You might also like, Here’s what other people ordered, We think you’ll like this, and last but not least: “Recommended for you!”. They are all highly recognizable phrases to anyone who’s used any internet service or store ever. But how do these recommendations work, why do firms do it and could we go against what’s recommended to us?
How does it work?
In a 2013 interview, Netflix’s Carlos Gomez-Uribe, VP of product innovation and personalization algorithms and Xavier Amatriain, engineering director explained how they are controlling what you watch. They say that the metadata behind their content allows them to find similarities between movies/shows. Next, they track you, everything you do: what you played, what you’ve searched for, how you’re browsing through their services and even when you’re doing this and on what device. At this point they connect you with content that they either outright predict you will enjoy or content that similar users have already indicated they enjoyed.
Why do firms do it?
The answer to this question is fairly obvious and relates to a recent 2014 article by Huang, Zhong and Yao on targeted marketing. The better a firm can analyze and understand their customers and how their products are perceived, the better they can connect the right customer to the right product, thus creating additional value. The customer value resulting from Netflix’s recommendation practices is also well known, not having to spend the time to search for what you want to watch is perceived as pretty valuable by customers. A recent article on Forbes.com they concluded a price increase for Netflix would actually result in significantly higher profits.
Can we go against the recommendations?
Short answer: Yes, but doing so will take more and more effort as time progresses. As Netflix improves their processes, they will understand your preferences even faster while also making their suggestions more automatic, thus alleviating even more of the manual actions you would otherwise have to undertake. So in the extreme event that your personal preferences make a full 180 degree turn, you will have to put in more effort than ever before to change the input Netflix has aggregated on you. Which I assure you will take considerably more time than just changing the TV channel.
Wired.com, Netflix Algorithm, as approached on October 5th 2014, http://www.wired.com/2013/08/qq_netflix-algorithm/
Forbes.com, The impact of Netflix’s price rise, as approached on October 6th 2014,http://www.forbes.com/sites/greatspeculations/2014/05/15/the-impact-of-netflixs-price-rise/
Huang, J., Zhong, N., Yao, Y., 2014, A Unified Framework of Targeted Marketing using Customer Preferences, Computational Intelligence, Vol. 30-3 p. 451-472
Netflix has been recently introduced in the Netherlands. For only 7.99 euros per month, Dutch subscribers can have online access to thousands of movies and TV-series at Netflix, using practically every device with an Internet connection.
Blendle, a new online newspaper/magazine platform, has been announced by its developers to enter the Dutch market soon. Blendle is developing a platform where customers can buy single digital articles from different newspapers and magazines. With article prices ranging from 10 to 89 euro cents, it provides a way to compose a personal set of articles of high quality journalism.
Subscription-based vs fee-for-service based
As stated Netflix uses the subscription-based business model, which means that users are charged a fixed monthly fee. Blendle, on the other hand makes use of the fee-for-service-based model. This model charges a fee for every service obtained and contains a pay-as-you-go system.
A similarity between the companies is making use of a recommendations system, which can be seen as a competitive advantage for both. Netflix is able to provide its customers with personal recommendations for movies and series through the use of advanced algorithms and collecting big data. Blendle on the other hand will construct a recommendation system with the use of social media. Blendle will suggest articles based on recommendations of your social network.
Uniqueness of Netflix and Blendle
Netflix and Blendle deal with many competitors offering similar services. However, both of the companies are quit unique for their kind. Netflix is the only company offering such a large amount of series and movies for a very low monthly fee without any advertisements. As for Blendle it is expected to be the only application offering a high volume of digital newspapers and magazines in combination with the ability to buy articles per unit.
This morning Netflix opened their doors to the millions of Dutch households. For 8 euros a month Dutch users can watch an unlimited amount of movies and series. But why would we subscribe to yet another service, while downloading movies is still legal and never has been easier. Why would they select the Netherlands over other European countries and is this decision correct?
If you really think about it the Netherlands seems like a logical choice. There are roughly 7.5milion households and 90% have broadband. The download speed is globally ranked as 7th and in Europe 2nd behind Luxembourg. The population speaks and understands English very well and the movies aren’t dubbed as in Germany or French.
But on the other hand, we are known as greedy and there is a lot of competition out there. Several services already offer movies at home, for example Pathé thuis (launched by the cinema Pathé) and Video on Demand by companies as Ziggo, UPC and KPN.
Are consumers willing to pay the price? Basic television subscriptions cost between 15 and 30 euros a month. Dutch TV shows as “Boer zoekt Vrouw” and “The voice of Holland” get ratings of 4,3 and 3,7 million viewers , which is 25% of the Dutch population. Do these viewers really want to pay an additional fee, for movies which can also be downloaded in the same quality? Netflix can’t yet show the newest movies and series which just came out of the cinema, so their content will be a bit outdated.
Spotify was able to enter a similar market, the music industry, and got over 1 million users in the Netherlands, and these users turn out to be the most active users within West-Europe. Will Netflix be able to create a similar buzz which will convince consumers to try it out? Netflix sure makes things easy, your account is up and running within a couple of minutes and you can watch content on your smart-tv, computer, laptop, gaming console and smartphones. But their competitive advantage isn’t only ease of use. After a couple of movies or series Netflix will suggest what else you should watch, based on their database and other peoples preferences.
Not only will it be interesting to watch Netflix’ launch in the Netherlands from a business perspective, but also from a cultural and IT perspective. Will they be able to change the competition or will they simply pass along, unnoticed.
I was surfing the internet looking for more information on the subject of ‘the long tail’. This video explains the concept in a very simple language and it comes up with many examples. I actually think that it was well done, because it is not as boring as most text books. Paul Andersen explains the long tail and the influence of the internet on it. Because of the internet, many people found a place in their hearts for very ‘rare’ movies, books, etc. Basically there is an audience for everything nowadays, only sometimes the crowd is not as big as other times… Check out this video! Enjoy!