Netflix and the Use of Ecommerce

TO: Bus 311, Summer I, 2010 FROM: Group 6. 3 SUBJECT: Report on NETFLIX This report was written under the assumption of complete satisfaction of requirements for Business 311, Information Systems in Global Business Environment, Summer I, 2010, University of Hawaii at Manoa. An analysis of Netflix in Information Systems indicates that the company has been able to use technology and ecommerce in a method that has created a billion dollar entity. Netflix has been successful by improving the movie rental business with the embracing of changing technology and consumer preferences that has revolutionized the way people view movies.

Netflix is a company that has shown the power of ecommerce and the success it can bring to businesses that are willing to adopt it. *If you have any question about this report please contact any of us at the email addresses or phone numbers listed above. Thank you. Use of Ecommerce in Netflix, Inc. By Group # 6. 3 Summer I, 2010 Executive Summary Netflix has in the past decade revolutionized how Americans rent and view movies. This process of ordering movies online and receiving them in the mail proves that this innovation has been able to adapt to the ever growing technological world we all live in.

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The ability to be cheap, convenient, and appeal to a vast audience has given Netflix the biggest advantage in the movie rental business. The wide availability of Netflix and a strategic sending and receiving system has ensured the success of the company. i OUTLINE Executive Summary . . . . . . . . . . . . . . . . . . . . . . ……………………i Outline ……………………………………………………………… ii Introduction …………………………………………………………1 Theoretical …………………………………………………………. Technical ……………………………………………………1 Economic …………………………………………………… 2 Political/Legal ………………………………………………2

Social/Cultural ……………………………………………… 3 Practical ……………………………………………………………. People ……………………………………………………… 4 Procedures …………………………………………………5 SW …………………………………………………………6 HW …………………………………………………………7 Discussion ………………………………………………………… Summary …………………………………………………………. References ……………………………………………………….. ii Introduction Established by Marc Randolph in 1997 and with its headquartered in Los Gatos, California, Netflix (NASDAQ: NFLX) was a movie rental start up that sought to bring the movies to the people via mailing. Netflix’s subscription ervice was started in 1999. In 2009 it was offering a collection of 100,000 titles on DVD and surpassing 10 million subscribers, although originally it lost money until 2003 when it posted its first profit $6. 5 million. Now it services a host of subscribers numbering in the area of 14 million and streams it movies through numerous entertainment devices. Technical: The way that Netflix incorporates technology is through the use of the internet, postal service delivery, commercials and ads. The company also uses large servers to store their streaming movie files.

According to company’s chief executive officer, they “named their company Netflix in 1998 because they believed Internet-based movie rental represented the future, first as a means of improving service and selection, and then as a means of movie delivery. Netflix subscribers may now view movies over a large variety of digital devices. Some examples of these are video game consoles, Set-top boxes, Blu-ray players, televisions and handheld devices that key into either mail-in (CD and/or Blu-ray discs) or Internet streaming which uses a VC-1 format.

VC-1 is the informal name of Society of Motion Picture and Television Engineers (SMPTE) 421 M video codec standards, which was initially developed as a proprietary video format by Microsoft before it was released as a formal SMPTE standard video format on April 3, 2006. It is today a widely supported standard found in HD DVDs, Blu-ray Discs, Windows Media Video 9, and Microsoft’s Silverlight framework. Economics: Demand is quite high for this particular service.

Netflix mailed about 190,000 discs per day to its 670,000 monthly subscribers and Netflix has accommodated all of their customers adequately making Netflix one of the most successful dot com ventures. Netflix initiated an initial public offering (IPO) on May 29, 2002, selling 5,500,000 shares of common stock at the price of US $15. 00 per share. The company’s published subscriber count increased from one million in 2002 during the fourth quarter to around 5. 6 million at the end of the third quarter of 2006, to 14 million in March 2010.

Successes like these local regional and national changes have allowed many people to shift their lives to a more house oriented recess of nostalgic movies while using a current futuristic movie process of enjoyment. Soon this will be applied to and international format although there is no set date as to when this will happen. Political/Legal Netflix is a movie service that strives for its convenience and simple use. This has however caused some political backlash with the movie rental industries like Blockbuster (NYSE: BBI) and Hollywood Video (NASDAQ: HLYW).

These companies saw a mass loss in revenue as Netflix gained popularity. The companies went from being billion dollar organizations to being far less to bankrupt. Netflix was to blame as it was cheaper and easier for its customers, along with the advertising against rental stores. Ideas to compete with Netflix, like coming up with similar services from in store were used by Blockbuster, but it is still ultimately struggling to compete with Netflix. In a legal aspect each movie Netflix purchases for rental must be agreed upon with the company, producer, and rental agency.

The price is determined on the age of the movie along with the predicted popularity. As of recently different companies, beginning with FOX have made a deal with Netflix to sell the movie rights at a lower price, but they must wait one month after the movie has been released, to help DVD sales for multiple production companies. Netflix is only allowed a certain amount of each movie upon its release. It is often that over advertising of a movie leads to stock outs, where not enough of the movie is available and customers are left waiting for their movies.

Regular intervals also occur where Netflix will have to order another shipment to replace damaged DVDs. Netflix assures it users on its website that all their information is held confidentially, especially the credit card information and mailing addresses that are used in each transaction. Information that is registered on the site becomes the customer’s responsibility to keep private. Netflix keeps track of this information, like age and location to better advertise, although this has caused some customers to be unhappy. Other things like payment dates, movie titles, ratings and addresses are all kept for each user account.

Users must also be 18 to have an account. Netflix has a high priority in making sure the information stays safe. Social/Cultural: Netflix has become part of people’s day to day life, as some plans can be modified to deliver one movie or more per day. Netflix has a great business plan for targeting different groups of people. Netflix offers many types of movies, new and old of all different types to attract customers. Using registered information, Netflix has been able specifically target movies to its customers, based on their registered age, viewing history, and movie taste.

Netflix has a large registered user base; with customers from ages 18 all the way up to seniors in their 70’s. In an advertising sense Netflix has been able to target families, couples, kids, adults, etc. using this strategy they have been able to adapt to many different aspects of changing society. Using culture as an example, Netflix has become a part of society and a cultural habit for many people’s everyday lives; there are an estimated 12 million registered users as of 2008, with the number growing each day as new ways of using Netflix are becoming available. Netflix. om attracted 194 million hits in 2008. The company is still growing with the amounts of people that are signing up for subscriptions, especially after the watch movies online option started for members. Netflix was able to adapt to changing culture by staying convenient, easy to use and relatively cheap. This can be done and sorted all online which goes well with the growing use of technology through computers and mobile devices. People: Netflix offers DVD rentals to more than 12 million subscribers for a monthly fee and ships some 2 million discs daily in the US.

For a flat monthly fee, subscribers can choose to receive from one to an unlimited number of movies per month, all mailed from the Netflix distribution center nearest to the customer. On the Netflix Web site, the subscriber maintains a queue of movies he or she wants to watch, listed in order of viewing preference. Netflix chooses which movies to mail next from the queue, and when one movie is returned to the distribution center another is mailed back to the customer. Netflix members can instantly watch unlimited TV episodes and movies streamed to their TVs and computers and can receive unlimited DVDs delivered quickly to their homes.

Customers are never charged late fees, and after viewing a movie or DVD simply drop it in the mailbox using the prepaid envelope Netflix provides. Procedures: Movie rental stores still exist, Blockbuster may come to mind first, although many of its stores have closed but now there are alternatives. Pay-per-view is an option for cable and satellite dish TV subscribers, but choices are limited to the services’ picks and are available only after movies have been offered as rental DVD’s and videos for thirty days.

Since customers are not always satisfied with limits inherit in these options late fees, unavailability of newer films, short turnaround times, and so on it had to follow that someone would come up with the idea to offer a click-only based online movie rental service. Netflix’s extraordinary and popular service has outpaces competitive movie rental services, including pay-per-view, because it personalizes a customer’s movie rental experience to a degree not possible before. This personalized service asks the customer to rate up to forty movies.

From this information, software called Cinematch creates a profile of each customer and list of recommended movies. According to the Netflix site, when you add a popular movie that is currently unavailable, you are added to the internal list that rates customers according to profitability. There is an assumption by the customers that the service is linear, meaning that the first customer to request the movie would be the first customer to get the movie or first in first out. In reality, the priority service equation selects customers on the basis of their profitability.

With shipping being the major cost for the online movie distributor, customers who cost the most in terms of shipping may not receive popular movies first. If you are a customer who uses the service infrequently, then you are highly profitable for Netflix since your shipping costs are low. Therefore, your selections are prioritized. The customers who use the service frequently or what Netflix would call “over frequently” are seen as not as profitable and therefore do not receive priority. Software: Netflix has changed the way people rent movies – by bringing the movies directly to them.

With today’s busy lifestyles and consumers demanding more value and control, it’s no wonder that Netflix has become the preferred online provider of the home entertainment experience. Being that Netflix is the world’s largest subscription service, both software and hardware play a big role to how their services attract and gaining more customers. Although the company was founded in 1997, they first started their streaming service in January of 2007. They used Real-time playback technology to control their streaming videos, thus Netflix customers were required to install the Netflix streaming software in order to view videos instantly.

Later throughout the year they began to implement Microsoft Silverlight, an enhanced software that is designed for delivery of cross-platform, cross-browser media experiences inside a Web browser. With Silverlight, Netflix members who watch movies and TV episodes instantly on their computers will enjoy a faster, easier connection and more robust viewing experience due to the quality built directly into the player. The new Netflix player takes advantage of PlayReady DRM, which is built into Silverlight, for the playback of protected content on both Windows-based PCs and on Macs. Silverlight with PlayReady offers a powerful and secure toolkit for delivery of dynamic streaming, which offers faster start-up, and higher quality video, adapted in real time to users’ connection speeds,” said Netflix Chief Product Officer Neil Hunt. ” Another feature that Netflix has added to enhance their website is Cinematch, which allows Netflix customers to personalize their own movie rental experience. With this software, it creates a profile of each customer and a list of recommended movies.

Netflix’s Cinematch system allows customers to tap a wide database of movies giving customers the ability to rate the movies they have seen on a five-point scale from “hated it” to “loved it. ” Based on customers’ ratings, Cinematch then displays other movie titles customers might enjoy. Hardware: Netflix continues to expand on the types of technological devices used and is the main source of how they get their customers. These devices make it easier and more convenient for customers to view movies. Some of these hardware include popular game consoles such as the X-Box 360, PlayStation 3, nd the Wii Console, streaming players – Roku, Seagate FreeAgent, and WD TV Live Plus HD Media Player. Internet-connected blu-ray players, which include well-known brands like Insignia, LG, Panasonic, Philips, Samsung, VIZIO, or Sony also allow subscribers to view movies from Netflix. Other devices that you can use to stream are internet-connected HD televisions – LG, Sony, and VIZIO, digital video recorder such as the TiVo, Insignia, LG, and Panasonic home theater, or devices, such as the iPad. Using these devices, allow customers to watch and stream videos rather than going to a physical location like Blockbuster to rent a DVD.

With Netflix, you can instantly watch movies streamed from Netflix over the Internet to your PC or Mac. In order for customers to view streamed movies on their PC or Mac, they must meet the systems requirements. This includes, having a computer running on Windows or Mac OS X and an active broadband connection to the Internet. There are different requirements that need to be met for the different operating systems: Windows requirements: Windows XP with Service Pack 2 or higher; Windows Vista; Windows 7; Internet Explorer 6. 0 or higher or Firefox 2 or higher; 1. 2 GHz processor; 512 MB RAM.

Mac OS X requirements: An Intel-based Mac with OS 10. 4. 8 or later; Safari 3 or higher; Firefox 2 or higher; 1 GB RAM. Over the coming years Netflix will expand their selection of films, and they’ll work to get to every Internet-connected screen, from cell phones to PCs to plasma screens and right now, the PC screen is the best Internet-connected screen today. Discussion Subscribers of Netflix can watch unlimited movies and television episodes streamed to their televisions and computers, and can receive DVDs delivered to their homes. Netflix is a click-only company exclusively utilizing an online presence.

Netflix being a click-only company allows it to be highly effective and efficient for their subscribers. With the use of electronic commerce (EC) the exchange of goods and services via the Internet among and between customers and employees, Netflix is able to gain competitive advantage over its competitors. Netflix is able to offer a variety of subscription plans, with no due dates, no late fees, no shipping fees and no pay-per-view fees with the use of electronic commerce. Summary Through Marc Rodolph’s efforts he has transformed the world of home movie viewing.

Mixing his movie rental idea with video game consoles and allowed movies to be viewed easily by many different demographics of customers. These innovative ideas using technology of today has allowed his corporation from the money losing venture it was to a 1. 67 billion dollar publicly traded entity which now bring movie rentals to its 14 million subscribers via internet, blue ray discs and DVDs. Terms/Concepts SMPTE: Society of Motion Picture and Television Engineers GHz: Gigahertz, used to measure processing speed of computer CPU: Central Processing unit, the computers mainframe or control program

Click-only business strategy: A business approach that exclusively utilizes an online presence. Companies using this strategy are also referred to as virtual companies. Electronic Commerce (EC): Exchanges of goods and services via the Internet among and between customers, firms, employees, business partners, suppliers, etc. E-business: the use of nearly any information technologies or systems to support every part of the business. Competitive advantage: when an organization has an edge over rivals in attracting customers and defending against competitive forces.

Microsoft Silverlight refers to as a web application framework that provides functionalities similar to those in Adobe Flash, integrating multimedia, graphics, animation and interactivity into a single runtime environment. PlayReady DRM refers to a Digital Rights Management (DRM) from Microsoft for portable devices. Digital Rights Management refers to a generic term for access control technologies that can be used by hardware manufacturers, publishers, copyright holders and individuals to impose limitations on the usage of digital content and devices.

Cinematch refers to the software that Netflix uses to create profiles for customer giving them to personalize their own profile and list recommended movies. Operating System refers to as a set of system software programs in a computer that regulate the ways application software programs use the computer hardware and the ways that users control the computer. Intel-based refers to the “microprocessor” which is defined as a multipurpose, programmable, clock driven, register based device that takes input and provides output.

It incorporates most or all of the functions of a computer’s CPU on a single integrated circuit (IC) or microchip. Megabyte (MB) used to measure computer memory or computer storage Random-Access Memory (RAM) refers to a form of computer storage References 1. Netflix Official website – www. netflix. com 2. Valacich, J. and Schneider, C. 2010. Information Systems Today (4th Ed. ) – Managing in the Digital World. Prentice-Hall, Upper Saddle River, New Jersey. 3. Wikipedia – http://en. wikipedia. org/wiki/Netflix 4. www. cio. com 5. Blockbuster – blockbuster. com 6. Netflix Company Employee 7. Netflix devices

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