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Learn this Business Lesson from Netflix

Netflix is a force to be reckoned with in the entertainment industry and have been the streaming service to beat. The name of the company seems to show clairvoyance in the founder’s vision that they always were to become what they are today. What’s very intriguing to me as a business consultant is that they have only recently landed on the business model of video streaming and original content. However, Netflix acsended into our consumer culture with a very different approach.

Humble Beginnings

Netflix started as a DVD rental service in 1998. At the time, DVDs were nowhere near the mainstream acceptance that they would eventually become. Conflicting accounts from the founders make the original idea unclear. They landed on the concept of shipping DVDs because customers were already starting to buy them online and they were durable enough to mail. 

Netflix vs. Blockbuster

As a movie rental company, the obvious competitor was Blockbuster. Netflix fought over marketshare with Blockbuster and there were talks even of Netflix being bought by Blockbuster at one point. That story of competition between those two companies is an article unto itself, but the key takeaway is this: while Blockbuster was trying to carbon copy Netflix, Netflix was shifting their business model.

Shifting Business Models

If you look at Netflix’s business model right now, you’d think there was always a singular vision for the company. While founder Reid Hastings has alluded to clear vision, the other founder argues that the company started out as an “ of something.” Regardless of intent, Netflix has shifted their business model several times. Below is a list of the business models they have used in the past:

  • 1998: DVD rentals by mail (Individual Rentals)
  • 1999: DVD rentals by mail (Subscription Model)
  • 2007: DVD rentals with video streaming as a subscription
  • 2011: Splitting company into two – Netflix (video streaming) and Qwikster (DVD rentals)
  • 2014: Creating tiered video streaming subscriptions (charging premiums for additional profiles, higher video quality, etc)
  • 2015: Shifting from exclusively content via deals with major studios to creating original content themselves
  • 2019: Became a member o the MPAA, essentially creating a movie studio

The Lesson: Change is a Good Thing

What I hope business owners and entrepreneurs learn from the history and ever changing business model of Netflix is that it’s okay to change your business model. One of the reasons for the shifting models was most certainly led by profit losses by the company and trying to get to a more stable level of profitability. I also hope that this shows that big companies like Netflix have volatile pasts and struggles. I hear many young business owners lament about things being hard and how they struggle. Netflix continues to struggle and some analysts claim that Netflix is overvalued as a company. Netflix also faces stiff competition and rising operational costs.

While Netflix faces an uncertain future, I’ve always admired how the company is willing to admit mistakes and is constantly revisiting their business model. Unlike other startups, Netflix is a startup to look at for examples of what to do and what not to do.

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Erik McNair