Wednesday, April 13, 2016

Netflix and the Innovator's Dilemma

Netflix and the Innovator’s Dilemma

Netflix comprised of over a third of North American Internet traffic in 2015[1] with over 33 million subscribers to its subscription video-streaming service.[2] Once a predominant DVD provider, Netflix became the predominant player of the disruptive technology of video streaming. Their success defies the pattern of established firms falling in the face of disruptive technologies.

In the introduction excerpt of The Innovator’s Dilemma: Why Good Companies Fail to Thrive in Fast-Moving Industries, the author Clayton Christensen discusses why the most successful companies fail to successfully adopt disruptive technologies. One of the methods he discusses that companies can leverage in the face of disruptive technologies is to set up a separate entity that is centered on that disruptive technology.

When Netflix was faced with streaming technologies they setup an individual entity within the organization whose sole purpose was to advance streaming technologies to replace the DVD rental industry. When they launched their streaming service and streaming technologies displaced the market share of DVD rentals, Netflix successfully adopted a new disruptive technology even as an established, successful DVD company. In addition to being a company that tackles disruptive technologies, Netflix is a company that is customer and investor driven similar to principle 1 of the excerpt.

When Netflix released its exclusive content such as House of Cards it not only created more value to the Netflix subscription which means more value to its stock – but it also resonated and with its customers. Netflix had valuable data about its customers and had informative data on the type of content specific customers would like to consume.

Netflix is on track to further disrupt the entertainment business. With the decreasing number of cable subscribers, cable networks are scrambling to gain significant market share in video streaming services. This is an example of established businesses that entered the market too late in the game according to Christensen. Cable networks in the past have ignored streaming technologies.[3]

As long as Netflix continues to invest in disruptive technologies and focus on their customers and investors I believe that Netflix will become the predominant player in television and movies in the future.




[1] Victor, Luckerson. "Netflix Accounts for More Than a Third of All Internet Traffic." Time. Time. Web. 13 Apr. 2016. <http://time.com/3901378/netflix-internet-traffic/>.
[2] "Netflix - Number of Streaming Subscribers Worldwide 2015 | Statistic." Statista. Web. 13 Apr. 2016. <http://www.statista.com/statistics/250934/quarterly-number-of-netflix-streaming-subscribers-worldwide>.
[3] Ken, Auletta. "CBS, Time Warner Cable, and the Disruption of TV - The New Yorker." The New Yorker. The New Yorker, 2013. Web. 13 Apr. 2016. <http://www.newyorker.com/business/currency/cbs-time-warner-cable-and-the-disruption-of-tv>.

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