I commented last week on how many businesses are turning to innovative telephony services such as conferencing to avoid the high costs associated with employee travel. Today while reading about Netflix’s second-quarter net income, which climbed 3.8%, I thought to myself “How did they do it?”
In the middle of googling for other reports about Netflix it hit me – technology is saving their business!
As the price of gas continues to rise, so do the cost of going to the movies. As a result, more consumers are staying at home to watch movies & many of them are renting those movies through Netflix. Unfortunately for Netflix, higher fuel prices are also driving up the costs to deliver movies to the consumer’s mailbox. Netflix’s margin is already pretty thin & those margins can be completely eaten up if you have a consumer base that is exchanging movies almost as fast as they get them. Netflix’s subscritpion model allows their users to exchange as many movies as he/she wants per month & their subscription fee stays the same. This model works very well for the consumer & until recently worked for Netflix too.
Rather than drastically changer their model & risk loosing existing subscribers, Netflix responded with an innovative solution using technology to their advantage. This new solution actually provides more to the consumer & cleverly works in Netflix’s advantage too!
First Netflix began offering a “Watch Instantly” option from their website. Users were allowed a certain amount of hours per month to watch streaming movies to their PC for free. Netflix realized very quickly that this feature resulted in the shipment of less movies to their consumers because they were watching more movies on-line. The costs for Netflix to offer live streaming videos versus mailing movies was significantly less & they quickly removed any maximum on the amount of viewing hours they offered to their users in hopes that the number of shipments required would continue to drop while usership would continue to rise.
Netflix also just announced a deal with Microsoft to stream movies directly to a user’s Xbox 360 game console. It obvious that Netflix is looking to offer their consumers as many options as possible to view movies as long as it doesn’t involve shipping that movie to the consumer. Again, the rationale being that as more users view their movies on-line, the less likely they are to order their movies through the mail & the net result is higher margins & ultimately more profits for Netflix.
Each day I imagine more things that companies can do with technologies to save their company time, money, & resources. One of my greatest pleasures at work is seeing so many companies actively taking advantages of the technologies that we & Jaduka have developed to save money & improve their business processes with communications.