Technology of the week: ‘Digitalization in the streaming industry: Spotify vs. Netflix’


The Internet has fundamentally changed the world we live in today. Since the late 1990s, a digital transformation has found place in the music and movie industry. Consumers used to buy their products at the record and DVD (rental) shops. Today, all media is available on one device via the Internet.

Netflix

Netflix is founded in 1997 by Reed Hastings and Marc Randolph in California. Traditionally, it started as an on-demand DVD-rental firm, sending DVD- rentals to consumers via postal service. In 1999, Netflix launched a new service to its consumers, offering them unlimited rentals for one monthly subscription. Hereby, they were able to collect customer data (e.g. preferences), which they used to launch a recommendation system. The Netflix transformation started in 2007, by disrupting the market with the well-known DVD-streaming service.

Business model Netflix:

This industry’s business model consists of four organizational groups who collaboratively fulfil customer needs. Firstly, a movie director creates media, which is funded by diverse business owners. Secondly, owners sell their content via a licensing construction to considerable distributors. Finally, distributors collaborate with hardware partners, who make it available to consumers.

SWOT-analysis Netflix:

swot1

  1. Spotify

Spotify is a leading online streaming, podcast and video service, established in Sweden by Daniel Ek and Martin Lorentzon. The company was launched in 2008 and provides users with content from diverse record labels and media companies.

Business model Spotify:

The industry’s business model consists of four organizational groups who collaboratively bring music to consumers. Firstly, music needs to be written by musicians.  Distributors buy licenses from music owners and hereafter, the music will be made available to consumers through diverse software solutions. However, consumers need hardware in order to employ software and to listen to media content.

SWOT-analysis Spotify:

 swot2

  1. Industry Analysis

porter

Netflix and Spotify are quite similar companies, therefore we provide the ‘Five Forces of Porter’- model based on the streaming media industry. The firms’ strengths and weaknesses are almost identical to the five forces as shown above. We believe these strengths and weaknesses apply to most businesses focusing on streaming. This results from Internet development, thus digital transformation.

  1. Comparison

Both Netflix and Spotify fulfill a similar role inside their industry. Their business models rely on distributing their content as first player in the market in a ‘new’ innovative way. Big parties are trying to catch up by launching their own alternatives for the similar consumer demands. This will force all parties in the industry to adapt and further extend this digital transformation from physical goods to the use of information technology to distribute their content.

  6. Conclusion

Both Netflix and Spotify fulfill a similar role inside their industry. Their business models rely on distributing their content as first player in the market in an ‘new’ innovative way. Big parties are trying to catch up by launching their own alternatives for the similar consumer demands. This will force all parties in the industry to adapt and further extend this digital transformation from physical goods to the use of information technology to distribute their content.

References:

BBC Technology. (2015, May 26). Internet used by 3.2 billion people in 2015 . BBC .
Brynjolfsson, E., Hu, Y., & Smith, M. D. (2006). From Niches to Riches: Anatomy of the Long Tail. Sloan Management Review , 47 (4), 67-71.
Chen, Y., Wang, Q., & Xie, J. (2011). Online Social Interactions: A Natural Experiment on Word of
Mastrangelo, T. (2015, January 23). Netflix’s Plans for Global Domination May Hit a Few SpeedPorter, M. (2001). Strategy and the Internet. Harvard Business Review , 79 (3), 62-79.

Spotify. (2015, September). How is Spotify contributing to the music business? Opgeroepen op September 10, 2015, van https://www.spotifyartists.com/spotify-explained/

Westerman, G., & McAfee, A. (2012, November). The Digital Advantage: How digital leaders outperform their peers in every industry. The MIT center for Digital Business .

Team 2

346450ms – Merel Smit

358535ss – Simone Spek

356802pb –  Pauline de Bruijn

417527jm – Joost van der Meulen

417658cl – Vincent Laduc

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