How Netflix Found Its Blue Ocean in a Sea of Red

Netflix Blue Ocean Strategy

Once upon a time there was a video store company called Blockbuster. It was the local hotspot for families looking to keep their little ones entertained for a few, good hours, for teenagers to hang out with their friends, and for everyone and anyone who carried their little blue membership card – the one with the big “B” – to pick and choose a videotape (and later, DVDs) to their heart’s desire.

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Well, not quite. Because in what would turn out to be a contributing factor to their downfall, Blockbuster’s late fees were astronomical to many. It was not a point they would budge on, because the late fee “had become an important part of Blockbuster’s revenue model.” 

It was one of the straws that broke the camel’s back and would eventually lead Netflix co-founders Marc Randolph and Reed Hastings to start the company that is – chances are – streaming in your TV right now.

So how did they do it? How did Netflix find their blue ocean in a sea of red? According to W. Chan Kim and Renée Mauborgne’s “blue ocean strategy,” the key is simply not to compete with your competition, but to render them irrelevant by finding selling points – a unique selling proposition – that your competitor(s) cannot rival.

They may not have known it at the time, but Hastings and Randolph not only identified a space in the market that needed serving, they also helped create the demand for it. Just like UBEREats, DoorDash, and similar food delivery platforms would later open a world of possibilities – eating from practically any restaurant within a certain radius without having to leave the comfort of your home – Netflix introduced personalized DVD deliveries on a large scale to a market who didn’t even know it was possible.  

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No crazy late fees, the ability to stagger your DVD rentals throughout the month, and getting it delivered right to your door? Seems like a winning strategy if implemented correctly. Reed and Hastings also saw the writing on the wall: the rise of streaming media. 

The Blue Ocean Strategy talks about “value innovation,” finding that sweet spot where your company offers differentiation and low cost. Following the strategy’s steps, Netflix essentially:

Create uncontested market space

Netflix created a marketplace that previously did not exist – one that found value in having DVDs mailed to their homes and offering

Make the competition irrelevant

Blockbuster owned the lion’s share of the marketplace when it came to video rentals, and although they rejected an offer to buy out Netflix for $50 million, the video giant acknowledged the DVD-by-mail rental service company had an edge in the market with their position and expertise. Eventually Blockbuster closed their doors – except for one in Bend, Oregon.

Differentiation and low cost

Since DVDs were a lot less expensive to mail, customers considered the added convenience of having movies delivered straight to their homes, an even trade for a little bit of a shipping rate.

Value innovation

Netflix would become the leading provider of streaming services with about “183 million paid subscribers worldwide as of March 2020.” This opened up a whole new world of being able to watch Netflix from your laptop, desktop computer, tablet, phone, TV, and take it with you anywhere in the world – as long as you have Internet access.

Attract non-customers

Once Netflix launched their streaming platform and streaming caught on, the attraction of being able to have access to thousands of movies of different genres at a relatively low cost, became a point of attraction for many, leading some to eliminate their cable services as a result of their satisfaction with streaming services.

Create and capture new demand

Netflix captured a far more lucrative market by tapping into streaming. 

Netflix paved the way for companies like Warby Parker to become successful margin disruptors by asking questions like, Is there a better way to do this? Is there a smarter way to do this?, or simply: What if?

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