This morning I was listening to KSL news radio, and I heard an interesting example of how Netflix was utilizing its profit pools differently. Apparently, Netflix has experienced some stress due to high shipping costs. It sounded like a driving factor was the aspect of the user interface. As a solution, Netflix has made it less convenient to order an actual DVD to be physically shipped to you. The focus is becoming more towards online streaming. The business is huge and the gross margin per view would be enormous compared to the shipping costs associated with their traditional method.
This is an interesting strategic move for Netflix. It seems that it is becoming less and less differentiated in the market due to the deep profit pools associated with exclusive web-based viewing. It will be interesting to see if this strategy will be sustainable in the long term, lacking its differentiation. It is, however, interesting that they are willing to face the brutal facts in that their traditional model may not be the most profitable for the business. We'll see what happens...
...From the Outside
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