No Marshmallows, Just Term Papers
The case concerns Netflix.com, currently the world's leading internet subscription service for watching movies and TV programs. However its original core business was only based on a delivery system of DVDs, which is still in place in the USA (even though with a substantial decrease).
The company was established in 1997 in Scotts Valley, California by Marc Randolph and Reed Hastings and started its Internet based unlimited rental subscription service.
The DVD represented a new technology at that time, whose main advantages were a superior audio-visual quality and additional features in comparison with traditional videocassettes. Moreover, due to their size, weight and durability, it was possible to deliver DVDs by mail on a cost efficient basis (Netflix had a round trip cost of shipping of just 1$ per DVD). Therefore this new technology was the segment experiencing the fastest growth in the whole video player market.
Netflix was farsighted to spot this opportunity and enter in this market as first player. It was not just about the technology, but also some peculiar features that the firm offered: firstly, the Marquee Queue concept, that allowed the customer to draft a list to express his preferences on the movies he would firstly like to watch, afterwards Netflix would ship the DVD at the top of the list of the subscriber. Each subscriber was able to simultaneously hold up to 4 DVDs and this was both a strong and weak point of the business model of Netflix. On the one hand in fact, customers could have different titles at home without any rush of returning them, on the other hand this system required huge investments in the rental library in order to be ready to satisfy all customers’ requests.
The other competitive advantage of Netflix was its Personal Movie Finder Service, which provides individualized movies recommendations based on customers’ views and ratings of the movies watched. In this way Netflix expected to create brand loyalty in its...