Electronic Commerce Strategies for the New Economy
“Marketing of an E-Commerce Giant and the Uncertain Future of Atoms to Bits” (Chapter 4)

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Introduction In this chapter of the online textbook, our main goal was to understand how technology helps firms craft and reinforce competitive advantage. The big firm, Netflix will be used as our main example. In order to understand the big picture, it is crucial to understand the basics of the two services operating under the Netflix business model. Also we will talk about how the firm experienced wild swings in technology shifts from obsolete models to the firm’s long term viability models. Along with technological aspects of the company, the paper will be divided into 4 big parts explaining the details. The first part will be about the streaming service that Netflix first adopted. Further explanations regarding long tail and comparing other firm’s example will be given. The second part of the paper deals with cost, pricing and stock price of the firm. The company went through many ups and downs and the trend will be explained throughout the parts. Third part will be going more in depth with the technology and software usage from Netflix. Detailed information regarding atoms and bits will be included. The last part of the paper will mention about the channel relationship such as media, people, profit and disintermediation will be explained. After the 4 body parts are explained, the conclusion will sum up our information and give an overall trend of the firm and its ups and downs that structured the company to be where it stands today. A more in depth comparison and analysis of each part will be represented by comparing its current topic with other firm’s situations as well.

Technology/Software The reason why we study Netflix among all other firms is because it provides a clear example where technology helps the firm craft and reinforces a competitive advantage. The first section will be about the original obsolete technology method; “DVD-by-mail strategy” and the second part will talk about how technology kicked in and advanced the overall system. Main parts that technology helped create was that it allowed the firm to develop assets such as scale, brand, and switching costs that combined to place the firm at the top of its industry. The second method that they decide to use is the “atoms and bits” method which is sending bits over the internet. Although Netflix was successful, the success was through much struggle.
Start-off Method Netflix’s start-off method was through manual DVD-by-mail service at a flat rate subscription fee. Under this method the customers only had to pay the fixed price and no late fees or mailing fees were charged. The customers get to choose their movie online at Netflix.com and they would receive the DVD by mail in less than coupe days. On the website, the consumers can rate the movie or see recommendations base on previous choice of movies and check out details and share viewing habits. Although this breakthrough method abled Netflix to grow into a giant, it was still not enough to continue its atop position in its industry. Hastings knew that he would have to change the method into streaming. He adopted the new method of streaming and now when customers go on Netflix.com, the default option is unlimited streaming and not a word about DVD mailing service could be found. Nowadays the streaming service is not only available on TV but through PCs, tablets, smart phones and interned connected televisions, etc.
Customer Data: Key to success and building trust One of the reasons why Netflix was successful is due to its management in customer data. Data is collected when customers rate movies they have seen before and the customer’s preference is fed into a proprietary Netflix recommendation system called Cinematch. Cinematch uses a software technology also known as collaborative filtering. Collaborative filtering is a classification of software that monitors trends among customers and uses this data to personalize an individuals’ experience. It turned out that customers really enjoyed and trusted Cinematch. 60% of recommended movies were chosen by customers. Cinematch data not only benefits customers but also helps Netflix as well with operational advantages. The firm examines inventory availability in the warehouse closest to a given customer and tailors recommendations to favor movies that are in stock so that customers do not get frustrated for the delay. Additionally, by leveraging Cinematch and making relationship with studios, the firm developed a revenue-sharing system where studios could offer Netflix their DVD catalog at a wholesale price in exchange for a cut of Netflix subscriber revenues each time someone requests a given DVD. This was not super huge for the studios and allowed profitable relationship.
Atoms and Bits?
As said earlier, Netflix changed their method from mailing atoms to streaming bits. Before jumping into the topic, it is important to go over the definitions first. First, Atoms are physical and tangible products(inventory) which contains data. For example, DVD, CD, or even books or newspapers are all atoms. Bits are digital files written in ones and zeroes that only digital devices can read. For example, songs or video files are bits. Streaming means a technique for transferring data so that it can be processed as a steady and continuous stream. Thus using this new streaming service, Netflix was able to keep its current customers and double, triple and constantly increase its customers. The shift in Netflix technological method and its effort to provide the best service for the customers are crucial to understand. If Netflix didn’t make this effort to improve, it could have been left as an old-fashioned DVD-by-mail company that will slowly lose customers. I will give another example of a company that had a major shift in technology that boosted the firm’s success. For example, the online job searching engine, Craiglists.com is a successful firm that had benefited from technology. There are several reasons as to why it is so successful. “Craiglists serves classified ads to 450 cities. The site receives more than 750,000 job listings a month, and users self-publish about 14 million new classifieds a month. Buckmaster confirms the site has been profitable since late 1999, and it generates revenues by charging nominal fees for job posts in seven cities and for broker's apartment listings in New York. No user fees. No banner ads.”(http://www.businessweek.com) Similar to Netflix’s recommendation list, Craiglist also provides preferable jobs, new jobs that seem suitable based on the saved profile. Like this, it can be easily understood that technology and software is a must in an effort to create sustainable success. It is difficult, but the effort will definitely be key to adaptation.

Citation
"Craigslist's Ongoing Success Story." Bloomberg Business Week. Bloomberg, 15 May 2007. Web. 03 June 2014.
"Information Systems: A Manager's Guide to Harnessing Technology, v. 2.0." Flat World Knowledge. N.p., n.d. Web. 03 June 2014.