Netflix Case Network Externalities Example User LinkageDVD players link users together. The DVD player itself serves as a uniform platform. In the case of Netflix, the DVD player allows for users to rent various movies in the form of DVDs and play them in the convenience of their own home. This can be on their televisions as well their computers. With the possibility of VOD, this linkage would be completed by the internet. With VOD, the use of the Netflix’s website and therefore computers would allow for users to link together.
Even as a means of social identification, watching various films, whether they are independent or mainstream allows for topics of conversation. Availability of complementary productsNetflix has established many strong partnerships within the retail and electronics industry. Netflix’s name was spread through promotions with DVD players stemming from both retailers and manufacturers. A complementary product within Netflix is the large database it has of films. A user of the database can find films that are similar to those they like based off of actors, directors, genres, and other characteristics.
While this cannot be used with other products, for a time, non-Netflix users were welcome to use this database. Switching costs The biggest switching cost for Netflix would be the movie queue. The advantage with Netflix is that a user develops a queue for films that they want to watch. The queue allows for a constant stream of films. Another cost is the limited accessibility of independent films. Netflix works with studios to distribute small budget indie films while also distributing film festival favorites to garner an audience.
Other film rental companies don’t offer such a wide selection. The library and recommendations are other switching costs. Netflix’s library is comprehensive and the recommendations are tailored to fit individual users. These are unique attributes of Netflix and are very much personalized for users. The biggest issue Netflix was facing at the time was related to the mode of entry that should be used for the VOD market. Netflix had three options: 1) licensing agreement woith cable providers in which it would offer its recommendation system to enhance VOD offering, 2) integrate streaming online ideo business into the business core, and 3) building a stand alone video business. With respect to the mode of entry this market, my recommendation would be use the second mode of entry. By incorporating VOD into the core business, Netflix will allow itself to add an entirely new customer base as well as enhance the product for current users. Users could choose to only stream movies, only receive DVDs through the mail, or both. Setting charges accordingly and giving a discount to a bundled choice would add to revenues as well as customer base with a larger demand being fulfilled.