Netflix: A perfect example of Disruption!
In a business, disruptive innovation is defined as “ an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market-leading firms, products, and alliances” [1]. Disruptive innovation can occur when there are a lot of underserved customers in the marker. A company’s primary objective is to keep its customer happy and meet the customer’s expectations and at times exceed these expectations. But what comes after exceeding these expectations? Companies start adding bells and whistles to their existing products to make it more efficient and fancier, but the base value remains the same. Some customers are unwilling to pay these extra amounts for bells and whistles and look out for cheaper alternatives in the market that satisfy their needs. This gives a launch pad to the disruptors!
Blockbuster was an industry titan and pioneer in the DVD rental business and was pushed to a diminishing (and now extinct) position by Netflix. Netflix digitized the whole DVD – renting business and started with in-mail DVD that catered to the needs of the underserved customers of Blockbuster. Blockbuster had a limited set of physical copies of movies and that made it difficult to serve similar needs of a large number of people. People had to go to the store to get DVDs Netflix targeted the prime customers of Blockbuster by providing high-quality, cheap, large catalogue and easy approach to watching movies. Netflix began the mailing business and increased convenience.
Post the in-mail business model Netflix started the streaming video and that made watching movies very accessible and convenient. Netflix disrupted itself! The incumbents often tend to overlook the disruptors. CNBC has reported that about $400 billion are spent on Netflix’s streaming service in United States of America alone. Apart from tie-ups with distributors and streaming, Netflix stood out because it started creating its own series, shows and movies. It creates content for its own platform. It began producing its content with the very popular show – House of Cards. Today Netflix has numerous popular shows that go by Netflix Original – Sacred Games, Orange is the New Black, Jessica Jones, Safe, Lust stories, etc.
Netflix made extensive use of technology, its entry into the world of machine learning and analytics made it difficult for customers to part from Netflix. The artificial intelligence algorithms they have built enable customers to get suggestions on what to watch on the basis of their past viewing history. This has created a market that never existed before!
Netflix has proved to be an evolutionary disruptor- it improvised an existing product in an existing market. Supply-side factors such as reduced costs, ease of accessibility and faster access enabled Netflix to flourish. It induced a change in demand-side factors as well -consumer behaviour began to change and technology made their experience more enjoyable than what they have with Blockbuster.
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