Blue Ocean Strategy in Product Development Using Netflix as an Example

What used to be a blue ocean for Netflix as the innovator in the streaming services business, has become a red ocean where everybody is trying to get a piece of the pie.

The blue ocean strategy is the one that concentrates on finding markets where there is little competition, instead of trying to beat the competition in a very competitive market (Walker & Mullins, 2011). In this strategy, there are blue and red oceans. The blue ocean is the undiscovered and virgin markets that are out there to exploit, while the red oceans constitute all the industries available today or what is known as the market space (Kim & Mauborgne, 2005). Today, I would like to discuss Netflix as an example of finding a blue ocean, navigating in a red ocean, and the strategy to find a blue ocean again.

First Blue Ocean – Streaming/Video on Demand

Netflix is an internet company that offers movies and TV shows via its streaming service (MarketLine, 2021). Netflix also provides DVD and Blu-ray discs sent via the mail to members (MarketLine, 2021). However, this is not the main business model and Netflix will eventually stop the use of physical disks soon.
Founded in 1997, by Reed Hastings and Marc Randolph, Netflix started as an online DVD-rental company (Lusted, 2012). They realized that customers did not want to drive to the store to rent movies that needed to be returned to the store (Lusted, 2012). In addition, the same customers did not want to pay late fees for not returning the videos on time (Lusted, 2012). Therefore, Netflix presented itself as an alternative to established companies like Blockbuster by charging a monthly fee and allowing people to create an account. After the users created the account, they needed to list the movies that they wanted to watch, and Netflix will send the first movie on the list with a little envelope to return the movie (Lusted, 2012). Once the watched movie was returned, Netflix will mail the second one on the list and so on (Lusted, 2012). By 2006, Netflix already had 5 million subscribers and growing rapidly (GoodaleStaff, 2006).
Netflix was considering the idea of movies on demand in 2006 (GoodaleStaff, 2006) which is just one year after the creation of YouTube, and nobody was targeting the streaming market. By 2007, Netflix created a blue ocean when it announced to the public that it will start streaming movies. Because of the unique offering of streaming videos instead of physical disks that needed to be returned, Netflix already grew to 167 million subscribers in 2019 (MarketLine, 2021).

Current Market: Streaming Industry

There is intense competition in the streaming industry where Netflix must compete with other video services like Amazon Prime, Disney+, Hulu, HBO Max, Peacock, Apple TV, Paramount+, and other free alternatives like Crackle, Pluto TV, Tubi, and others (MarketLine, 2021). Most Hollywood studios are competing with Netflix and started denying the use of their properties to Netflix, so they can attract subscribers to their platforms. Moreover, this media and entertainment field competes with cable TV and piracy, which is a big factor that slows down the growth of the industry. What used to be a blue ocean for Netflix as the innovator in the streaming services business, has become a red ocean where everybody is trying to get a piece of the pie. This extreme competition could lead to competitive pricing that creates pressure on the margins of the company (MarketLine, 2021). Therefore, it is time for Netflix to find another blue ocean, as it did with the DVD online rental and the online streaming service.

Second Blue Ocean: Educational Videos for Homeschooling

In 2020, COVID-19 changed the way we see education and has increased the interest in homeschooling as an alternative to traditional schools (Eggleston & Fields, 2021). An example of this is that in the Boston-Cambridge-Newton area, it went from just 0.9% in the spring of 2020 to 8.9% at the end of the year (Eggleston & Fields, 2021). In addition, the opening and closing of schools based on safety concerns have affected the quality of education kids have received during the last two years (Norviliene et al., 2021). Additionally, the lack of video quality and Zoom’s outages has affected the educational system during and after the pandemic (Trueman, 2020).

There are platforms that include educational content. YouTube is one of the applications that allow people to upload educational videos. However, these videos are not distilled, and the level of quality varies because there is not a real production behind those videos. In addition, the privacy concerns that people might have when using YouTube because it belongs to Google, and they don’t have a good track record with the use of users’ data. I can remember watching an educational video with one of my kids when it suddenly stopped showing an advertisement that was inappropriate for kids. The level of quality, privacy, and lack of commercials combined with the need for a platform that provides real educational videos required by the schools would allow Netflix to navigate in a blue ocean for a while. Furthermore, there are other niche platforms like Coursera, EdX, and Khan Academy. But they don’t have the resources, subscribers, and technology that Netflix has in order to compete with Netflix. Also, they are niche applications targeting a specific user base.

Additionally, if there is an educational program/platform on Netflix, parents will use them as a complementary education resource on top of the school’s resources. Netflix already has the resources and the platform to even create interactive content for kids. They already have interactive videos that allow the viewers to make choices that would lead to different paths on the videos. Netflix’s implementation of the educational content is cost-effective because they don’t need to create a feature for this app. The only necessary change would be another entry in the category’s section of the application. Besides, the creation of this content would be fruitful because it does not need to include celebrities or highly paid actors for the work. Consequently, instead of paying millions of dollars for a movie to just one actor for a Netflix original, they could use the same money and create the content for an entire series for several grade levels.

Lastly, as more parents are taking their children out of school over safety and education quality concerns, Netflix would provide the quality content needed so children can stay safe at home. Furthermore, as Netflix is a global streaming service, the same educational material can be used around the world with the use of translation.

References

  • Eggleston, C., & Fields, J. (2021, March 22). Homeschooling on the Rise During COVID-19 Pandemic. The United States Census Bureau. https://www.census.gov/library/stories/2021/03/homeschooling-on-the-rise-during-covid-19-pandemic.html
  • GoodaleStaff, Gloria. (2006, Sep 01). Netflix: From movies in the mail to movies on demand? ; Netflix is going to extraordinary lengths to become one of Hollywood’s top powers. it even infiltrated alcatraz.: [ALL edition]. The Christian Science Monitor https://www.proquest.com/newspapers/netflix-movies-mail-on-demand-is-going/docview/405550681/se-2?accountid=27180
  • Kim, W. C., Mauborgne, R. (2005). Blue Ocean Strategy. Harvard Business School Press.
  • Lusted, M. A. (2012). Netflix: The Company and Its Founders. United States: Abdo Publishing.
  • MarketLine. (2021a). Netflix Inc. SWOT Analysis. Retrieved at: https://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=151579043&login.asp&site=ehost-live
  • MarketLine. (2021b). MarketLine Company Profile: Netflix Inc. Retrieved at: https://search.ebscohost.com/login.aspx?diret=true&db=bth&AN=152732414&site=ehost-live
  • Norviliene, A., Ramanauskiene, S., Strazdiene, N., Braslauskiene, R., & Jacyne, R. (2021). Experiences of Pre-Primary Education Teacher S in Assessing Children’s Achievements and Progress in Distance Education during the Covid-19 Pandemic. Regional Formation & Development Studies, 34(2), 143–154. https://doi-org.emporiastate.idm.oclc.org/10.15181/rfds.v34i2.2251
  • Trueman, C. (2020). Zoom’s outage causes chaos, especially for educators, teachers. Computerworld (Online Only), 4.
  • Walker, O. C., & Mullins, J. W. (2011). Marketing strategy: a decision-focused approach. Mcgraw-Hill/Irwin.