Market Definition Lifecycles and the Future of Netflix

How a business defines itself and the products or services it offers are crucial in how market forces (public or private) develop around it. Narrow definitions of business operations in the short-term allow focus on product and or service, but in the longer term they limit the scope of companies. This can of course lead to misguided attempts at synergy—Coca Cola’s acquisition of Columbia Pictures in 1982, before selling up seven years later, is one example that springs to mind. However, big tech has been incredibly successful through navigating the route from specialists to generalists. With this week’s news of Netflix’s continuing impressive growth, it is important for those in the space to consider what the route to becoming tech major looks like for the company. And how can it take the next step from specialist to generalist?

The path from specialist to generalist: Look at the trajectory of Amazon. When the company went public in 1997, Amazon was described as ‘the world largest bookseller’, a point its competitors at the time, i.e. Barnes and Noble, contested as they claimed the fledging e-commerce site was not a bookseller, but a book broker. However, in its present incarnation as the dominant online platform for e-commerce across North America and Europe, alongside a dominant cloud service business and an increasing presence in everything from grocery shopping to Hollywood and advertising, Amazon is a completely different beast. It now defines itself publically as almost entirely market agnostic; earth’s most customer-centric company. Observing this shift, it is interesting to see the trajectory of the other three companies in big tech, and what their evolution can inform about future players in the space.

GAFA (Google, Apple, Facebook, Amazon) have succeeded on an unprecedented scale because they tapped into deep-rooted needs in the human experience. As highlighted by Scott Galloway in his excellent book ‘The Four’:

• Google services human kinds thirst for knowledge and understand
• Amazon the need to consume
• Facebook the need to connect
• Apple the need to procreate (hardware and devices as modern status symbols of affluence and elegance)

Galloway dedicates a chapter to who the fifth horseman will be, making a solid case for Netflix as ‘the operating system for joy’. The kind of success these companies enjoy is less about a clearly defined specialist goal, but rather about broadly meeting these deep human needs through a variety of services.

This brings us to Netflix. One person might say it is a streaming company. Another, a content distribution service or, if you were to go broader, an entertainment business. However, Netflix is yet to permeate a human need in the way these companies have.

Long-term success is about making yourself an indelible part of a process: This still holds as true as it did in California in 1848 - ‘In a gold-rush sell shovels’. It’s why NVDIA’s stock has doubled in the past year due to its products GPU’s becoming favoured by everyone from self-driving car developers to Bitcoin miners. Apple did this with the app store, Amazon with the cloud, Facebook with the communities built on the platform and Google with advertisers against the ads on search. To achieve comparable levels of ubiquity, Netflix would have to establish itself as a fundamental part of the content delivery process.