March 19, 2015

Netflix's Business Model Explains A Lot

I imagine there are very few folks who haven't heard of Netflix. With over 54 million subscribers in 50 countries, it has established itself as the leader in streaming video services. Some could argue that it is largely responsible for the move away from cable TV in the home and into the world of on-demand video from companies like Amazon Prime and Hulu, as well as Netflix.

Personally, I am a huge fan of these choices. From paying over $100 a month for hundreds of cable channels that I rarely watched I now pay $17 a month for Netflix's unlimited streaming service and DVD mailed-to-my-home option. As an Amazon Prime member I pay around $100 annually for two day shipping and access to thousands of additional movies, TV shows, and original series.

It occurred to me that Netflix has done something that doesn't happen all that often: establish a new model of customer service in an industry that has been resistant to change for several decades. That raises the question, How have they done it? Are there any parallels to a satisfying retirement?

Recently I stumbled across a few articles that detail what Netflix has done to make them so powerful in a such a short period of time. While it is easy to blame cable companies for overcharging and providing miserable service, Netflix has brought more to the table than just obvious things like treating customers as something valuable, not as an irritant (airlines - are you listening?).

Their corporate culture is one that treats the employers like adults, meaning each is given respect and freedom to produce a quality product. Unlimited vacation time, elimination of unnecessary meetings and work reviews, superior pay rewards for superior performance, coupled with an expectation of working until a project is done, being inventive and creative, and "playing well with others" are key components of the Netflix approach. Also important is their attitude that long hours aren't required, only superior results for the company and its products.

The company has put together a a 124 slide presentation of its corporate culture and on what it places value. This Netflix "culture deck" has been viewed over 11 million times and is in partial use by a growing number of companies. Click here to take a look. It is well worth a few minutes of your time.

So, how does this relate to our retirement journey? Here are the nine behaviors that make up the core of the Netflix approach:

1. Judgment
2. Communication
3. Impact
4. Curiosity
5. Innovation
6. Courage
7. Passion
8. Honesty
9. Selflessness

I can't think of one of them that doesn't belong in the mix as part of a satisfying retirement. These behaviors govern our relationships, our approach to life, our ability to stay vibrant and engaged, and the way we strive to make our little corner of the world a better place.

Over the last few years Netflix has made some mistakes: a large price increase, and an attempt to split the streaming and mail service into two separate companies with two different names. After a large drop in customers and a loud outcry from the financial world coupled with a big drop in the price of their stock, they apologized and retreated from the worst parts of those decisions. They admitted their mistakes and moved on. Today, Netflix is as strong as ever and looking to expand into another 150 countries.

The takeaway lessons for us are simple: never stop growing, never stop experimenting and improving, admit mistakes to yourself and others, put failures behind you, and realize life is for the living.

26 comments:

  1. Boy that last sentence is a primer of life isn't it and especially for us in our senior years. When we stop doing those things all we are doing is waiting for God to take us home.

    Not only has Netflix caused so many to cut the cable it also seems to have shut down all the local DVD rental stores in my area. All that is left is a red kiosk in front of CVS.

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    1. As a society we have become one that demands convenience above all else. Books are delivered to your door by Amazon or downloaded electronically from the library - who needs a bookstore? Same with videos, groceries, and all manner of products. 'bring it to me."

      Redbox survives because those red boxes are located at places we are driving to anyway. The videos are not a destination in and of themselves.

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  2. A few months ago, I read a blog that shared rates for Dish Network which were MUCH cheaper than I had been paying. One quick call to Dish to ask why my rates had been raised to nearly $90 per month, and they dropped my rate back down to $55 per month. I'm ready to pull the plug, entirely, on Dish, but hubby isn't. When I asked the Dish rep why there's such a difference in rates charged, he admitted that the business has become very competitive, and they are trying hard to keep customers. If that means dropping our rates, they will do it. Shared information via blogs has become so valuable. I appreciated the nine core values you listed for a satisfying retirement.

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    1. I had the same experience with the company that delivers my Internet service. My rate went up without proper notice to me. When I called to complain I was offered a promotional rate that was $20 less per month.

      Like too many businesses today, the whole approach is to attract new customers, not to keep long term customers happy unless they complain. That is backwards and a lesson Netflix learned a year ago.

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  3. What an interesting post! I knew nothing about Netflix, other than my daughter used to get DVDs in the mail and had to remember to return them. What you presented about the corporate culture is very interesting and sounds like the original Apple company corporate culture. I too have been wondering what to do about my $104 monthly Directv bill and all those channels I don't watch. After reading your post, I'm going to do some investigating about whether Netflix would work for me. My only question is how I would get local channels for news. Thanks for this!

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    1. Local channels are available for free. Depending on where you live, you might be able to pick up your local signals with a simple TV antenna mounted in such a way you have a line of sight to where the tv towers are.The quality is HD since all stations now broadcast digital signals.

      At one point I was able to pick up 10 local stations. But, Netflix and Amazon Prime have spoiled us: we can't stand all the commercials and local news is just about death and crime, I get local news from the Internet and avoid all commercials by our choice of streaming over live entertainment.

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    2. Regarding using an antenna: We live about 30 miles from the broadcasting towers in Oklahoma City, and with a small antenna (looks like a book hung on the wall) we receive over 40 channels- reception is great. We've done this for over 3 years now and don't miss paying for channels we rarely or never watched.
      Jeff in OK

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    3. Thanks for the info! I live 150 miles from a metro area, so I thought I was stuck with Directv to get local channels. I'll try the antenna idea.

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    4. 150 miles probably is too far unless the land is flat and your antenna can be mounted high enough. Digital TV signals are much weaker than the old analog signals and are prone to interference. But, give it a try!

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  4. We pay too much for DirecTV but I cannot see cutting the cord/satellite any time soon. We enjoy too many shows that are difficult to find elsewhere since they are on premium channels. We also have Amazon Prime so we probably have way too any options for what we actually use. But I have gotten things for free from them/DirecTV, and they supposedly have capped my rate so I will never pay higher.

    The Netflix approach appears solid, and I hope they adhere to it. But all three large companies I worked for had similar written philosophies, and none of them adhered to them in any meaningful way. In fact, they oftentimes were the direct opposite of what they stated was their core values. Another example of "do as I say, not as I do." But to practice them in our retirement lives would be outstanding, and something we should certainly strive for.

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    1. HBO will begin streaming its content directly to consumers sometime this year, enabling folks to bypass cable or satellite services. All four major networks are exploring the same options. And, you can get most current shows a few days late on the Internet feed from each channel. It isn't as convenient and sometimes it doesn't work well, but there are choices.

      Will Netflix continue to adhere to those core values and follow the path detailed in the slides? We will see. If not, it will be pretty evident.

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  5. I have no need for Netflix or any TV subscription service; here in the UK we still get BBC TV without adverts, or channels where the advertisement breaks are limited to 3 or 4 short interruptions an hour (we record the programme and then skip the breaks). I do, however, agree wholeheartedly with your takeway lessons.

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    1. During a typical one hour network TV show there are 18 minutes of commercials and promotional announcements, or 30% of the hour is selling something.

      If we could follow the nine core goals on a consistent basis, just imagine what a better world this would be and how much more satisfying our life would be.

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  6. With streaming services eliminating the need for cable/satellite to watch movies and most shows, the last core audience they have are those that want to watch live sports. Even that exclusivity is beginning to erode: the NFL partners with Verizon and Microsoft to provide streaming services, MLB, the NHL, and the NBA all provide live streaming of out of market games, and the PGA live streams all four majors. With the ability to pick up local channels, only games broadcast on sports channels like ESPN or FSN are missed without cable/satellite. A la carte access to those channels might be coming sooner rather than later.

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    1. I just read that PlayStation will be offering a streaming service soon to a few major markets as a test. Cable delivery reminds me of the print business: most people have moved to other forms of informational gathering, but newspapers continue to struggle to survive for the minority that prefer something that can be held in one's hand.

      The message for us is to recognize when it is time to abandon what has worked in the past but is now longer doing its job for us in some area of our life.

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  7. Great information! My husband and I often (somewhat jokingly) that we don't have a 16-year-old around the house to get us up to speed on all of this. Lately, there are almost too many options to consider. We'd say "good-bye" to Dish tomorrow if we could feel comfortable about what we were moving towards. Can you suggest a good way/website to evaluate the options? When we've tried to Google info in the past, we've found that the explanations had a lot of tech jargon and assumed too much prior knowledge.

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    1. See if this article helps (copy and paste): http://www.bankrate.com/finance/smart-spending/cable-tv-vs-internet-streaming-the-costs-1.aspx

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    1. Have a safe trip back to Washington in a few weeks, Linda. Hopefully we can meet up in Portland in July or August.

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  9. Hmmm, we get Netflix streaming and found it disappointing. There are few movie choices, and the ones they have are not very good. But maybe your idea of bundling it with the mail DVD service would work better. We have heard that House of Cards is good, so we have that on our list of things to watch. We have to budget in some more TV time!

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    1. We use the streaming option primarily for older movies, TV shows, and documentaries. Their library of first class documentaries is really excellent if that is your thing. With over 10,000 movies on streaming we can usually find something of interest, but the mail option does broaden the library considerably since they maintain over 100,000 titles there.

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  10. This was just passed yesterday in Canada. The CRTC (Canadian Radio-Television and Telecommunications Commission) must offer a basic service for $25/month by March, 2016 with a pick-and-pay option for those desired channels. The streaming promotions sound appealing but until internet service is equally accessible in all locations, it's not always an option. These tv subscription services are like our closets where we wear 20% of the clothes 80% of the time!

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    1. Too bad that new option is still a year away, but it sounds like a great deal for those who watch a limited number of channels. Yes, streami requires a solid, fast Internet connection and that isn't always available or affordable. So, providing some basic channels is a needed service.

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  11. Just as a comment to everyone, it is interesting what most are taking away from this post. I am using Netflix as an example of a company that has a different business model to encourage growth and innovation. The idea is that we can use that same approach in molding our retirement.

    Yet, most comments are much more practical: how to cut the cable, whether to ditch the Dish, and so on. That isn't what I intended but it has opened up an interesting discussion of entertainment options.

    That is one of the fascinating parts of blogging: you start off in one direction and suddenly find yourself heading down another road!

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  12. I totally get your original intention and agree completely. In this age of technology we must stay on top of things or end up so far in the weeds we'll never get out.

    As for cable, we've already had two battles with the EVIL empire and now use them solely for internet. They tried to sneak TV into our bill and it took a couple of calls to clear that up. You simply can't trust them!
    b

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    1. Sounds like the fine folks at Comcast...everyone's favorite cable company.

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