The new year trends and predictions season is upon us! Yet, I've decided to go against the grain and reminisce instead. So, I'm taking a sentimental journey into memorable innovations of the last few years. Initially, I was going to be even more difficult and compare last year's crystal balls with launched reality. But as I cast my mind through the haze of the Italian sabbatical sunshine, I don't feel inspired by 2022 enough. Do you? Hence, I'm going to take the poetic licence and look for innovations that stood out in the 20s or thereabouts!
To introduce some order, let me quickly clarify what I mean by innovations - business models, products, services, content, and formats. Their innovative credentials could range from tweaks (incremental innovation) to crazies (disruptive innovation), but in my books, they all need to be in the market and ready to deliver sustainable value for customers. So, no "cool ideas" and no one-offs. And as digital transformation is still The Thing, I'm sticking to digital industries, as there is no better way to achieve reliable digital transformation than through well-designed innovation. So, here is the first one.
This week - Business Model Innovation. Often overlooked and generally invisible to competitors involves a different and unique approach to value creation and competitive advantage. It doesn't yield new products into new markets, but it can bring promising changes to operating models and the value business offers customers. And one of the most iconic business model innovation examples, Netflix has made some bold changes over the years. And many admire their journey, including me.
Netflix - Before the Stream
In 1995, the underperforming DVD rental business had to innovate to survive. At the time, the challenge wasn't the unfit matured product but, surprisingly, a disorganised customer. To counteract the late returns, lack of decisiveness in what to watch next weekend, and unreliable re-orders, Netflix developed the subscription model that has since taken the digital industry by storm. It was bold, brave, and apparently, launched untested. For $15 per month, a subscribed customer could keep any four DVDs home for as long as they want. Upon a return, a new DVD selection appeared in the customer's letter box "auto-magically" (their term, not mine!). The magical selection was based on the customer's long wishlist.
And as if this wasn't innovative enough, they replicated the whole model online and, in 2007, launched the first on-demand streaming service. More product innovation followed, like recommendation engines to combat our content selection indecisiveness. And I'm sure the algorithms have been getting cleverer every day since, but try to explain this to the other person on the sofa after 30 minutes of browsing :-(
Some of you (i.e. the whole digital media bubble!) may have noticed Netflix making a historical "tweak" to their business model in 2022. After years of shunning the ads from their platform, they've succumbed to commercial pressures and introduced an advertising-supported subscription tier, "Basic with Ads". It is cheaper for customers ( -£2 off the ad-free UK sub), yet some advertisers are unimpressed with the limited slots availability (5 minutes per hour compared with 12 minutes UK standard) and high inventory pricing. Also, Netflix announced that advertisers would be capped between $10 million and $20 million. It seems Netflix is looking for fewer advertisers with deeper pockets. Some brands confirmed to be advertising with Netflix's UK services are HSBC and Lidl . Netflix has announced a 'soft' CPM of $65. This is the priciest CPM of all the streaming platforms.
I'm a little underwhelmed with this "tweak" and expected something more "auto-magical" from Netflix. But let's remember that the business model innovation might not be that visible while in the making. Then, perhaps, Netflix will delight us all again soon. In the meantime, as an ad junkie, I'm hoping for some beautifully creative ads, and not just for Christmas.
Keep an eye on more business model innovation examples in the next week's post. It could be on TV FAST channels (yawn...) or a jump into delicious digital product innovations instead.
If you'd like to discuss your innovation and digital transformation challenges, let's schedule a free 15 mins call to explore how we could solve them together.
AnnieK.