How Analytics Saved Netflix

In Netflixed, Gina Keating details Netflix's start, clash with Blockbuster, and triumph in the market. In one particular passage, Netflix's senior executives discussed its business model with reporters on a conference call. During the call, so many reporters attempted to create a Netflix account that its servers crashed. In that moment, Netflix transformed from a hobby to a business. The original senior executive group soon left the company.

Keating focused the remainder of the book on both Netflix and Blockbuster as the two companies battled to the death. Redbox, Movie Gallery, and Hollywood Video played important, but peripheral roles. She provided sufficient details and discussion of external and internal influences that allowed Netflix prevailed.

Of the external influences, Keating dealt with:

  • the failed merger between Hollywood and Movie Gallery;
  • the distraction caused by Carl Icahn for the Blockbuster executive team;
  • the early forays into video-on demand by Amazon, Walmart, and Enron.

Of the internal influences, Keating reviewed:

  • the turnover of Netflix's senior executives as the service moved from introduction, growth, and mature stages of the product life cycle;
  • the relationship between Netflix and USPS that aided Netflix in determining where to build warehouse and fulfillment centers.
  • the use of cluster analysis to provide Netflix's customers with suggestions for additional titles to rent;
  • the models that allowed Netflix's middle managers to formulate a response to Blockbuster's promotional effort, which was causing Netflix's churn rate to increase quickly.

I really enjoyed the aspects of these last three points. The recommendation feature made Netflix feel like an independent video store where employees could provide suggestions to customers because the employees knew the customers that well. This recommendation feature highlighted Netflix's inventory advantage to Blockbuster as well as Blockbuster's employees lack of customer knowledge.

Also, the modeling discussion proved interesting. Briefly, using publicly available information, Netflix could determine when Blockbuster would go out of business. In turn, Netflix avoided harmful price cuts and drastic changes to service plans. Netflix maintained its focus. Ultimately, Blockbuster stopped the promotion just as the model predicted. Netflix reported growth in its subscriber base less than a year later.

Keating packed a lot of discussion, thoughts, and stories into her book. Unfortunately, she does not tie them together. A final chapter that tied the external and internal influences would have provided a better understanding of Netflix's survival, and success.

Keating managed to avoid lionizing Netflix CEO Reed Hastings. Yet, without that final chapter, the reader is left with an incomplete understanding of Netflix. Without those external influences, Netflix could have implemented every action plan and would have achieved inferior financial performance.

Conversely, without those internal influences, Netflex could not have taken advantage of its competitors' misfortunes, and mistakes. The firm would have achieved inferior financial performance.

By combing both influences, Netflix was able to achieve superior financial performance. The proposed final chapter could have hammered the point so that other entrepreneurs, middle managers, and senior executives would better understand how to achieve a similar outcome.