NetFlix has faced numerous challenges over its 11 year history, and has emerged stronger after each incident.Here's a list of some of the more memorable events:
- The Early Days: Skeptics speculate the DVD-mail model life would be short-lived as video-on-demand technologies eclipse the young upstart.
- March 5, 2002 - Dot.com collapse: Netflix has 500,000 paid subscribers and 15,000 new subscribers each month.
- May 23, 2002 - The IPO: Netflix (Nasdaq: NFLX) closes up 12% as it IPO's in a turbulent stock market at the height of the dot.com implossion, the wake of 9/11, and the Enron scandal. The stock goes on a tear, splitting on 2/12/2004.
- April, 2004 - Walmart.com: Walmart.com enters the DVD-mail rental market. The service and web-site is practically a mirror of the Netflix offering. The notable difference is that the colors are blue instead of red on the mailing envelops and on the Walmart.com web-site. Unable to significantly cut into Netflix's lead, Walmart.com takes a lower cost tactic to try and win business from Netflix. Netflix stands firm and continues to focus on customer service and innovation.
-June 16, 2005 - Walmart.com: Walmart.com exits the market as a clear indication of Netflix's superior execution.
- October 27, 2004 - Blockbuster: Blockbuster jumps in the game. Blockbuster is a little slow out the gate as it determines how to enter the market without canabalizing its retail store outlets.
- September 7, 2006 - Amazon.com: Amazon.com introduces its "Unbox" service for video and movie downloads. The service has modest success, though no immediate threat to Netflix.
- 2007 - Blockbuster: Blockbuster gets more serious about the DVD-rental competition with Netflix and starts a price war. In conjuction with the price war, Blockbuster unleashes a massive advertizing and marketing campaign culminating in a SuperBowl in Feb 2008. Additionally, they allow customer to receive DVD's by the mail or at a retail location, which proves to a be popular draw. Netflix responds by dropping their prices, and further putting pressure on Blockbuster's profits. Blockbuster's stock (NYSE: BBI) falls into the low single digits as Netflix stock recovers and rises above 30 in early 2008. The war is over and Netflix is the victor.
- February 21, 2007 - Apple: Apple releases a new set-top box that allows customers to download movies to the Apple TV. Sales of Apple TV have been disappointing to date, though it is not wise to discount Mr. Jobs.
- March 7, 2007 - Netflix: Netflix announces a new Video on Demand option. Selection is somewhat limited, but Reed Hastings is bullish on the technology.
- July 11, 2007 - Amazon.com: Amazon.com and TiVo partner up allows customers to download movies and videos from the Amazon.com webstore to their TiVo. Jury still out on the success of this model, though good idea to combine Amazon.com web expertise with the passionate installed user-base of TiVo owners.
- May 20, 2007 - Netflix: Netflix introduces a $99 set-top box by Roku. Netflix customers can download movies to the set-top box to get videos-on-demand within minutes.
I am particularly intrigued by the latest Netflix introduction. It shows that Reed Hastings does not believe in sacred cows, and is willing to push the envelop in terms of price point in order to take a leadership position in the video-on-demand market.
CONCLUSIONS:
Reed's record shows that he has a strong understanding of market timing, pricing, technology innovation and customer service.
Market Timing: Realizes early that video-on-demand is not ready for prime time, and instead creates (and patentes) a novel way to ride the wave of DVD-adoption in order to revolutionalize the movie rental business. Now with broadband Internet access becoming more ubiquitous and storage prices plummeting, Netflix is bullish on the opportunity that movies-on-demand offers.
Pricing: Willing to sacrifice profits to punish a poorly financed and wounded competitor - Blockbuster.
Technology Innovation and Customer Service: Rather than panic or enter into an expensive patent infringement battle with Walmart, Reed focuses on customer service and business execution to outflank the slower giant.
When Bezos and Jobs set their sites on movies-on-demand, it appeared that these tech goliaths might eventually cripple Netflix's business. However, with the Netflix $99 set-top box by Roku, and Reed's guidance, Netflix may yet win the movies-on-demand battle. If Netflix does outduel Amazon and Apple, Reed Hastings will likely achieve the level of fame of these other charismatic business legends have.
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