Analysis of Netflix Information Systems
Netflix: Business Success Achieved through Information Systems
First formed in 1991, Netflix has become today’s predominant video rental service. They offer a hybrid service allowing DVD delivery by mail as well as streaming movies and TV shows via their company website or access on 200 other devices. Their unique business process has netted them over 16 million subscribers and revenue around $500 million annually. The reason for their growing success can be attributed to a good business model and just as important, properly implemented systems. An extremely efficient supply chain management system (SCM) and customer relationship management system (CRM) have helped Netflix become the world’s largest video subscription service.
Before looking at the systems that make Netflix’s service possible, a brief overview of this service is needed. Subscribers pay monthly based on a tier pricing plan determined by the amount of DVDs that can be rented at a time. The tiers range from $7.99 for only streaming video, up to $55.99 for 8 DVDs at one time. It is important to know about this tiered-pricing system and how the amount of DVDs a subscriber can have at a time varies amongst their 16 million customers. Without an effective SCM system they would not be able to keep up with the always varying amount of DVDs being mailed out at a time.
With millions of customers requesting various amounts of DVDs to be shipped to them every minute of the day, how can Netflix keep its inventory moving fast enough to earn a profit? According to Tom Dillon, Netflix COO, “the way you get more competitive, lower your costs, and provide better service is through continuous improvement of the information technology”. Dillon oversees the DVD fulfillment and believes that the source of the company’s competitive advantage is their investment in proprietary inventory management software. Originally using an Oracle ERP system, still used now only for financial information, Dillon felt that the
First formed in 1991, Netflix has become today’s predominant video rental service. They offer a hybrid service allowing DVD delivery by mail as well as streaming movies and TV shows via their company website or access on 200 other devices. Their unique business process has netted them over 16 million subscribers and revenue around $500 million annually. The reason for their growing success can be attributed to a good business model and just as important, properly implemented systems. An extremely efficient supply chain management system (SCM) and customer relationship management system (CRM) have helped Netflix become the world’s largest video subscription service.
Before looking at the systems that make Netflix’s service possible, a brief overview of this service is needed. Subscribers pay monthly based on a tier pricing plan determined by the amount of DVDs that can be rented at a time. The tiers range from $7.99 for only streaming video, up to $55.99 for 8 DVDs at one time. It is important to know about this tiered-pricing system and how the amount of DVDs a subscriber can have at a time varies amongst their 16 million customers. Without an effective SCM system they would not be able to keep up with the always varying amount of DVDs being mailed out at a time.
With millions of customers requesting various amounts of DVDs to be shipped to them every minute of the day, how can Netflix keep its inventory moving fast enough to earn a profit? According to Tom Dillon, Netflix COO, “the way you get more competitive, lower your costs, and provide better service is through continuous improvement of the information technology”. Dillon oversees the DVD fulfillment and believes that the source of the company’s competitive advantage is their investment in proprietary inventory management software. Originally using an Oracle ERP system, still used now only for financial information, Dillon felt that the
Cited: Cohen, Alen. "Netflix:DVDS at Your Door." PC Magazine 19 February 2003: n. pag. Web. 20 Nov 2010. <http://www.pcmag.com/article2/0,2817,894278,00.asp>. Margulius, David L. “Breaking Away.” InfoWorld. 27.49 (2005): 28. McGregor, Jena. “High-tech Achiever: Netflix.” Fast Company. October 2005. 15 November 2006 < http://www.fastcompany.com/magazine/99/open_customer-netflix.html>. Stevens, Larry. “We Try Harder; At Netflix the technology is the operations. But can that business model handle its rapid growth?.” CIO Insight. 1.59 (2005): 17 pars. 18 November 2006 <http://proquest.umi.com/pqdweb?did=915670091&Fmt=3&clientId=12520&RQT=309&VName=PQD>. Wilson, Tracy. "How Netflix Works." How Stuff Works n. pag. Web. 20 Nov 2010. <http://electronics.howstuffworks.com/netflix2.htm>.