>>Hastings cites Blockbuster's in-store program as his biggest worry?and with good reason. "It's a big threat," he says. "It's instant gratification." Indeed, Blockbuster's own surveys show that for ""90%"" of its customers, the gap between the time they decide to rent a movie and the time they actually rent it is four hours. Hastings, who relies on the Postal Service to deliver his product, would have to trade in his stamps for a fleet of Concordes to match that time frame. And Blockbuster's Freedom Pass looks headed for a national launch. "On average, we're making more in revenue and profit dollars on subscription customers than we did on them before they joined the program," says Karen Rafkopf, Blockbuster's senior vice president for corporate communications.
If Netflix is to keep growing it needs to persuade new customers that it's okay to wait for their movies. And that's going to take a lot of marketing... An aggressive marketing push could be a financial drain on a company that has yet to turn a profit. And Netflix already has one strike against it: The service isn't immediately understood. "We spend three of every four marketing dollars trying to explain how it works," says Leslie Kilgore, Netflix's vice president of marketing. Blockbuster, with 5,000 stores and 48 million customers, is in a more enviable marketing position. While Netflix relies largely on word of mouth to educate customers, Blockbuster can pitch its subscription service every time a customer stops by for a Saturday-night movie.
Retaining customers may prove as challenging as finding them. So he has steadily been investing time and money to boost rental rates (the average Netflix customer rents five movies a month). He thinks the company's proprietary CineMatch software, which takes ratings that customers assign to movies they've rented and suggests others (significantly, it won't steer you to an out-of-stock title), is the key to holding on to customers. "Over half of our rentals come through the recommendations system," Hastings says. "It really keeps users active."
But questions abound for Netflix in addition to its fierce competitors. The DVD market itself is still far from established. With satellite and digital cable growing, the ever-nascent video-on-demand industry seems to be showing signs of life, which would give home viewers a cheap--and instant--DVD alternative. And studios have been loading DVDs with lots of extras, marketing them as collectibles, so no one knows how much their burgeoning sales will eat into rentals. Hastings not only dismisses these scenarios as unlikely, but also rejects natural extensions for his business such as game rentals.
Hastings has had that luxury because his early investors have given him free rein. But Netflix is now a public company, and shareholders have been voting with their feet. Its stock has been battered with the news of its bigfoot competition.
Hastings no doubt sees his competition doing the one thing he's not: hedging their bets. Blockbuster has its stores, its site, and even a video-on-demand deal with DirecTV; Wal-Mart and Columbia House, their retail and forthcoming rental operations. Point that out, however, and Hastings gives his now predictable shrug. "The only way to build a successful business is to make a bet that some macro trend will happen." And Hastings is betting big.<< To read full article go to fortune.com The Great Race...Netflix, Walmart, BBI
Just my opinion, but it seems those predicting BBI's or WMT's success over NFLX are missing the pivot. NFLX is/will be successful because of the customer experience, from end to end.
BBI has shown me that they don't understand or care to understand the customer experience. If they did, they wouldn't gouge me for 20-25% of their revenues from late charges. Nor would it allow me to wander their aisles without any tools to help in selecting movies -- no kiosks, no advice.
My BB is a mile down the road and on the way to everywhere but I'd rather never set foot in there again. IMHO, people would much rather go to the web and their mailbox, neither of which ever has a line.
That's the NFLX advantage and its driven by their end to end architecture that wouldn't buy me back over a few bucks savings per month.
excellent post. these are very important observations that can't be expressed on the balance sheet. Lackluster makes me want to vomit. I never met anyone that actually liked the place- including a couple of ex employees. In fact Hollywood was the lesser of 2 evils until of course I joined the revolution.
The brand experience is tantamount to success over a co's competition.
I could program an internet auction site myself, but do I have a chance against ebay? Does *yahoo* even. (nope only ebay got it right, preper interface and marketing)
How much is a giant head start worth? It is working for ebay! In this case too, NFLX got it right, they originate, others imitate. NFLX is coke to their RC cola.
As far as wmt.. Eventually, everyone will be talking about how WMT couldn't conquer it all- just look at walmart's web site. Browse through the movies... I was looking up parody/satire and it gives me beavis and butthead, beetlejuice, little nicky? At least they had spinal tap in there. I'm glad I don't use this interface. I still want to know how quick their shipping is.
Another fact: what about those patents NFLX holds? hmmm.... I think NFLX will be doing just dandy.