A business model refers to the framework that an organization integrates into ensuring its successful operation and achievement of the core objectives (Solaimani, and Bouwman, 2012:658). It entails the primary sources of revenue, the target customer base and the products and services to offer. Further, the model illustrates how the company intends to create and deliver value to their markets across the social, economic and cultural settings. The business model explains how a particular company makes money. Over the years, there is a remarkable increase in the use of business models in most of the established company across the various industries. The media industry is among the sectors where the use of business model has proliferated due to the increased competition forces (Hendricks, 2011:58). In this case, therefore, the paper aims at analyzing the YouTube and Netflix Company being some of the players in the media industry.
The Cultural, Economic, and Geographical Location Aspects
The two companies appear to be in a highly competitive market in the media industry. Although the two companies offer platforms for video streaming, the YouTube Company has been widespread across the users. The platform is convenient since there are no restrictions in nations across the globe while viewing of the video contents is entirely free. Nevertheless, in the current market, Netflix is beginning to take over the market gradually. Most of the YouTube customers are shifting to Netflix day by day. As a culture of the entity, Netflix offers smooth streaming of material free from any disruptions as it is on YouTube platform. The distractions in YouTube platforms are as a result of the ads and advertisements that pop in between the video shows. Moreover, the advertisements are the primary way to which YouTube generate revenues (Solaimani, and Bouwman, 2012:662).
On the geographical perspective, the companies offer platforms that capture markets across the markets. However, Netflix has a limited market due to the licensing agreement. It makes it a challenge to sell their streaming products to some markets niches across the word. However, the company is innovative and provides the DVDs envelopes as a way to create value for those market segments that cannot access the streaming services. The monthly subscription fees also limit the range of customers that consume the services. Usually, customers prefer cheaper products, and that’s the main reason YouTube has a broader number of customers. Nevertheless, there are some of the customers that prefer consuming the premium products and thus are ready to pay any amount to purchase the product Solaimani, and Bouwman, 2012:669). Netflix captures this type of market segment, and hence it is the principal avenue upon which the firm makes money. In most cases, these customers need to feel the value of their money as well as upholding the social class. In the long run, the company creates value for the customers and the entire stakeholders as well.
Netflix has shown remarkable economic growth in the past years. As customer base widens, there is a subsequent increase in the revenue generated. The company has penetrated much of the United States (US) market, and it’s developing in other countries. It continues to report an increase in profits earned each year indicating excellent performance. YouTube also showed a slight increase in the revenue growth as more companies continue to place adverts to the channel. There is also an increase in the number of user and talents increasing the number of upload on the platform. For this reason, it boosts the revenues making the company survive in the highly competitive market especially with Netflix.
The Business Models Approach
Business Model Canvas (BMC) is an essential tool used in strategic management in developing and documenting business models. It provides a graphical presentation of various events and variables for value proposition, customers, infrastructure and financial resources of an organization. The management has the opportunity to have a look at each category and improve the organizational strategies to create a competitive advantage.
Overview of Netflix Company
Netflix Company was founded by Reed Hastings and Marc Rudolph in the year 1997. Usually, the company allows the subscribers to stream TV shows, movies or documentaries by use of internet connected devices therein. Other than watching via the internet, the company can also provide the contents through the DVDs as well (Chung, 2014:32). The primary activity of the business is video streaming where the operation is based on the subscription of the clients. In this case, it means that the viewer’s first subscribe to the Netflix forum, then they pay a monthly subscription fee upon which they are given access to the stream shows and videos. Various quality levels of the videos including Standard Definition (SD), High Definition (HD) and Ultra High Definition (UHD) are available depending on the amount the client pays.
Netflix Business model
Key partners: It is essential to create a network with various partners for both existing and upcoming organizations. It helps in the mobilization of resources and synergy competitive advantage. Netflix Company acknowledged the benefits of engaging some players in the industry as critical partners. Initially the central partner was the United States Postal service responsible for processing the CDs rentals, but currently, as the streaming was introduced, the internet service providers have taken over the business as distribution partners. They include Google, Amazon and Microsoft, and Smart TV providers (Chung, 2014:33).
Key activities: Clear understanding of the core activities of the company is essential in ensuring value addition to the customers. Business operation is not all about production but is on how it seeks to meet the meet the market need with a problem-solving approach. The management of Netflix Company upholds adding value to the customer for an improved relationship for canvassing of potential customers. The company activities have developed from the mail processing to streaming of video contents with no ads. Some of the firm’s key events include; provision of a video player software and licensing of the contents.
Key resources: Organizational resources are meant to enable the business to continue with the operations. These can be categorized as physical resources, human resources, financial resources or even intellectual resources. Netflix Company has its key resource that ensures quality-service delivery to their customers. Some of the resources include; DVDs, servers, the original content, the platform. The company also provides a user-friendly platform which ensures provide if a wide range of contents as compared to competitors such as YouTube.
Value proposition: It refers to the various rights to exist and serve the clients’ needs. Chung, (2014:327), describes value proposition concept as the way that an organization distinguishes itself from its competitors. The media industry has a perfect competitive structure, and hence, product differentiation is necessary for creating a competitive advantage. Netflix uses the following strategies for value proposition: convenience, pricing, and accessibility. The contents are convenient and appealing to the viewers and thus making the platform reliable. For instance, Netflix provides video streaming without any interruptions by advertisements and ads. Besides in case of series, the platform releases a whole season instead of an episode at a time and thus keeping their consumer linked to the platform.
Customer relationships: All businesses exist due to the presence of customers Netflix ensures a stronger client base, and it categorized its customers into various target groups. The firm provides attraction and retention of the customers through incentive process. This is because of the broader the client’s base, the larger the market share and the higher the competitive advantage. Netflix Company enhances the customer relationships by use of the monthly fee subscriptions. The platform is on a self-service basis and easy to operate and thus to give the consumer a superior experience.
Channels: Most of the multi-national organizations may require broad distribution channels to ensure accessibility of their products to the target market. Channels refer to the aspects associated with communication, sales, and distribution. It is not only customer contact but how the firm manages communication within and outside the organization. Customer channels at Netflix include the website (Netflix.com), mobile applications and set-top boxes in TVs.
Customer segments: Market segmentation helps in product modifications to meet customers’ needs. As the organization offers services to various groups with different backgrounds, it is sensible to classify them into customer segments (Solaimani, and Bouwman, 2012:671). This will help to ensure clients’ satisfaction and hence, create a competitive advantage over the rivals in the same industry. The segmentation is based on demographic, geographic, and psychological factors. The segments include the consumers who may not prefer to go and purchase movies in the store, mass markets and the clients with vast knowledge of films (movie buffs).
Cost structure: The primary aim of every business is to maximize profit, and this can be attained through minimizing cost while maximizing revenue (Chung, 2014, pp. 39). Getting insight into the cost structure helps in determining the turnover level for the firm to generate profit. The concept of cost structure is also applicable in the pricing of the products and services. The cost structure for Netflix is cost driven which is based on its cheap sales to the target market. The central costs are on licensing, production, marketing, administrative expenses, research and development and technology development and maintenance costs.
Revenue Stream: This is a critical aspect of the business model since it is the only one generates money for the organizations; all other are costs to the firm. The survival of the business depends on its ability generate revenue. In addition to the cost structure, this aspect provides a clear insight of the organizational revenue model. It explains the number of customers or level of sales that the firm has made to break even or generate the desired profit. Revenue stream and cost structure are used collaboratively to undertake cost-volume-profit (CVP) analysis. Netflix generates revenues through the sale of DVD envelopes and the monthly subscription fees.
Overview of Youtube Company
The main founders of Youtube were; Chad Hurley, Steve Chen and Jawed Karin, in the year 2005 but was later acquired by Google company in the year 2006. It is a website which allows sharing of videos by various users. Most of the contents of youtube are individual or corporations upload but not the original youtube contents (Artero, 2010:113). Streaming of materials on the website is free except the premium channels such as advertisements or ads free streaming. The site appears among the most popular platform across the globe.
Youtube Business Model
Key partners: the YouTube partners include the internet service providers, TV and smartphone developers including Amazon, Acer, Avon Nokia, Samsung, Vodafone, Google, Yahoo, LG, Honda and Airbus among others (Wikström, and DeFillippi, 2016:99)
Key activities: The activities in the company include development and maintenance of the servers and the company website. It also engages in processing of any customer queries, and company advertisements. They also place control measures and guidelines on the creator’s uploads.
Key resources: The resources include the technological infrastructure, the website (youtube.com), mobile application, copyrights, creators’ innovations, advertisements, and subscriptions. The human resources also consist of the employees and the YouTube creators.
Value proposition: YouTube provides a platform where consumers view videos for free, listening and discovery of any new music whatsoever. The customer can also download MP3 files if need be. It also offers streaming services where viewers can watch TV shows and share contents as well. It also provides learning and educative clips which allows the users to answer the question ‘How to’ with ease. The creators and companies can also upload content for marketing and broadcasting purposes.
Channels: Consumers can access YouTube services through the official company website (youtube.com), the mobile application, links on social networking sites such as Facebook and Twitter, or the Google+ which integrates YouTube directly.
Customer segments: the primary customer to whom YouTube company creates value is; users who view videos online on a daily basis. Most of the users are the young generation. Other customers are creators who upload the videos to the YouTube platform. Companies also use the YouTube platform in placing an advertisement in the form of ads which appear in between the videos.
Cost structure: The significant costs of the company include; wages and salaries, rental expenses, copyright expenses and acquisition of the hardware and servers,
Revenue Stream: YouTube does not necessarily make money through the videos but rather the advertisements placed in between the videos (Artero, 2010:117). The advertising company thus pays YouTube based on the numbers of views per an advert. Subsequently, some customers do not prefer the ads in the platform and therefore subscribe to the ads-free streaming; the subscription fee is revenue to the company. The music key subscription also allows customers to stream content offline.
Similarities between Netflix and YouTube Companies
From the analysis of the business models, the two companies share some of the elements. For instance, both companies have the primary aim of providing the target consumers with a platform upon which they can access videos. They possess similar distribution channels where the primary channel of the companies is the official website. Netflix uses Netflix.com while YouTube has YouTube.com. Ideally, the two sites are currently posing as competitors in the media industry due to the increased dynamism in the technological aspect and the various customer needs and preferences. Both companies have the subscription context which allows the subscribers to pay a certain fee to access the equivalent value of contents. The Netflix has the monthly subscription feel platform while YouTube has the Red YouTube which allows customers to access ad-free streaming (Hendricks, 2011:61).
Contrasting Netflix and YouTube
While the two companies in the media industry portray some similarities, there are also various contrasting elements that exist in their business models. For instance, Netflix mainly dwells on the provision of licensed contents, where the consumers stream the contents based on the monthly subscription basis. YouTube is a free streaming platform which provides contents uploaded by third-party participants (Artero, 2010:121). Nonetheless, Netflix Company develops their original contents. Usually,
Secondly, Netflix contents allow the viewer to stream smoothly without the distraction of ads and advertisements. On the other hand, YouTube contents contain disruptions due to the increased number of ads and advertisements. Besides, YouTube generates revenues through the integration of the advertisements and thus the more the advertisements, the more the revenues (Hendricks, 2011:69).
Thirdly, most movie buffs prefer using the Netflix platform due to the continuity and convenience of the contents. For instance, in releasing series films, Netflix provides the whole season but not as an episode at a time like it is on YouTube. It thus helps create a competitive advantage in the value proposition aspect as most YouTube customers continue to shift to Netflix platform.
Fourthly, the primary sources of revenue in Netflix are the monthly subscription fees and the distribution of DVD envelopes (Chung, 2014:42). The primary source of income in YouTube does not relate to the provision of the contents but rather the advertisements and ads found in the video content.
Lastly, the licensing agreement in Netflix operations limits the access of the platforms in some nations. YouTube is usually available in most parts of the globe. However, the critical element that boosts the sales revenue in Netflix Company is the availability of physical distribution of content by use of DVD envelopes. The aspect accommodates the customers that cannot access the internet services or acquire the monthly subscription fees (Wikström, and DeFillippi, 2016:103).
From the above analysis, it is crystal clear that business model adopted by the firm is vital to the overall organizational performance. The presentation of the critical aspects creates an insight at various angles to the managers in formulating a strategic plan. The management at all levels needs to be involved for excellent contribution to the business model canvas. It allows innovation and collaboration of ideas to improve value to the customers and boost the organizational performance. The organization should also pay much attention to the value proposition, customers, infrastructure, and resources while developing competitive strategies. However, it should be noted that a business model is just a tool of management and hence, managers should take responsibility to ensure the formulated policies are executed successfully for positive results. Firms
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Chung, Y. (2014). Analysis of Netflix and Hulu for Online Video Content Distributors’ Business Model Comparison in N-Screen Era. The Journal of the Korea Contents Association, 14(5), pp.30-43.
Hendricks, J. (2011). The twenty-first-century media industry. Lanham, Md.: Lexington Books, pp.57-89.
Solaimani, S. and Bouwman, H. (2012). A framework for the alignment of the business model and business processes. Business Process Management Journal, 18(4), pp.655-679.
Wikström, P. and DeFillippi, B. (2016). Business innovation and disruption in the music industry. Cheltenham: Edward Elgar Pub. Ltd., pp.98-132.