In its most recent investor briefings (July 2015) Netflix announced it had reached 65 million worldwide members, which amounted to over 30% member growth over the last year.1 The news lifted its share price by 18% in one day and reinforced its position as a digital disruptor.
While news like this instantly shines the spotlight on Netflix, it is the historical decisions made by the company to continuously disrupt that have ensured its success where others have failed.
In this article we look at the role of digital disruption across industries.
While disruption is often spoken about as large scale change undertaken at a specific point in time, the most significant disruption occurs through continuous change. When companies are able to understand an industry’s value chain and then continuously reinvent it piece by piece through digital technologies, this is when large scale digital disruption is possible.
Digital Disruption Spreads Through Value Chains
Take the airline industry as an example. Disruption took hold at one place in a value chain, and then spread to adjacent steps.
The game changed when customers began booking flights online. This occurred at the start of the value chain, at the moment of Purchase. Then came online check-in and self-serve kiosks at airports. Now digital disruption is happening in the flight cabin itself, with WIFI, on-demand tablet entertainment, in-seat connectivity, and exploration of virtual reality for travelers.2
Virgin America is recognised as a leader in the industry and has drawn upon its agility in digital to connect many of these innovations for customers. Beyond digital, it has also tied digital innovation to support wider customer experiences, including great music when you board the flight and entertaining safety videos. In this way digital is just one aspect of Virgin America’s personality.
Of course no one company is immune from change within a value chain. And just as airlines have innovated, so too they have had to deal with disruption further up the value chain. Now at the Pre-Purchasing step, customers use services like Expedia and Adioso to compare a wide variety of prices and offers across airlines – all enabled via digital technologies.
In isolation, many of these developments feel like incremental innovations. But taken in totality, with the period of the last decade compressed, the entire experience of flying is dramatically different due to these changes.
Leverage and Evolution as the New Platforms for Competition
Netflix used leverage to grow its business. Netflix had amassed 4.2 million subscribers to its online DVD ordering business in 2005, before it launched its movie streaming business in 2007. Later in 2011 it begin to acquire original content, with series like House of Cards. In so doing it used its streaming business and subscriber base as leverage to evolve further up the value chain, from distribution into content creation.3
Netflix didn’t quit there. It continued to spot opportunities to make the experience of watching content even better for customers.
Through continuous digital evolution it introduced innovations such as support for multiple viewing profiles, a sophisticated recommendation engine for subscribers (so that its film-picks have the best possible match-rate for viewer preferences) and new forms of application development to ensure Netflix will play smoothly over thousands of device types.4
Incredibly, Netflix’s 65 million members can all watch high quality content closely fitting their expectations, sourced and recommended by Netflix, at home or on the move, advertisement-free and for a fraction of the price of the competition. This is disruption of every step of the value chain.
Winning Brands Are Those That Tie Digital Innovation with an Ongoing Promise of Experience
When we read mission statement examples from the world’s leading companies, many of these are deeply connected to digital disruption.
Digital innovation is enough to capture the attention of customers, but is it enough to keep it?
We’ve seen hundreds of examples of companies that launch a new mobile app, or a new website. For a short time these innovations ignite imaginations and attract customers.
But why do some customers stay when others leave?
What makes customers stay connected is where the company can connect further digital innovation with a consistent experience.
When Uber launched its first service in San Francisco it was the new kid on the block. And after a time it became a brand unto itself, with its own loyal base of fans.
Uber’s customers told the story of how easy it was to use the service, how incredible it was pinpoint the exact location of their driver. If Uber was not able to sustain this promise when it launched other products, it would have fractured its brand.
Source: Mark Warner “Uber…” www.flickr.com/photos/senatormarkwarner/19588717540/
UberX succeeded because it maintained Uber’s ‘experience promise’ with customers. It brought all the convenience of the premium Uber service, less some of the frills, and fulfilled expectations at a lower price tag. It did this in close rapport with the brand that Uber had become.
UberX didn’t feel like we were getting a completely new product, but rather the innovation of an existing product we had come to love.5
Even when Uber launched a completely different type of service in the form of UberRush, it preserved its brand. UberRush gives customers a simple way to order a courier service and full knowledge of when their parcel will be collected, just as Uber does for drivers.
What is interesting is that Uber has drawn on its unique competencies (in branding, mapping and moving people) to create services that jump across industries entirely, from providing competition for taxis to couriers.6
This is the next wave of digital disruption that will occur, where innovations hop between industries and value chains to bring new services to customers.
Some of these changes are captured in this slide.
References
1. http://files.shareholder.com/downloads/NFLX/454272674x0x839404/C3CE9EE2-C8F3-40A1-AC9A-FFE0AFA20B21/FINAL_Q2_15_Letter_to_Shareholders_With_Tables_.pdf
2. http://www.qantasnewsroom.com.au/media-releases/qantas-samsung-unveil-industry-first-virtual-reality-experience-for-travellers
3. https://pr.netflix.com/WebClient/loginPageSalesNetWorksAction.do?contentGroupId=10477
4. http://en.wikipedia.org/wiki/Netflix#Original_programming
5. http://en.wikipedia.org/wiki/Uber_(company)
6. http://blog.uber.com/RUSH
