GROUP 10: Using factual evidence, clearly explain the different business models used by youtube and Netflix.
Abubakar Hafsat Adam
ABUBAKAR Aisha Shamaki
ABUBAKAR ADEMOLA ABUBAKAR
ABEYI Faith Okeoghene
ABDULAZEEZ Khadijat Bukola
ABDULAZEEZ IBRAHIM ADISA
IBRAHIM MAIMUNAT GIZA
A business model is an “abstract representation of an organization, be it conceptual, textual, and/or graphical, of all core interrelated architectural, co-operational, and financial arrangements designed and developed by an organization presently and in the future, as well as all core products and/or services the organization offers, or will offer, based on these arrangements that are needed to achieve its strategic goals and objectives. (Al-Debei Et al, 2008)
According to Alexander (2010) business model describes the rationale of how an organization creates, delivers, and captures value, in economic, social, cultural or other contexts. The process of business model construction is part of business strategy.
Osterwalder et al. (2005) consider the Business Model as the blueprint of how a company does business. Slywotzky (1996) regards the business model as ‘‘the totality of how a company selects its customers, defines and differentiates it offerings, defines the tasks it will perform itself and those it will outsource, configures its resources, goes to market, creates utility for customers and captures profits.’’
Chen (2009) stated that the business model has to take into account the capabilities of Web 2.0, such as collective intelligence, network effects, user-generated content, and the possibility of self-improving systems. He suggested that the service industry such as the airline, traffic, transportation, hotel, restaurant, information and communications technology and online gaming industries will be able to benefit in adopting business models that take into account the characteristics of Web 2.0. He also emphasized that Business Model 2.0 has to take into account not just the technology effect of Web 2.0 but also the networking effect. He gave the example of the success story of Amazon in making huge revenues each year by developing an open platform that supports a community of companies that re-use Amazon’s on-demand commerce services.
Bricks and clicks business model
Business model by which a company integrates both offline (bricks) and online (clicks) presences. One example of the bricks-and-clicks model is when a chain of stores allows the user to order products online, but lets them pick up their order at a local store.
Collective business models
Business system, organization or association typically composed of relatively large numbers of businesses, tradespersons or professionals in the same or related fields of endeavor, which pools resources, shares information or provides other benefits for their members. For example, a science park or high-tech campus provides shared resources (e.g. cleanrooms and other lab facilities) to the firms located on its premises, and in addition seeks to create an innovation community among these firms and their employees.
Cutting out the middleman model
The removal of intermediaries in a supply chain: “cutting out the middleman”. Instead of going through traditional distribution channels, which had some type of intermediate (such as a distributor, wholesaler, broker, or agent), companies may now deal with every customer directly, for example via the Internet.
Direct sales model
Direct selling is marketing and selling products to consumers directly, away from a fixed retail location. Sales are typically made through party plan, one-to-one demonstrations, and other personal contact arrangements. A text book definition is: “The direct personal presentation, demonstration, and sale of products and services to consumers, usually in their homes or at their jobs.”
This is a business model that works by offering basic Web services, or a basic downloadable digital product, for free, while charging a premium for advanced or special features. Pay what you can (PWYC) is a non-profit or for-profit business model which does not depend on set prices for its goods, but instead asks customers to pay what they feel the product or service is worth to them. It is often used as a promotional tactic, but can also be the regular method of doing business. It is a variation on the gift economy and cross-subsidization, in that it depends on reciprocity and trust to succeed.
The Business Model of Youtube
YouTube began when PayPal employees created a video-sharing website on which users can upload, share, and view content. The Internet domain name http://www.youtube.com was activated on Monday, February 14, 2005 at 9:13PM.
During the summer of 2006, YouTube was one of the fastest growing sites on the Web, uploading more than 65,000 new videos and delivering 100 million video views per day in July. It was ranked the fifth most popular website on Alexa, far out-pacing even MySpace’s rate of growth. The website averaged nearly 20 million visitors per month, according to Nielsen/NetRatings, where around 44% were female, 56% male, and the 12- to 17-year-old age group was dominant. YouTube’s pre-eminence in the online market was substantial. According to the website Hitwise.com, YouTube commanded up to 64% of the UK online video market. YouTube entered into a marketing and advertising partnership with NBC in June 2006.
The 3 biggest drivers of the value of content in this ecosystem are:
Metadata & CTR: YouTube’s algorithm tries to align ads that are appropriate for the viewer. The more aligned the ad is to the demographic of the viewer, the higher the click-through-rate (CTR), the more YouTube charges the advertiser for the ads, and therefore the higher your content is valued. Metadata is one of the big drivers of ad alignment so make sure it’s all relevant and be careful with the words you choose to use, especially in the description and search tag fields. Use specific words that align to your content (e.g. “death metal” or “mountain biking”) and avoid overly general terminology (e.g. “music” or “film”).
Watch Time: One of the biggest drivers of value now is watch time, which means the more of the video someone watches on average, the greater the value of your video. This also means that if people aren’t engaged with your video and lose interest quickly, the value of your content drops. If someone is using YouTube just to listen to a song, for example, and the song runs on longer than they have the patience for and they jump to a new video, your rate will drop. So consider how the cut down radio versions might make more sense for YouTube; or for film producers, consider how the length and type of the clip you upload impacts engagement and therefore the value. Almost half of YouTube’s traffic comes from mobile devices, so consider your typical viewer, the distractions they have, the size of their screen, their patience, and ensure your videos align with that experience to obtain the highest rates. And finally, even picking thumbnails that more accurately represent your video can result in higher rates, since luring viewers with a deceptive thumbnail means they’ll leave the page and lower your watch time.
Premium vs. UGC: Videos that are uploaded to channels under The Orchard’s partnership with YouTube will earn significantly higher rates than user-uploaded clips. The videos are considered to be from a trusted source and therefore receive the highest paying ads. Ensure you are marketing and promoting the version under our account, which is considered the premium version, as opposed to a version uploaded by a user, and you could see an increase in the value of your streams by as much as 4 to 5 times.
YouTube is the #2 search engine in the world with 800 million users, and it’s a quickly growing revenue stream for all types of rights owners. Clients of The Orchard can take comfort in having one of YouTube’s premier partners manage their rights and handle the logistics, introducing them to new opportunities before the rest and navigating the complexity of this brand new industry on their behalf.
YouTubers are able to profit for themselves in multiple ways. One way is through revenue generated by advertising in their videos, but YouTube usually keeps around 45% of that revenue. Some YouTubers are also expanding into the book business by publishing their own books like Alfie Deyes’ “The Pointless Book” from the PointlessblogYouTube channel and Zoe Sugg’s“Girl Online” from the YouTube channel Zoella. Others like Michelle Phan have expanded in all other Medias. She has a book called “Make Up” and her own cosmetics line from L’Oreal. She also has endorsed products including Dr. Pepper, Toyota and SanDisk.
The video hosting and sharing platform YouTube is the archetypical example of a media platform that exhibits the characteristics of the Web 2.0 model, and the associated ideals of participatory culture in its community and in the rhetoric of the company. In many ways, YouTube is a microcosm of the digital media ecosystem and its competing stakeholders and interests.
Business Model of Netflix
Netflix represents a classical service business model in the video-on-demand industry where users of the service and payers are the same entity. Netflix was the pioneer who used this business model to offer entertainment content using video streaming technology in exchange for subscription fee. The exemplar firm and others: Netflix video on demand originated from DVD rental business in 2007. The company still operates it along with its VoD streaming business. Netflix is the largest online movie and TV show streaming provider with more than 40 million streaming members as of 2013; Netflix streaming accounted for 89% of shows streamed in Q1 2013. The company also produces original content. Video on demand industry is a crowded one, with multiple players and business models. Players in the industry compete on price, exclusivity and range of content, user experience in terms of personalization and compatibility with different devices. Some of the large competitors include Hulu, which uses a hybrid business model partly based on advertising revenues, and Amazon’s Prime offering as a complementary to their retail business. The rating algorithm makes better use of movies available on the website tailored to his/her taste to watch. Netflix also creates value by having one of the widest supported devices ranges, including game consoles, tablets, PCs, and internet TVs. Finally, Netflix offers original and exclusive content to its subscribers. New and exclusive series are being released as full season, getting Netflix users hooked. Users do not have to wait week by week for episodes to be released is being released. Value capture Netflix’s major source of revenue are the subscription fees of $7.99 per month for an unlimited TV shows and movies streamed over the internet to their TVs computers and mobile devices. Currently Netflix does not use price discrimination for its customers. A popular critique of video streaming service Netflix is that the company cannot bring in enough revenue from customers alone to keep up with the need to continue purchasing new content for their service: “Netflix needs advertisements to bring in more money. “Netflix’s response has always been a solid “No.” Instead, the company is planning to increase their fees, while still protecting the original add-free value proposition.
Youtube and Netflix
YouTube and Netflix operate with similar streaming technology and both offers a platform to consume media and video content, the companies are very different in terms of value proposition and operations. The difference is in the business models each company uses.
YouTube develops a model that offers free videos on a global scale, but with local idiosyncrasies in the most important market. It offers a large quantity of videos and allows users to upload and share videos through the internet, via websites, mobile devices, blogs or emails. However, in general, they are short in duration and poor in quality. In most cases, the videos are submitted and produced by users themselves which has the potential for creating technological problems (video streaming capacity will have to be high performance), legal difficulties (possible violations involving protected or inappropriate content) and commercial problems (reluctant among advertisers to insert adverts in low quality videos).
Netflix on the other hand is the leading advertising- free subscription video platform. Netflix streams 100 million hour of videos across the internet daily and has been a paid service from the onset. It is a subscription service and therefore has zero reliance on advertisers to fund or monetize its original programming and the absence of adverts also makes for a Better viewer experience.
According to Paul MacDougall (2012) Although, YouTube has been streaming video longer than Netflix and has access to even resources than Netflix but Netflix streaming still works so much better than YouTube video streaming source in the sense that YouTube is free, the viewers are not their customers, their customers are advertisers and this causes a different alignment of priorities. YouTube only needs to provide a minimum experience to keep viewers engaged to continue serving them adverts, and is otherwise inclined to reduce the marginal cost of an eyeball as much as possible without significantly reducing the numbers of eyeballs.
On the other hand, With Netflix, the viewers are the customers, they pay them a subscription a month and expect it to work, if it doesn’t work to a certain expectations of quality, they will stop paying and Netflix will lose money. This causes Netflix to focus their talents on making viewers experience meet or exceed that expectation.
The buzzword ‘Web 2.0’ is often viewed as an attempt to commercialize participatory culture by incorporating the logic and rhetoric of social engagement and democratic empowerment into the technology of web-based consumer products and services. Jenkins (2006) is careful to differentiate participatory culture from Web 2.0 and acknowledge their diverging interests, stating that the former may or may not be associated with commercial interests, while the latter is essentially a business model. He admits, ‘Web 2.0 companies follow a commercial imperative, however much they may also wish to facilitate the needs and interests of their consumer base,’ but nevertheless remains positive about the potential of participatory culture, and entreats industry leaders to emulate the model in their businesses (Jenkins, 2006; 2010). Web 2.0 is epitomized by the growth in online video and social networking websites that offer accessible, low cost self-publishing and communication tools, and feature n easy-to-use programming templates to attract a massive following of users. Various business manifestos have celebrated the entrepreneurial prospects inherent in Web 2.0, mimicking the idealistic and opportunistic tone of the 1960s counterculture (Weinberger et al., 2000). They tend to frame Web 2.0 as an enabler of participatory culture and its utopian ideals, such as the democratization of cultural production, making a causal link between technological innovation and positive social and economic change.
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