Combining Business Models for Competitive Advantage
A second weakness that Netflix was able to expose is the amount of revenue Blockbuster earned in late fees . In the view of customers , the late fees that Blockbuster charged were exorbitant ( often higher than the cost of the original rental itself ) and arbitrarily enforced ( kicking in within minutes of the deadline with no room for leniency ). Once again , this is a common weakness with the landlord business model , requiring landlords to enforce late fees and , in Blockbuster ' s case , spend significant time on collecting overdue fees . The early marketing efforts on the part of Netflix focused on the fact that the company didn ' t charge late fees with unlimited rentals .
Hidden Opportunities Netflix successfully capitalized on the weaknesses of the traditional video rental business model , but was also able to identify hidden opportunities that were a result of evolving digital technology . To begin with , in the transition from VHS to DVD videos , there was a new opportunity to send movies via the postal service at much lower cost . The cost of mailing and returning a large VHS tape simply wouldn ' t have made the Netflix business as profitable . Flatter discs that would fit in with other envelopes made the transition to mail order rentals much simpler .
Netflix was one of the first companies to successfully develop an online recommendations engine that helped customers find new movies and TV shows based on others that they had rated in the past . While much more common today , Netflix ' s recommendation engine was extremely innovative when it was first developed . Along with this , the company created the concept of the movie queue , allowing customers to build a wish list of movies that they would like to watch in the future , and a list that drove the order of movies that were sent out to customers .
This combination of a customer movie queue and a strong recommendations engine allowed Netflix to add one additional layer to its business model : the long tail . In 2006 , Chris Anderson popularized the notion of the long tail , where an online store drives revenue from a much broader set of products than can normally be done in a bricks-and-mortar store . Instead of the few thousand products that can be stocked at a normal retail store ( and have to be stocked at multiple locations ), online stores can stock hundreds of thousands of products and sell them to anyone , anywhere .
While Blockbuster certainly could have developed similar shopping tools for its customers , they just weren ' t as suited to a bricks-and-mortar experience as they were to the shop-athome experience that Netflix offered .
Combining Business Models for Competitive Advantage
Netflix gained its initial competitive advantage , not through a new business model , but through a combination of known business models . The company combined the physical landlord model with the subscription and all you can eat models to allow customers to rent all the DVDs they could in a month for a flat fee . Customers were allowed to keep the DVDs for an unlimited period of time and were not subject to late fees . In return , customers agreed to pay a recurring monthly subscription fee .
Netflix was able to overcome some of the weaknesses of the landlord model discussed earlier by delivering DVDs through the mail . This lack of physical infrastructure and advanced integration with the postal service provided a clear advantage over the Blockbuster model . By opening up rentals to all you can eat , customers were never subject