Digital platforms organizations are the main tools of transforming the
economy into a digital economy. They use advanced digital technologies, are
primarily data-driven, and match supply and demand in unconventional and new
ways. The last century, information technology has deeply reduced the need to
own physical infrastructure and assets; it facilitates the platform’s ability
of evaluating and exchanging huge amounts of data, and consequently increases
the value of the platform.
technology enabled business models to contrast the traditional organizational
forms in the ways they control supply chains, lead a network of platform
partners, and develop business models. Platform businesses bring together
producers and consumers in high value exchange. Their chief assets are
information and interaction, which together are the source of the value they
create and their competitive advantage (Marshall W. Van
Alstyne Geoffrey G. Parker Sangeet Paul Choudary, 2017, March 21, Pipelines,
Platforms, and the New Rules of Strategy. Retrieved December 15, 2017, p.54).
These operating systems do not sell products or services, rather they are
selling access to a software and a digital system of reputation and trust
between supply and demand.
based business model gave also rise to what is often called the sharing
economy. The sharing economy refers to the phenomenon which deals with people
obtaining, giving, and sharing access to goods and services by means of a
digital platform. Platform providers can be both for-profit and non-profit.
understand how digital platforms are transforming competition in the sharing
economy, the paper is going to focus on the following question: to what extent is
Netflix influencing competition in its industry and in the U.S. sharing economy?
To come up with an answer to this main theme, the research method will be
literature based and the structure of the paper is first dealing with some general
information about the organization’s background and afterwards Porter’s Five Forces
model is going to be applied to Netflix’s industry, with the aim of determining
the level of competition in the industry in which it competes. Furthermore, in
order to analyse the digital platform’s influence on the U.S. economy, the
paper is going to deal with Netflix’s disruptive impact on it, known as the
2. Theoretical Framework
Netflix was founded on 1997 in California by Marc Randolph and Reed
Hastings. Initially, Marc Randolph came up with the idea of selling a product
or service over the Internet (but he didn’t know what to sell). One day, Reed Hastings
was charged $40 in overdue fines because he returned too late a copy of a film.
He then suggested to his partner to start renting out videos on the internet
and, in this way, Randolph and Hastings started a business together.
Netflix website was officially launched in 1998 (Keating,
Gina (2012). Netflixed: The Epic Battle for America’s Eyeballs. Portfolio/
Penguin.). At that time they had about 30 employees and 925 items
available to rent. Netflix’s core competency was that customers were sent DVDs
via mail on a pay-per-rental basis where late and postal fees were applied.
1999 the platform introduced the monthly subscription format (O’Brien, Jeffrey M. (December 2002). “The Netflix
Effect”. Wired News.) ; it consists in paying a flat-fee each month
in exchange for unlimited rentals. The innovating feature of this business is
that costumers don’t have due dates to return rentals, no late fees, no
shipping costs, and handling fees (“Things You
Should Know About Renting From Netflix”. Lifewire. Retrieved August 10,
company had considered the idea of providing movies online. In the mid-200s the
data speeds and capacity were able to offer the service of downloading movies
from the internet. The idea consisted in a ”Netflix box” that allowed
costumers to download movies overnight and watch them the day after. However,
with the increasing popularity of Youtube, Netflix decided to adapt the
streaming concept as well. The plan was completed in 2007 (“The inside story of how Netflix transitioned to
digital video after seeing the power of YouTube”.).
2006, Netflix introduced a new service which dealt with recommending movies. By
using subscribers’ ratings, the platform can accurately predict which movies a
subscriber would enjoy watching next by using a filtering algorithm. This service
led to huge success, it caused, in fact, an increase in rentals and subscribers
across the world. In 2005 Netflix gained 4.2 million members, and two years
later, in 2007, it delivered its billionth DVD by mail (“The
Victoria Advocate – Feb 26, 2007”. p. B4.).
In the same year, the digital platform offered video on demand, thus streaming,
to its subscribers.
The big revolution of
Netflix’s strategy consisted in providing the opportunity to costumers of
watching television shows and movies instantly on their PC’s and laptops as
well as on the traditional television. This service marked the beginning of
streaming media as known these days.
In the following years, the company partnered with electronics companies to
allow streaming on electronic platforms, such as the Xbox 360, Blu-ray disc and
smart TVs (“What Netflix
and Hulu Users are Watching… and How”. NielsenWire.
July 27, 2011. Retrieved July 27, 2011.).
In 2010 Netflix became available on Apple’s iPad and iPhones, Nintendo Wii as
well, and other Internet connected devices (Falcone,
John P. (May 9, 2008). “Netflix Watch Now: Missing too much popular
content”. CNET. Retrieved July 19, 2010.).
the digital platform expanded itself and made services available around the
world. In April 2014, Netflix had 50 million global subscribers with 32.3%
video streaming market share in the United States. The company offered its
services in 41 countries worldwide (Chakrabarty,
Saumyadeb; Kalluvila, Sriraj, eds. (April 22, 2014). “Netflix price hikes
seen boosting global expansion”. Reporting by Soham Chatterjee; Photo
Credit: Reuters/Mike Blake. London. Reuters. Archived from the original on
April 22, 2014. Retrieved April 22, 2014.). Just
a couple of months later, the digital platform improved the number of
subscribers, of which 36 million in the United States (Lawler,
Richard (July 22, 2014). “Netflix crosses 50 million subscribers worldwide
and takes aim at Comcast / TWC”. Retrieved July 23, 2014.). Thanks
to the new service that allowed costumers to watch movies and shows offline, on
April 2017, Netflix reached the 100 million subscribers (Bond, Shannon (April 17, 2017). “Netflix nears 100m subscriber
milestone”. Financial Times. Retrieved April 30, 2017.). In the month of October 2017, Netflix was estimated
having 109.25 million subscribers worldwide, counting 52.77 million in the
United States (“Netflix Letter to Stockholders Q3
2017” (PDF). Retrieved October 16, 2017.).
December 13. Retrieved December 15, 2017, from https://en.wikipedia.org/wiki/Netflix).
As suggested by the data about Netflix’s
expansion, the digital platform could be defined as successful. However, a way
to accurately attest its profitability is by means of Porter’s five forces model,
which analyses the level of competition within the industry in which the
makes Netflix such a successful business is the bargaining power of buyers. Buyers
are powerful because they can easily switch to another service but they still
choose to purchase and consume Netflix’s services. As they are not bound to an
annual contract, consumers can subscribe to one service one month and then
switch the next. As a consequence, Netflix react by offering an appealing
selection of movies and series in order to encourage as many costumers as
possible to renew their subscription.
the bargaining power of suppliers the company has to obtain and renew contracts
with networks and studios to keep the costumers satisfied. These suppliers are
lately debuting with their own streaming services, and hence less willing to
share products with Netflix. In such manner, some of the suppliers are becoming
the digital platform’s competitors. Suppliers can also establish strategic alliances
or cooperation making the industry more concentrated and thus themselves more
threat of new entrants is an addressing problem considering the new trends coming
up. However, entering the streaming video industry although being a company of
small-scale makes it difficult to compete with a renowned brand such as
Netflix. The costs involved in lasting contracts are extensive and new entrants
are not able to face them if not by partnering with a competitor, thus an entry
barrier is represented by capital requirements. Nonetheless, in order to limit
the competition and the new entrants, Netflix has to keep improving its
services selection or offer differentiated ones.
services are one of the main substitute for streaming video. Costumers who are
interested in watching news and sports enjoy the traditional cable television
which often also offers free streaming entertainment. Furthermore, Netflix
faces the risk of being substitute by pirating. In general, competing with free
services is always difficult. Netflix has to deal with rivals as streaming
apps, PBS, Crackle or Snag Films, for example, offer their products for free or
in exchange to publicizing their sponsors. However, as on-demand streaming
keeps growing in popularity, the threat of substitutes is going to diminish,
considering that online entertainment is gradually replacing the traditional cable