What has helped Netflix is having a nimble approach, having the juxtaposition of the ego and say 'I can do this' and move forward, but also have the lack of ego and say 'you know what, we were charging this way, and it is wrong and now we have to pull back.'
... the balance of confidence but also the ability to admit when you are wrong.
During the talk, Ralph outlines the main ideas behind the company's philosophy of buy and build and credits Netflix culture of innovation, going for big bets -- we're talking in the range of 10x the average, an achievable goal for creative/inventive work. Innovation is one of the company's core values:
- re-conceptualize issues to discover practical solutions to hard problems
- challenge prevailing assumptions when warranted, and suggest better approaches
- create new ideas that prove useful
- keep us nimble by minimizing complexity and finding time to simplify
Patty McCord, who is credited with reinventing HR, is the co-author of the Netflix culture deck with CEO Red Hastings. At the First Round Capital CEO Summit, she talked about the importance of developing the context for continuously evolving a living set of “behaviors and skills” because maintaining a “high performance” team is all about instilling people with a sense of both freedom and responsibility#.
So instead of product and engineering going through hoops to justify why build, Ralph says they asked instead “Why wouldn’t you want to [build]? You get exactly what you want. You get to prioritize those idiosyncratic features that only you need. You get to tailor it for your own workflow and your own business logic. And you can use all the first-party data and all the nuance you know about your business immediately and tailor your toolkit around that.”
It's the equivalent to asking “How can we do this?”and engage creativity based on constraints. Tony Ralph and team set out to find the appropriate partners based on the answer to 4 key questions:
- Do they offer access to their API? This means empowering Netflix to interact with the firm's product, for example through a layer or interface
- Will we have the ability to self-service? In other words, prioritize product features that empower the client to build
- Can we obtain event-level data? Beyond canned reports for the purpose of answering extra questions that might arise from analysis
- Does the firm's product roadmap allow us to co-develop and counter-develop? For example, Netflix has gained wisdom and experience through the rigor of its A/B testing and is able to write specs that can benefit its partner firm; counter development is about deciding where to invest, so the two organizations can divide and conquer
Netflix navigates buy vs. build question nimbly also thanks to their balancing act when it comes to marketing and IT. They are among a handful companies that have managed the converge of marketing and IT well. Like Amazon, Netflix was built from the ground up to capture, analyze, and capitalize on customer behavior and preferences:
“Another area of focus is personalized merchandising, which drives what content we feature on a given member’s initial screen. Google search is an example of a ranking system, where results are automatically computed to show Google’s estimate of the most relevant answer to the query.
For Netflix, the user’s home page is the personalized ranking of what we think will be most relevant for that specific user at any given time. By analyzing terabytes of data from every recent click, view, re-view, early abandon, page views and other data, we are able to generate a personalized homepage filled with the content most likely to please. Our aim is to keep inventing and tuning algorithms to generate higher satisfaction, viewing, and retention, for whatever the level of content we can afford in that territory.”
[Source: Netflix Long Term View]
This nimble approach allows the company to anticipate customer wants by looking at their behavior. It fits with their worldview that flexibility is more important than efficiency in the long term.
For example, the organization knows it has more than the 65.6 million customers who pay subscriptions and that the actual number of people with access to the service is likely much more due to the ability to have multiple users on one account.
They also know that a small percentage of customers share their password with non-account holders. Analysts estimate this is a 500-million problem# for the online video service(s) industry. The company rolled out a slightly more expensive, $12-a-month option with up to four streams at the same time vs. the standard two.
Since each user can have a separate identify on the household's one account, Netflix gains the ability to learn what kind of content is interesting to whom and further tailor the viewing experience and inventory to each person.
Watch the full 24-minute talk below.
[h/t Scott Brinker]