Netflix is the largest streaming service in the world with over 193 million subscribers (as of July 2020) and counting. But what’s their secret when it comes to product strategy?
In this post, I’m going to share a few models to help you define your product strategy. Each of these models will be brought to life with a mock 2020 articulation of Netflix's current product strategy.
You’ll also discover how product strategy helps day-to-day decision-making with two modern-day "What would you do?" Netflix cases. So, let’s uncover Netflix’s 2020 product strategy and find out what you can learn and even implement in your product strategy going forward.
Why Product Strategy?
Before we begin to explore Netflix’s product strategy, it’s important to understand why product strategy is so important and necessary. There are several reasons why strategy is a key part of product-led growth.
Firstly, strategy helps us to communicate an inspired vision of the future. It’s one thing to have an idea in your head but you need the right strategies in place to help communicate that vision to others.
Secondly, combining innovation and invention is no easy task. Inventing new solutions and features can be chaotic and it’s almost impossible to be innovative without any chaos. However, things cannot happen at random. There must be discipline and I believe that strategy is effective at blending these two forces.
Product strategy is about forming hypotheses to DHM. In other words, you need it to delight customers and do so in a margin-enhancing way. Finally, you need a product strategy to help facilitate prioritization. As product leaders, we can do anything, but we can’t do everything. We must prioritize some things over others and having a strategy in place can help you to do that while also communicating a plan.
Product Strategy Frameworks
Here are three models (or frameworks) to define your product strategy:
Each of these models has three purposes:
1. Encourage people to think long-term
2. Build cross-functional alignment
3. Help people to form hypotheses to compete long-term
If you’re a product leader, your main job is to “delight customers in hard-to-copy margin-enhancing ways.”
So, how do Netflix’s product leaders achieve this?
Netflix offers customers a very convenient service with a wide selection of movies and TV shows they can stream instantly ‘anytime, anywhere.’ Customers can navigate Netflix’s selection very easily and they get a lot of value for their money. Plus, Netflix offers customers a range of high-quality and entertaining original content.
A key part of Netflix’s product strategy is to increase profits. I refer to this as ‘margin-enhancing’ and Netflix effectively increases profits in a variety of ways.
I want to take a closer look at the last point in the slide above – “right-size” original content investment. Since Netflix wants to offer a wide range of movies and TV shows to suit all types of tastes and preferences, the company likes to invest in original content. However, they want to pay the right amount for this content. To do this as accurately as possible, Netflix predicts how many people will watch a certain TV show or movie and then line up the cost of investment with their prediction.
For example, Netflix predicted that 100 million people would watch Stranger Things. Therefore, they were willing to invest $500 million in that series. Bojack Horseman was predicted to gain 20 million viewers, so the ‘right-size’ investment in that show was estimated to be $100 million.
What makes Netflix hard to copy?
Netflix isn’t the world’s biggest streaming service for nothing. It is very hard for other companies and streaming services to copy what Netflix does and this makes it very difficult for competitors to compete.
Netflix is a trusted brand. You can trust Netflix to keep your personal details private. Their brand promise is “movie enjoyment made easy” and they achieve this by providing viewers with personalized service and the freedom to watch on almost any device with an internet connection.
Here’s a breakdown of the reasons why Netflix is hard to copy:
Netflix product strategy
Netflix’s product vision began with a simple goal – to get big on DVD. When Netflix started out, they were a DVD rental company and customers had DVD’s delivered to them via postal services. Then, the company’s vision evolved to become leaders in the streaming market. ‘Going digital’ enabled Netflix to expand worldwide. Having achieved all of the above, Netflix is currently placing a strong focus on original content.
The product team at Netflix prioritize monthly retention as the company’s high-level engagement metric. The team prioritizes other metrics too, including growth and monetization.
The existing product team focus on key high-level product strategies (see below):
Here’s an example of the Netflix 2020 rolling roadmap, which shows how Netflix is implementing each strategy every quarter:
Two “What would you do?” Netflix cases
Case 1: Netflix Party
Netflix Party is a Chrome extension app that has become increasingly popular since COVID-19. It allows people to watch the same movie at the same time. They can even chat with each other while watching the movie or TV show. In an isolated time, such as lockdown during the pandemic, many people enjoyed using this Chrome extension to watch movies with friends and family long-distance.
But is this an idea that Netflix should execute themselves?
In the past, Netflix has tried a few variations of social experiments including ‘Friends’ in 2009, ‘XBox Party Mode’ in 2010, and ‘Tell a Friend’ in 2018. All three were killed off because not enough people used the features.
However, Netflix Party has proven to be quite the success. It grew from 500k to 1M in just 60 days and acquired 10M downloads. This data shows a substantial proof of concept, making it a possible worthwhile investment for Netflix. But the question remains – will this delight in hard-to-copy, margin-enhancing ways?
Well, this extension is hard-to-copy and it would take competitors years to mimic something of this scale. It has the potential to enhance profits via word-of-mouth and increase retention. But, should Netflix invest in this type of extension?
My opinion is…no, and here’s why:
Case 2: Auto-cancel inactive members
Should Netflix auto-cancel inactive members? One-half percent of Netflix members haven’t used the service in the last 12 months. However, those members are still paying for the service despite rarely using it.
Some might argue that a better alternative would be to send those members an email notification alerting them to the fact they’ve been inactive for so long. The email could say something like “Would you like to cancel?” and that way, the user can decide whether they want to continue paying for the monthly subscription or cancel their membership.
If members say no, then their service will continue as normal. If they say yes, then their membership is cancelled. However, what happens to the members who don’t respond? Should their membership be auto-cancelled?
If Netflix were to auto-cancel all of the inactive members, the company would lose $100 million each year. Clearly, introducing the auto-cancel option is not a great way to enhance profits as the company will be losing millions of dollars each year. But what about the ‘delight and hard-to-copy’ side of it?
Offering the auto-cancel feature for inactive users may delight customers since Netflix automatically stops the payments. The user can always re-join if they choose to do so.
My opinion is that this would be a worthwhile strategy for Netflix to implement and here’s why:
I hope that you found this post helpful and that it helps you to define your own product strategy in 2020 and beyond.
I think that product teams and product leaders can learn a lot from Netflix’s current product strategy, which can help you make more strategic day-to-day decisions and implement product strategies that will help you reach your vision and goals.
Want to learn more about product strategies and product-led growth? Discover the fundamentals of Product-Led Growth and how you can turn your product into a growth engine by reading the book, The Definitive Guide On Product-Led Growth.