 2014. As a result, Netflix's streaming content obligations have increased from 1.3 billion
U.S. dollars in 2010 to almost 14.5 billion U.S. dollars in 2016.

Stock Quote & Chart:

Netflix (NASDAQ: NFLX) as on 05/12/2017

SWOT ANALYSIS:

SWOT analysis (or SWOT matrix) is an acronym for strengths, weaknesses, opportunities,
and threats and is a structured planning method that evaluates those four elements of an
organization, project or business venture. A SWOT analysis can be carried out for a company,
product, place, industry, or person. It involves specifying the objectives of the business venture or
project and identifying the internal and external factors that are favourable and unfavourable to
achieve that objective.

The SWOT Analysis of NETFLIX is presented below:

Strengths:

User experience:

Delivering DVDs straight to the home is a major convenience that pretty much has led to the
demise of the bricks-and-mortar business of Blockbuster (NYSE: BBI). With just a little bit of
timing, customers can have movies coming and going so as to almost always have a movie ready to
watch. Add the recommendation engine for additional suggestions along with streaming and strong
customer support, and you've got a pretty good experience generating loyal and enthusiastic
customers.

Streaming capability:

A benefit of having any monthly plan costing at least $8.99, for those nights when the random urge
takes you. Plus, Netflix streaming is available on many different consumer electronic devices and is
becoming a standard feature for new TVs.

Very competitive prices:

For as little as $8.99 a month, people can watch as many movies as they want, either streaming or
on DVDs. For just a bit more, a higher number of DVDs can be out at a time, giving users more
flexibility. Less expensive than paying for cable movie channels, while giving more selection.
WEAKNESS:

Pricing power:

The studios can still dictate some serious terms to Netflix, limiting when various movies become
available (the infamous "28-day window" for instance) or for how long.

More on pricing power:

It has to accept the rates and delivery schedules set by the U.S. postal service, as well as the rates
set by streaming providers. Even though Akamai Technologies (Nasdaq: AKAM) gave Netflix a
good deal recently, that might not last very long or be renewed at such favourable rates.

The terms of content distribution:

These are not exclusive, allowing competitors access to the same movies and television shows,
leaving the way open for competition.

Opportunities:

Branding:

Netflix can become the first thing people think of for watching movies at home, just like "google"
is the first thing many think of for searching. There's been at least one instance of using the word
"Netflix" as a verb, so this could be the beginning.

International:

There's an upper limit to the number of subscribers here in the States, so to keep growing, the
company must expand outside the borders. We can expect the first foray abroad sometime later this
year.

Distribution:

As more subscribers come aboard, the value of Netflix as a distributor of content for studios
like Time Warner (NYSE: TWX) and Disney (NYSE: DIS) goes up, leading to more pricing power
for Netflix and less for the content producers.
THREATS:

Content producers going their own way:

Hulu is owned by Disney, General Electric's NBC, and News Corp., and likely gets very
favourable deals for their content. If enough people favour what's on Hulu and Netflix cannot
provide the same content, that's going to be a serious problem for Netflix.

Other streaming offerings:

It's pretty much accepted that streaming will be the primary way movies will be viewed in the not-
too-distant future. Just about anyone with a big enough bankroll can get licenses on content and
provide this service. Google's (Nasdaq: GOOG) YouTube is the next most serious threat after Hulu.

Internet pipe providers:

Many of them are also movie distributors. They can limit the traffic traveling over their lines,
favouring their own stuff over Netflix's.