Netflix's great business model

by David Strom

April 24, 2001 —

After recently purchasing a new TV set and DVD player, I signed up for
DVD rentals at Netflix.com. While I have been enjoying my new
entertainment center, I got more satisfaction from the design of
Netflix's Web site and service. Anyone interested in providing a
subscription-style e-commerce service offering could learn a lot from
Netflix's site.

Netflix has an interesting business model. You pay a set monthly fee
ranging from $14 to $40, and the company mails you the videos along
with a prepaid return mailer. You can rent as many or as few videos as
you like each month, but you can only have a maximum of eight videos in
your possession -- or in transit -- at any one time. If you quickly
watch your videos and then promptly send them back, your monthly fee
will pay for quite a few films. Additionally, if you get a movie that
you want to enjoy a second or third time, then you can keep it for a
few extra days. No more rushing to the store before 11 p.m. to return a
movie, and no more late-fees.

This is a great model. It places the burden for deciding how long to
keep the films on the consumer, and keeps monthly fees low enough for
Netflix to compete with Blockbuster and other brick-and-mortar video
rental businesses.

The site itself has a very clean design, a terrific search engine,
recommendations based on your personal preferences (if you are willing
to provide this information), and a simple queuing mechanism for
ordering and monitoring videos that are about to be shipped or are on
hold.

The site sets a cookie to remember you, but still protects your account
with a password. Account information is clearly described, with the
terms and conditions explained in simple and clear language. No
cluttered, Shockwave-infested pages either; it really is quite
beautiful.

Netflix's site design is impressive, but the company has its customer
service act together as well. Encountering a problem with a returned
movie, I sent an email query. Almost immediately, I received an
automated response followed by a personal email telling me the problem
was resolved. Although this was just one contact, it was handled with
all due speed and left me a very satisfied customer.

Even if you don't watch many movies, you should take a closer look at
Netflix's operation. It represents an excellent e-commerce model and a
welcome bright spot as more and more dot-coms go dark.

Post Script
I'll be giving a luncheon address about good and bad ecommerce
practices at CW Post University, May 15-16. For anyone in the NY area
who would like to attend a one or two day seminar on ecommerce, check
out their Web site:
http://www.cwpost.liunet.edu/cwis/cwp/but09/ce/eCommerce.html

ITworld