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Netflix Entrepreneurial Life Cycle

The Entrepreneurial Life Cycle

Consider an entrepreneurial venture known to you from either the course materials or your own experience.
Describe the journey through the Entrepreneurial Life Cycle and how its business model aligns with the Business Model canvas; its strength and weaknesses.

How does the venture need to develop into the future when considering other concepts discussed in the EIM course.

Introduction

Entrepreneurial life cycle tends to repeat itself in all business irrespective of size. It usually begins with an entrepreneur seeing an opportunity, coming up with a company to pursue the opportunity, putting together the required resources, coming up with a practical plan and implements the idea, and taking the risks and rewards. All this, is in a timely manner. A company’s entrepreneurial life cycle traces the process of building a company. There are seven stages of entrepreneurial life cycle: opportunity recognition, opportunity focusing, commitment and resources, market entry, full launch and growth, maturity and expansion and liquidity event. This paper examines Netflix Inc. and its entrepreneurial life cycle with the objective of understanding the life cycle of the company.

Discussion

Netflix Inc.

Netflix Inc. is an international company providing internet streaming media. This service is on demand to viewers in the entire America region, New Zealand, Australia, parts of Europe and in Japan. In addition, Netflix Inc. provides flat rate DVD-by-mail in the U.S. Netflix Inc. was formed in 1997 by Marc Randolph and Reed Hastings but started the subscription-based services two years later in 1999 and had more than 10 million subscribers by 2009, offering a 100,000 title collection on DVD (TechCrunch, 2014). According to Netflix Media Center (2014) the company’s journey can be summarized as follows:

  • 1997: Reed Hastings and Marc Randolph co-found Netflix offering online rental of movies
  • 1999: The subscription service is launched by Netflix, offering unlimited rental for low monthly subscription.
  • 2000: The personalized movie recommendation system is launched by Netflix which uses member ratings to recommend movies for them
  • 2002: The company made its first public offering
  • 2005: The company achieves 4.2 million members
  • 2007: Streaming is introduced by Netflix allowing members to watch television shows and movies instantly on their PCs.
  • 2008: Netflix forms a partnership with consumer electronics companies to enable it stream on xbox 360, TV set-top boxes and blue-ray disc players
  • 2009: Netflix forms a partnership with consumer electronics companies to enable it stream on PS3, internet TV and other internet devices.
  • 2010: Netflix becomes available on Apple’s iPad, iPhone, as well as iPod touch. Netflix services are launched in Canada.
  • 2011: Netflix is launched in Latin America and the Caribbean.
  • 2012: Netflix is launched in parts of Europe including the U.K, Ireland, and Nordic countries. The company won the Primetime Emmy Engineering Award for the first time.
  • 2013: the company reached Netherland. It received 31 Emmy nominations
  • 2014: Netflix was launched in Germany, France, Belgium, Luxembourg and Switzerland. The company wins 7 creative Emmy Awards.

 The life cycle of Netflix Inc

Business opportunity

Keating (2012) explains that though Randolph had the idea of using the internet to sell products and services, he did not know what to sell. Hastings was the one who came up with the Netflix idea. The idea came up when Hastings had to pay a fine of $40 for failing to return Apollo 13 on time (Keating, 2012). According to Schorn (2006), when Hastings was asked how he came up with the Netflix business idea,  he explained that he was going to the gym and I realized that it was  possible to operate video stores like a gym, with a flat membership fee. A lot of movies then were still on VHS. The VHS tapes could not be emailed as they were too bulky making them expensive to mail. Hasting met Randolph (they were friends). And Randolph told him DVD, which was still a new technology. Hasting pondered if DVDs they could replace the current VHS. To test if the DVDs could be destroyed in the mail, Hastings bought a bunch of DVDs and mailed them to himself (Schorn, 2006). When Hastings received the mail and the DVDs were fine. He immediately knew that the idea could work (Schorn, 2006). This is how Hastings saw a business opportunity in the mailing of DVDs to clients at a flat rate. This was the beginning of a rental service. Later in 1999, subscription services were introduced. Today, the company has grown into an international company.

 The Netflix Inc. business model

Netflix gained an advantage in the market by combining known business models of physical business model, and the subscription business model. This was an innovative idea of doing business. This combination allowed the customers to rent all the DVDs they wanted for a flat fee. The customers could keep the DVDs for a period of time without being charged the late fees. The catch here was that the customer agreed to a recurring fee for monthly subscription (Noren, 2013). Through the combination of the physical business model, and the subscription business model Netflix was able to overcome the weaknesses of the physical business model and gain advantage over competitors like Blockbuster (Noren, 2013).

According to Bowen et al (2014) Netflix used the subscription business model when it started and still uses it up to now. They state that Netflix was at the beginning a DVD-by-mail service company where the customer was required to pay for a membership of a certain level which in turn determined how many DVDs the customer could rent at one time, and then the DVDs got mailed to the customer. When a customer was done viewing them, they returned them to Netflix. To be able to reduce the costs, streaming services were introduced in the company to be offered a long the DVD-by-mail services. When the customers started using the streaming services, the mailing and shipment costs were greatly reduced as they no longer needed to mail the DVDs. The streaming service had about 2000 titles when it began in 2007 for instant watching when streamed and by 2010 there were about 20000 titles available for streaming. The streaming services still depend on the level of subscription (Bowen et al, 2014).

 

By 2010 Netflix was recognized as the leading internet subscription streaming service. The company started offering its streaming services to Canada in 2010 and 43 other countries in 2011. According to Bowen et al (2014) Netflix in 2011 tried separating the streaming services and the DVD by mail services but receives a negative reception from its customers. The idea had to be dropped thanks to the negative reception and the value of the company shares also being affected and their values dropping. According to Reuters (2014) Netflix had about 120,000 available titles by 2012 for online streaming and boosted about 23 million subscribers for streaming.

Netflix Inc. represents a classical service business model in the industry of video-on-demand. In this model the service users and the payers are the same entity. The classical service business model was pioneered by Netflix as they used it in offering entertainment content through the technology of video streaming where one needs to pay a subscription fee (Mikhalkina, 2014). The video on demand used by Netflix originated from the business of renting DVDs in 2007, which is still operated along the video on demand streaming business. The company in 2003 had 40 million streaming members making it the biggest online TV show and movie streaming provider. In 2013 the company streamed 89 % of the shows streamed. The company also produces original content. The company’s main customers are its subscribers, who use the services provided after subscription.

So how does Netflix create values for its services? According to Mikhalkina (2014) the company’s main values proposition for consumers lies in consumers being able to legally access a very rich movie database with 20,000 plus episodes. The company also offers personalized services in the form of a customer being given personal suggestions for movies without being interrupted by advertisements. The movie suggestion to the customer is not usually based on the movies box office popularity but rather on the customer ratings as the rating algorithm can better tailor a movie to the liking of the customer. Another way through which Netflix creates value for its services is through supporting a very wide range of devices, ranging from tablets, game consoles, internet TV to personal computers. Netflix is also giving value to its services by ensuring that its subscribers are hooked. They are doing this by offering the subscriber’s original as well as exclusive content, releasing as full seasons new and exclusive series. This means that the subscribers do not have to wait for episodes to be released each week (Mikhalkina, 2014).

 

Netflix licenses content it provides from providers of cable networks, broadcast networks, and from movie and film studios and television studios directly. Netflix also produces its own original content. The company was able to establish a big database of movies early on, thanks to media companies and television studios willing to let Netflix license their content. The thought behind the database was to allow customers watch previous television shows series making them more willing to pay for the services. Mikhalkina (2014) explains that the company was able to make the customers readily pay for the services by getting movies that customers like to watch. Netflix personalized the services by making these movies more attractive to watch using the recommendation engine. This means that the customers had a variety of choices and the service was easy to use.

 

Netflix Strengths

The strengths of Netflix have made it one of the biggest companies offering online streaming services since its formation in 1997. Some of the company’s strengths include the following:

Popularity: The core strategy of Netflix is the growth of its streaming subscription both in the United States and internationally. The company supports various devices which can be connected to the internet like personal computers, televisions, gaming consoles, and mobile phones, making their increasing content available for their clients. The company also makes sure that customers get the best user experience. The company’s popularity is reflected in its 53.1 million customer base (as at 2014) and it looks to further its growth internationally (Napoli, 2014). A lot of people know Netflix and associate with it positively (Nemcick-Cruz, 2013).

A good platform: the company offers the best delivery services when compared to other streaming services, helping keep its customers loyal and even attract new ones (Nemcick-Cruz, 2013).

 Wide and original content: Netflix offers a wide variety of content ranging from television series to film and movies. The company has a big database for movies enabling the customers to catch up to content they had not seen before. The company also provides full and original television series meaning that the customers do not need to wait each week for a new episode of a series to be released. This makes the company’s customer base to remain loyal it (The Netflix Report, 2014; Nemcick-Cruz, 2013).

 Accessibility: Netflix supports streaming of its content on a very large variety of devices which can be connected to the internet. These devices include internet TV, game consoles, personal computers, tablets and mobile phones. By supporting this wide range of internet connected devices Netflix is able to make its content easily accessible to its customers as they can easily stream it (The Netflix Report, 2014, Mikhalkina, 2014).

 A good customer service: the company has been able to develop a very good customer service to make things easier for its customers. When the clients have a problem with a movie, for example,  broken or missing DVD the customer care always responds very fast.

Well organized website: Netflix maintains a website which is impressive and well organized making it very easy for a customer to navigate it and locate what they are looking for without much effort.

Weaknesses of Netflix

Despite all the strengths of Netflix, just like any other company, it has its own share of weaknesses. Some of the company’s weaknesses include the following:

Stiff competition: Netflix faces stiff competition from other companies which provide streaming services. The biggest competition is coming from YouTube and Amazon who have announced that they are planning to start producing original content, which will mean even increased competition for Netflix (The Netflix report, 2014).

 Declining DVD Membership: Netflix DVD by mail rental which is offered domestically has witnessed a decline in recent years. This can be attributed to more people opting for the streaming services instead of renting the DVDs. Another reason for this is the company’s decision in 2011 to separate the DVD-by- mail and the streaming services which shared a joint subscription prior to the separation, meaning that a person who used both services now needed to have two different subscriptions. This made many clients drop the DVD by mail services (Napoli, 2014).

Netflix international business is not yet profitable: even though the company is enjoying dramatic growth, their international businesses are not yet profitable and are still in the red. The company incurred losses totaling to $ 274 million in 2013 thanks to the international streaming services. They also contributed loss of $ 81 million in 2014’s first nine months totaling to $ 95 million by December 2014 (Napoli, 2014)

 How Netflix needs to develop into the future

According to Sparks (2015) Netflix targets 60 million to 90 million customers in the United States alone by 2020. The company as well targets  5 percent increase in annual prices. The company also plans to expand its international market with plans to launch in China and other countries in 2016 aiming to have its international revenue top its domestic revenue in the United States. This is the reason why the company’s stocks are hitting new heights (Sparks, 2015). Netflix international segment is expected to break even in 2017 and produce a positive contribution margin starting 2018 (Trefis Team, 2015). Netflix chief product officer Neil Hunt predicts that personalization and on-demand streaming is the future in the entertainment,  and this is how Netflix plans to beat its opposition in future (Jana, 2014). Hunt stated that the vision of the company to ensure that customers choices are offered to them through their preferences and not through selection of titles.  The company also plans to increase original programming (Snider, 2015). The company will also highlight films from Pixar, Disney, Marvel and Lucasfilm as Netflix will become the exclusive streaming home for their new releases as it seeks to move away from cable movie channel Epix.

 

References

Bowen et al (2014). Netflix Case Study//2014. Netflix

Jana K. (2014). Netflix: in the future everyone will have a personalized TV Channel. The Guardian.

Keating G. (2012). Netlix: the epic battle for America’s eyeballs. New York: portfolio/Penguin.

Mikhalkina, T. (2014). “Netflix Business Model”. Cass Business School, City University London

Napoli M. (2014). Netflix: A short SWOT analysis. Value Line: Educational Articles

Netflix Media Center (2014). Your location: company overview.

Nemcick-Cruz, M. (2013). What are Netflix’s strengths and weaknesses. The Montley Fool.

Reuters (2014). “Netflix Inc (NFLX.O) Company Profile Reuters.com.” Reuters. Thomson Reuters, n.d.

Schorn D. (2006). The Brain behind Netflix. CBSNEWS

Sparks D. (2015). Understanding the growth potential for Netflix, Inc. The Montley Fool.

Snider M. (2015). Netflix plans for future without movies from Epix. USA Today Tech.

The Netflix Report (2014). SWOT analysis

Trefis Team (2015). Netflix Q3 earnings: international expansion will lead future subscriber growth. Forbes.com

TechCrunch, (2014). Netflix

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