Fundamentals of Information Systems Exam

Assignment.
Hand in October 15th 2013


Written by Albulena Rexhepi, Anja Fog, Mathias Hansen
& Natascha J espersen.




Table of Contents:
STATEMENT: ...................................................................................................................................... 3
INTRODUCTION:................................................................................................................................ 3
CASE PRESENTATION: ..................................................................................................................... 3
THEORETICAL FRAMEWORK: ...................................................................................................... 4
PORTERS COMPETITIVE FORCES MODEL ................................................................................ 5
TRADITIONAL COMPETITORS ......................................................................................................................... 5
NEW MARKET ENTRANTS ............................................................................................................................... 6
SUBSTITUTE PRODUCTS .................................................................................................................................. 8
THE POWER OF THE CUSTOMERS ................................................................................................................... 9
THE BARGAINING POWER OF SUPPLIERS. .................................................................................................. 10
DISCUSSION: .....................................................................................................................................11
CONCLUSION: ...................................................................................................................................12
BIBLIOGRAPHY : .............................................................................................................................13



































Statement:
How does Netflix influence traditional television and how are they able to stay
competitive in the online streaming market in this fast evolving technology era?


Introduction:
Since the invention of television, the time we spend watching television has increased
with each year, in this fast evolving technology era and our need to prioritize our time
has changed.
Therefore other alternatives for the traditional way of watching television, is needed
and here is Netflix superior as a first mover to the market of online streaming.Since it
provides a user-friendly service the chances for an increasing popularity are high
among potential subscribers, thus influencing the way we have been used to watch
traditional television.To analyze the case, we will use Micheal Porters competitive
five forces and the demand- driven, push-pull supply chain model.



Case presentation:
Netflix was launched in 1997 by Reed Hastings. The company started as a, DVD
rental service where the customer received the DVD by post. In 2008 the technology
made it possible for Netflix to launch their product on the internet. Online streaming
was the phenomenon that made it possible to watch a big supply of both Movies and
TV-series when needed.
Online streaming is traveling information of data from a server to the consumers
device. It describes the act of a playing media on one device when the media is saved
on another
When Netflix got on the online streaming market their subscription base increased
rapidly as a result of the ability to be used everywhere there is internet access.
Since its popularity and success can not be ignored, we see a possible future progress
in this way of watching entertainment online, thus seeing a potential disruptive
technology evolving in front of our eyes.
Theoretical Framework:
In this assignment we have based our theoretical framework on Michael Porters The
five competitive forces model. This model helps us investigate Netflix and helps us
understand how their work methods are structured to be a threat on the market. In an
age where digital media and easy access is the key to success, we want to find out
what makes Netflix such a huge success. By using The five competitive forces model
we are able to compare Netflixs work to other companies that offer similar
goods.Being a company that strives to focus on the customer basing their attention on
the push-pull model that derives from the demand-driven supply chain model. We
will also look into how Netflix is managing their still increasing subscription base,
and how they are able to maintain already subscribed customers. A danger to Netflix
is that in the time we live in, a lot of other products are currently challenging Netflix
in how they can run their business. Most of the time it is new technology and other
competitors, that Netflix has to adapt to and embrace, it so they would not fall behind
on the market.




Porters competitive forces model
Traditional competitors
The first component of Porters competitive forces model
When a companys product is released on the market, whether it is as a first mover or as a
new entrant on an already existing market, there will always be competitors.
How a company can promote itself and which competitive forces it can apply in the
competition for the market, are described in Porters five competitive forces.
One component of Porters competitive forces model is the Traditional Competitors.
This component is dealing with the fact that there will always be competitive products to
already existing products.
Knowing that, companies constantly have to be aware of what the consumer wants.
Therefore, a lot of research and awareness is required to customize a user friendly
product.
It is not enough to just brand your product, your advertisement and customer involvement
has to be the best, otherwise other firms will get ahead of you and take the lead on the
market.
The online streaming service Netflix was a new phenomenon in 2008, but it has already
got its competitors on a now bigger and growing online streaming market. How the
component Traditional competitors can help us understand how Netflix may act to stay
competitive, and help elucidate which competitors Netflix has.
When Netflix went on the Web with the concept online streaming and made its
appearance on the online market, it already had its first competitor, illegal downloading.
If Netflix should have a chance to compete with illegal downloading, they have to make
their product offer so affordable that people rather pay, than run the risk from
downloading illegal products.
Fortunately Netflix has already existed as an accepted DVD renting company in the U.S
with 25 million subscribers in 2011, this means that they have already built a customer
base, who was familiar with the brand and its service.
But they were not the only company with the same idea. Hula, another online streaming
service, launched their idea which focused on online television subscription, one year
before Netflix got on the market, but has now both functions as online television and
online movie streaming as Netflix has it. [1]
HBO is another online streaming service which together with Netflix is becoming more
popular worldwide. HBO has a big supply of different movies and TV-series like Netflix
does. Therefore, when more than one company offers the same product type, it becomes
very important for the company to concentrate on the user platform, on who customize
their product best to each individual subscriber, on who has the biggest supply of movies
and TV-series, and of cause which company is the most affordable one.
New market entrants
The second component of Porters competitive forces model
The strongest competitive forces determine the profitability of an industry and become
the most important to strategy formulation (Micheal E. Porter, Harvard Business Review,
The Magazine, January 2008, The Five Competitive Forces That Shape Strategy)


New market entrants has a desire to gain market share and in that way they put
pressure on the prices to lower them, so they can be more attractive for the customers
than the already established company. In the market of online tv and movie streaming,
competition is not very likely. It is a difficult industry to enter since the industry
requires a significant level of capital, so the implicit entrants have to face the expense
of licenses to the tv-series and movies they want to provide their potential customers
with. Moreover, new market entrants have to compete with well-established firms in
the online streaming industry whom has license to miscellaneous movies and tv-
series. Thus the new market entrants in the video on demand industry are channel
providers and production companies. These companies enter the video on demand
industry, as a result of customers need to be in charge of what they want to watch, and
when they want to watch it.
Netflix has started to produce their own tv-series so that they do not have to be
dependent on other suppliers. The company can by producing their own tv-series, be
able to lower the prices on streaming because the transactions cost has been lowered
in favor for both Netflix and the customers. Netflix therefore started to produce their
own tv-series because of the threat from suppliers entering the online streaming
industry, and aside from that, Netflix predicts a future profit in not having to deal with
transactions cost.
The threat of new market entry depends on the entry barriers and the threat of new
market entry is what the companies emphasizes when they determine if a company
will be a threat or not. As the demand side benefits of scale in the United States of
America, the buyers willingness to pay for Netflixs products has increased from the
buyers having intercepted the benefits of Netflixs online streaming privileges. Due to
Netflix size and that Netflix has the first mover advantage, as it was the first on
subscription streaming service market, therefore buyers are more likely to trust a first
mover as they can see the benefits of many other buyers whom trust the firm. The
companies who are most likely to thrive and survive in the video on demand industry
are due to their experience, reputation, and recognizable brand names. (, Rico Chiu,
Sherwin Doroudi, Travis Haussler, Aditya Khosla and Sean Mattingly; NETFLIX
Entering the Video on Demand Industry through Providing Streaming Movies, March
7 2007)
When the threat of new market entrance accrue, established companies lower their
prices or gives the subscriber a benefaction to stay loyal to them and this is where
Netflix has the advantages of being a pioneer.
The threat of new market entrants are low from unknown companies, but high from
channel providers and production companies whom are able to predict the
profitability. The threat from the online streaming services, as more and more people
are starting to subscribe to online video and tv-series streaming sides instead of
watching television. Therefore to sustain the competitive advantage, Netflix has to
think out of the box, thus becoming its own supplier with highly successful new TV-
series that they produce themselves.


Substitute Products
The third component of Porters competitive forces model
The market that Netflix is in makes for a lot of substitute products. Within entertainment
Netflix is competing against gaming consoles, traditional television and other
entertainment related products. The thing that the company Netflix has to have in mind
is, that not all substitute products may serve as a threat, but some might function as an
opportunity to enhance their own capabilities. When the new SMART-TVs were
announced and people started to obtain them, it suddenly opened up a new market for
Netflix. The same goes for the increasing usage of mobile phones and tablets. Netflix has
been good at keeping up with the current technology. They are able to make use of the
new features that are brought to them by companies such as Apple and Samsung, when
they put out new products on the market from which Netflix can benefit from.
The threat of substitute products for Netflix might be that there will be a change in trends,
and suddenly people are not willing to pay for a subscription to Netflix. A lot of YouTube
channels are starting to produce their own shows and since YouTube is a free
entertainment web- and content site, it could be a competitor to Netflix if places like
YouTube suddenly gained even more traction on the entertainment market. What speaks
to the advantage of Netflix, is that currently YouTube have no license that allows them to
play TV-series and movies.
Another threat to Netflix is the physical movie renting stores such as blockbuster. Though
shops like Blockbuster is fading out, Netflix still have to watch out for the trends of their
customers. One of the ways that Netflix is monitoring these trends is by gathering data
from their customers when they watch movies. They gather information about where they
are when they watch the movie, keep logs of what movie the unique customer watches. In
this way they are able to customize a specific recommendation system that fits the
subscriber.
The more substitute products and services in your industry, the less you can control
pricing and the lower your profit margin. - Laudon K. C. Laudon J. P.(2012
The power of the customers
fourth component of Porters competitive forces model
A successful company is able to retain customers by having attractive products while
keeping the competitors out of their effective business strategy in how to attract and
keep customers.
Being able to retain the profit, the company knows that in order to grow, it will have
to satisfy the needs of each customer by first of all acknowledging their existence and
power and secondly, being able to keep other competitors out of the game.
The power of the customers will become stronger, if other options are available to
them in the particular market. Thus putting pressure on the company and making the
customers sensitive to for example price changes. All of this depends on the specific
market the company is in. If one was to be in a transparent market where there is little
product differentiation and the prices are known beforehand, one has to have a
different approach in how to keep and get the customers interest. For example design
different loyalty packages, benefits for long time customers or new offers on different
products for first time buyers or subscribers.
Whether youre entering a new market or wanting to keep your place in it, it is
important to know how competitive a typical industry is, especially the one that you
are intending to enter. Also be able to not underestimate the bargaining power of the
customers, which is mostly the main way for one to profit from the business that
youve created and the products that you intend to sell.
In ones business plan and strategy one has to think if you have that market niche that
will attract customers. This is where Netflix has its advantages. They were first
movers to an industry that will only grow with time. They thought ahead of time and
named their product/ brand in the name of the future. Reed Hastings, the founder of
Netflix, knew that online streaming would be possible in the future, but in 1997 the
technology was not available to make it possible yet. But like any other entrepreneur,
he believed in his brand and the evolvement that it could take sometime in the future.
Ergo enhancing the niche of this market. Now 16 years later, Netflix is growing
rapidly and keeping a loyal subscription base by making it available to watch
television whenever one wants to do it, and whatever one wants to watch. One can see
the development of unsatisfied customers, for example in Denmark where not all the
shows are up to date as the ones in the US are. Though still having a growing
customer base even with a lack of the specific seasons of series currently available for
the individual danish subscriber.
The bargaining power of suppliers.
The fifth component of Porters competitive forces model
The impact that the suppliers can have on a company's profits can vary, but still have
a significant role especially because the company can not change phases as fast as the
suppliers. That is why it is a smart idea for a company to have a backup supplier or
different suppliers, or even better, be its own supplier. People behind Netflix knew
and noticed that in order to be able to control their company, diminish the
competitiveness from potential competitors and products, they needed to establish
their own supplier. They managed to do it so, by using the technology of information
systems, big data in their favor by using polls and engaging their subscribers to decide
in what kind of shows they would like to watch. After they got the needed
information of preferences by their consumers, they created their own tv-series,
House of Cards, which has turn out to be a huge success. Mainly, because Netflix
acknowledged that this way of using their systems could lower their transaction costs,
make them in control of their products while satisfying the needs of their subscribers.
The more suppliers a firm has, the greater control can it have of price control, quality
and time and scheduling. The success of Netflix own production of their tv-series is
based on the pull-based model that is a derived theory from the demand-driven supply
chain model (Laudon KC., Laudon, J. P. 2014, 13th edition, Management
Information Systems p. 379-380)
Supply chain management systems make it possible for companies to streamline their
internal and external supply chain processes, which then gives the management more
help with accurate information which in the end will help the company lower
transaction costs by enabling them to make better decisions based on their systems
and the pull factor. Information using progressed information systems, flowing in
many directions make this possible, like big data.
The difference in the push and pull-based model is characterized by the slogan make
what we sell, not sell what we make. (Laudon K.C, Laudon J.P,2014, 13th edition,
Management Information Systems, p. 380)
Discussion:
We chose to use Michael Porters five competitive forces model to understand and
explain how entering and keeping a company's place in the business world works.
This particular model explains the different variables that are needed to have a
competitive advantage on a specific market, that you are a part of or want to join in.
Therefore this model does not give you any specific guidelines in how to achieve
competitive advantage, help you increase or keep your profits or give you that market
niche. One realizes that Porters model only provides instructions in how to
understand the business world and what kind of angles to take in consideration. These
things are very helpful to understand a complex industry. Porters model gives a
company a simple explanation to the world of economics, competition and business,
whereas it does not assure a companies success or profit. To do that so, a company
needs to create a concrete business plan in order to achieve the envisioned and
intended goals of the company.


With all the new technology that is entering the market, is Netflix then taking on the
new challenges and opportunities in the correct manner? When looking at how the
substitute products is dealing with the new technology, it seems very plausible that
Netflix is doing the correct thing. Netflix has adapted to the new playing field by
looking forward, just like when they were founded, they knew that in some years the
place to be, was on the internet, instead of physical stores like Blockbuster.


Who is disruptive to whom? Is traditional television destroying itself by allowing
new ways of watching television become a reality? One could say that for traditional
tv to allow Smart TV be a part of the classical television is being self disruptive
towards its own broadcasting channels. Thus suggesting that the Television industry
is mainly trying to recreate their business plan by accepting the new tendencies in this
technology era. Which in this case is an advantage to Netflix, since Smart TV has a
direct platform to online streaming companies like Netflix.
Since Netflixs main commodity is its subscribers and their contentment, the company
uses the push-pull based model to keep their competitive advantage by listening to
their subscribers. Since Netflix is great at thinking ahead, they chose to change their
ways of using the old fashioned ways of managing customers interests by using the
push based model. Netflix at first, offers a personalized range of movies or tv-series
one might like to watch. But then they realized that they would have a greater deal of
success by acknowledging and investigating in customer trends by collecting large
amount of customer data which is called big data. The large amounts of data helps
Netflix structure a series that fits the demography using Netflix as their primary
entertainment media. Is Netflix increasing their own competitive advantage on the
market, by creating their own customized tv shows, or is it a challenge too big for a
streaming company?
Conclusion:
As a result of an evolving technology era, there are many traditional products such as
the television, that seems to be heading towards an industrial restructuring.
If we take notice in the fast phasing technology evolvement, online streaming is
increasing in popularity and becoming a bigger part of our daily lives, than before.
Netflix and other streaming companies might be a disruptive technology towards the
traditional television. The popular tendency is pointing in that way. It might take
many years before traditional television will completely disappear or maybe it will
find a way to reconstruct a new role in society. Most of us have acknowledged that
our lives have changed rapidly in very few years. The internet has made it possible to
establish a different kind of personal freedom that continues to break boundaries.
With these rapid changes, Netflix still manages to keep up to date and desired content
for the users by using big data and analyzing it. Thus its increase in popularity and
competitive advantage. Porters Five competitive forces model, has made it clear, that
a company has to work within certain boundaries to survive and be a competitor on
the market. By analyzing every component in the model we can conclude that Netflix
has the advantage of being a first mover, having a recognizable brand name and
keeping their user-friendly service up to date with current content. This evolvement
provides a huge threat to traditional television, due to our busy lives and schedules.
People no longer have time for linear television, we want it on demand.






















Bibliography :
[1]10.08.10http://hometheater.about.com/od/internethometheater/a/The-Difference-
Between-Streaming-And-Downloading-Media.htm - (Article we used to describe
online streaming)


10.08.10http://www.dr.dk/Nyheder/Indland/2013/09/15/221223.htm - ( News feature
we watch


1998-2013 HowStuffWorks, Inc
7.9.13 http://electronics.howstuffworks.com/netflix5.htm


2008 jauary http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/
(Micheal E. Porter, Harvard Business Review, The Magazine, January 2008, The Five
Competitive Forces That Shape Strategy)


07.03.07 http://www.mcafee.cc/Classes/BEM106/Papers/2007/Netflix.pdf
(NETFLIX, Entering the Video on Demand Industry through Providing Streaming
Movies)

Picture 1, Front page)
http://multimedia.ekstrabladet.dk/archive/00849/netflix_849766g.jpg


Picture 2Front pahe)
http://2.bp.blogspot.com/_vIAN79n8fzs/TUk0EH3mBeI/AAAAAAAAAFc/33F1bSo
5wos/s1600/death-of-television-andrew-leipzig.jpg


https://netflix.hs.llnwd.net/e1/us/layout/signup/deviceinfo/OpenConnectDeploym
entGuide-v2.4a.pdf - (Article we used to understand how Netflix systems work.
)





[1] 1998-2013 HowStuffWorks, Inc 7.9.13 http://electronics.howstuffworks.com/netflix5.htm