Let me begin by sharing that I am a big House of Cards fan. Right now I’m deep into the fifth season and already hanging on for season 6.
I know that I am not alone, either. Case in point, one survey from Cowen and Company found that 86 percent of Netflix’s subscribers said they were less likely to cancel their subscription because of the show.
But what’s fascinating is that without seeing a single episode of House of Cards, Netflix committed to two seasons of the show, or 26 episodes, bidding a reported $100 million. That’s $3.8 million per episode.
How did they know it would be such a runaway hit?
The answer is Big Data. By analyzing viewer data – think 30 million “plays”, 4 million ratings, 3 million searches - the company was able to determine that fans of the original House of Cards, which aired in the UK, were also watching movies that starred Kevin Spacey and were directed by David Fincher, who’s one of the show’s executive producers. Netflix engineered my addiction (and thank goodness they did!)
They company’s still at it, too, analyzing everything from when you watch a show to when you pause it or turn it off. Last year, Netflix grew its US subscriber base by 10 percent and added nearly 20 million subscribers from around the globe.
Creative destruction’s increasing destruction
Because of its approach, Netflix has transformed an industry. Indeed, media today is one of the most conspicuous industries being impacted by creative destruction, or the act of old jobs and industries being replaced by newer ones. Joseph Schumpeter, who coined the phrase in 1942, described it as an “essential fact about capitalism.”
What’s interesting, though, is that media isn’t the only industry being impacted. Nowadays, companies don’t know who their competition is. I mean, if you’re a retailer, you have to count Amazon as a competitor. And what about Google? Are they a technology company? Digital advertising? Probably not in the healthcare and telecommunications space, but they have Calico to fight age related diseases and Fiber providing internet connectivity just to name a few.
Creative destruction is all about a constantly changing environment and in today’s digital economy, it’s occurring faster than ever.
Today’s executives are very conscious of this. Fortune interviewed Fortune 500 CEOs and found that 73 percent are worried about technological change. Even more revealing, 71 percent agreed with the statement, “These days, I consider my company to be a technology company.”
All of this means organizations need to do more, but also move quicker and more efficiently, lest they become a victim of creative destruction.
Data as a secret weapon
Businesses with long, prosperous lifespans are those that are thinking about the future and are able to act on that. We can look back to Netflix as an example here. Remember, they got their start mailing DVDs. Now they’re the most successful streaming service in the world and producing some of the best original content. One way they managed to achieve this is by using data to dramatically change their business. Indeed, a four-letter word with massive power and potential in today’s economy. Any company now has the ability to collect and analyze vast quantities of it to make real-time, effective decisions.
Data is exploding and becoming more accessible. By 2020, the data we create and copy is expected to grow to 44 trillion gigabytes. This number stood at 4.4 trillion in 2013.
Data can be an incredibly powerful tool for your business. Companies that are using it to their advantage—from recruiting to customer retention to selling—will be the ones that thrive. In fact, we’ve seen firsthand how organizations like Skullcandy, the Charlotte Hornets and Hewlett Packard Enterprises have had success with this. And where the real magic happens is when companies put their data insights to use rapidly. This was critical for Netflix, who credits a lot of their success with acting quickly, or, as they put it in their famous culture deck, being “nimble by minimizing complexity….”
Bottom line: just like Francis Underwood’s rise to the presidency was no accident, neither is the fact that millions of us are addicted to House of Cards. Neflix is a prime example that any business, regardless of industry or sector, can reinvent itself by turning massive amounts of data into smart data and executing swiftly.
Now…. back to episode 65.
This story, "How Netflix built a House of Cards with big data" was originally published by CIO.