Disruptive Forces: Netflix

By Chris Gonsalves Print this article Print


Location: Los Gatos, Calif.

CEO: Reed Hastings

Revenues: $1.2 billion

What they do: For $5 a month, Netflix gives more than 8 million subscribers access to more than 90,000 DVD movies, making it the runaway leader in online movie rentals. The company is also a heavyweight in movie downloads with more than 6,000 streaming titles to choose from (compare that to fewer than 1,000 at iTunes).

Disruptive qualities: A sure sign of disruptive behavior is having your company name become a verb, as in “I’m going to Google him.” Indeed, the best review a movie can get these days is a critic’s call to “Netflix it right away.” Continually improving a model it created has helped Netflix defy critics who said online movie rentals would either be overtaken by the big-box retailers or usurped by streaming downloads.

The tech that makes them tick: Netflix is a fulfillment machine. To deliver 1.8 million DVDs per day, it has eschewed tech gewgaws like RFID in favor of pushcarts, bar codes and scanners, and a home-brewed customer relationship management system in its 100 shipping centers. The real magic at Netflix, however, lives within its Cinematch recommendation engine. The top-secret algorithm makes movie suggestions used by more than 90 percent of Netflix customers. The technology is so valuable that the company is offering $1 million to any programmer who can improve its performance by at least 10 percent. While nobody has claimed the prize, a team from AT&T took a $50,000 “progress prize” for bumping Cinematch up 8.4 percent.

Who they are disrupting: Netflix is hurting Blockbuster, HBO and Wal-Mart, as well as creating a significant barrier to entry for Apple TV.

BOX OFFICE BOMB? Netflix has peeved some of its faithful in the past year with poor customer service, sluggish deliveries and off-target recommendations. The company’s own user forums are filled with threats to abandon the service in favor of Blockbuster or Apple. It’s time to sharpen up the algorithms. Still, company officials are quick to point out that Netflix remains the #1 rated site for customer satisfaction site across all of e-commerce according to six consecutive surveys by ForeSee Results, Nielsen Online also ranked them #1 last December.

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This article was originally published on 2008-03-27
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