Netflix Business Case Study

1. Business Model Innovation in action: the case of Netflix Juana Camacho Otero

2. Summary Business Model Innovation –BMI- is a recently developed practice that aims to strengthen a company’s position in the market by changing elements of their business model. It is different from product innovation, process innovation and systems innovation because it targets two or more business model components or elements. However, business model is a concept still under development with different definitions appearing every day and if we are going to discuss BMI we first need to acknowledge one specific definition.

3. Introduction • New business models are being described in the news every day with great enthusiasm and hope. Examples such as Facebook, Apple, Netflix, Airbnb are just a handful of companies doing things differently and achieving high growth rates, impressive valuations and venture capital investments. However other names such as Blockbuster, Kodak or the clean technology startup BetterPlace (Woody, 2013) have failed to convince the ever-changing market resulting in bankruptcy filings. A similar situation happened in the beginning of the 2000’s decade with the so-called dot com bubble, where companies were growing at an incredible rates but also disappearing at similar rates

4. During this time the idea of business model –BM- and business model innovation –BMI- appeared as an explanation for both phenomena (Mason & Spring, 2011) and the same seems to be happening today. Having this in mind, this paper discusses what business models are, what business model innovation is and what are the advantages and disadvantages of it by illustrating them using real examples. Terrarium TV

5. What is a business model? Business model is a term aiming to define what a business does or how it does it that has become very popular among individuals working in a variety of areas ranging from academic research to marketing to journalism. For example, it is possible to illustrate this phenomenon using the number of academic articles written dealing with the topic of business models that increased by a factor of 100 between 1998 and 2003 (Osterwalder, Pigneur, & Tucci, 2005:2). Since then, and using Google scholar search engine to calculate this, 6.000 academic articles, books or reviews using “business model” in its title have been published (Google, Search results, 2014).

6. However not only academics are interested in this topic, the general public too as represented by the 870 blogs dedicated specifically to this issue, the 19.000 news articles written on business models since 2005 and the 40.500 monthly Google searches done over the world (Google, Keyword planner, 2014). In sum, business model is a concept that has gained importance over the last 10 years among different groups resulting in high volume of publications and perspectives on the topic that reflects an increasing interest in the matter.

7. The elements of a business model As with the BM definition, when it comes to its elements, different authors have their own categorizations. Some recent papers such as Mason & Spring (2011) and Lindgardt, Reeves, Stalk, & Demler (2009) provide the reader with a list and figures of the components of BM. For the former, three elements lie behind every business model: technology, market offering and network architecture. Technology refers to the product, the processes, the core and the infrastructure technology while market offering is related to aspects such as activities, artifacts, value and access and finally, network architecture encloses market and standards, transactions, capabilities and relationships (Mason & Spring, 2011:1034). In contrast, Lindgardt, Reeves, Stalk, & Demler (2009:1) identify two basic dimensions, value proposition and the operating model.