Amazon is company which has been experiencing strong expansion. They moved from book distribution to, tools, auto, industrial, sports, health & beauty, grocery, electronics & computers and other products and services. Amazon is constantly scrutiny new market for new growth opportunities. The latest market entering was the video rental services over the internet. This market contains high margins, enormous potential growth but a slow speed. So in the meanwhile Amazon wants to build brand awareness the home video rental market. This enables Amazon to gain brand awareness in the video rental market and ride the increasing demand wave of the home video rental business. To do this 2 options occur. One is to directly enter the market and build the business from ground up. Second to buy our way in through a market leader. The Netflix stands out as the choice of excellence.
[...] The second is to buy an existing market leader Netflix and to use its experience, user database and business momentum to build long lasting market leadership. In order take a decision one has to study the Netflix brand, its market, its competitive environment and its business strategies Why Amazon should consider investing in Netflix Recently there has been a lot of talk about Amazon buying Netflix. Amazon started out as a company that sold books on the internet. It was revolutionized the old brick and mortar business model. [...]
[...] The Netflix and Blockbuster business model are easy to copy, except for Netflix's patent distribution software which regulates DVD flow between storing centers in relation of demand, location, DVD availability and customer renting history profile Threat of substitute products Consumer might shift to other hobbies sports, video gaming, social networking or video streaming sites like YouTube. Studies point out that time spend on the internet is increasing to the expensive of time spend in front of TV Bargaining power of suppliers Since Netflix creates mainly traffic for old titles and non blockbuster movies (not Blockbuster's movies), Netflix has the upper hand hear. [...]
[...] Because they were not paying for each movie individually, Netflix customers could take a chance on an interesting sounding title that they didn't already know Strategic partnerships Strategic revenue sharing agreements were reached with Warner Home Video and Columbia Tri-Star, DreamWorks and Artisan. In exchange for a percentage of rental receipts, the movie studios gave Netflix better prices on large quantities of DVD, s. Netflix managed to negotiated exclusive distribution deals of the DVDs which it would have for three months before the title was available elsewhere. [...]
[...] Netflix bypasses this barrier by: Storing in titles in relative cheap facilities, Utilizing the US Postal Service for distribution, Leveraging the Internet and analytical software to browse through the massive content library. Long Tail refers to the end of a one-sided bell curve that measures title depth on one axis and title demand on another axis. The represents the few number of blockbuster titles that are in high demand while the long tail represent the large number of “catalog titles that are abundant but have limited demand. [...]
[...] Responding to these challenges, Netflix announced it would open a dozen more distribution facilities by the end of 2003, servicing major metro areas like Chicago, Dallas, and Portland, Oregon, with overnight delivery. The firm was targeting 5 million subscribers by 2009 and had plans to begin distribution to Canada in the near future. The company was now spending $33 to acquire each new member, which compared favorably with America On line's more than $100. Netflix was awarded U.S. patents for its software systems that tracked DVD rentals and compiled customer requests. [...]
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