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Netflix and The Art of Product Evolution

Anjali Vaidya Written by Anjali Vaidya, July 05, 2016

There is a terrific article in last week’s Sunday Times outlining Netflix’s role in changing the way we consume media. The central question of the piece is whether Netflix will dominate the world it has created. Nimble competitors like Amazon, Hulu, and the major studios (once threatened by streaming) are each leveraging unique assets to disrupt legacy media models.

From the article, we at AdRoll gleaned a broader framework for how products can evolve gracefully. Much as Netflix evolved from sending DVDs in the mail to streaming syndicated shows to producing original content, AdRoll is poised to transition from retargeting ads to bigger marketing solutions. With that leap comes a fair amount of risk. What next-generation products should we choose? How do we keep our most passionate customers engaged? How much do we continue to invest in the core? Here are five learnings from the Netflix story:

  1. Innovate incrementally. The Netflix of 1998—sending DVDs in the mail—was not in a position to start negotiating content deals. From a technical standpoint, Netflix lacked the major distribution networks. From a branding standpoint, Netflix was still analogous to Blockbuster. Streaming was the intermediate step that allowed Netflix to transform their brand and build the requisite technology infrastructure to take on the studios.

    In a similar manner, AdRoll is a trusted name in retargeting. Building on our customer needs and their data assets led us to Prospecting first and SendRoll second. Billboards or TV commercials shouldn’t be next; that’s too far a leap. But web page optimization, CRM, mobile app retargeting, and marketing vendor management are not so far-fetched. With products that align to these areas, AdRoll can leverage our strengths while building new assets, such as a cross-device graph. We can evolve our brand beyond display advertising. Most important, we can take our customers along with us slowly into areas that make intuitive sense for them.

  2. Understand your customers. Investing $100M in House of Cards was a data-based decision for Netflix. The show aligned nicely to the interests of Netflix viewers—political dramas, Kevin Spacey, and David Fincher’s directorial work. It was a calculated leap.

    Analogously, AdRoll customers are keenly interested in attribution and ROI, optimizing their web pages, and managing their marketing vendors better. Our product portfolio iteration should adhere to these themes. We don’t need to build advanced functionality to gauge customer feedback. An MVP offering is enough to learn from our users what resonates most.

  3. Reallocate resources asymmetrically. Here’s the tricky thing about those red envelopes in the mail (yes, Netflix still offers them): the once-core DVD business for Netflix is shedding subscribers quickly. But from a contribution margin perspective (contribution to profit), DVD rentals are a cash cow for Netflix. DVDs help them fund the streaming business where profit margins are tiny, eroded by content bidding and large upfront fees.

    Our situation at AdRoll may be the reverse. Retargeting, prospecting, and email represent huge markets in which we still have plenty of room to grow. Six million customers advertise on Google Search; we only speak to 25,000 of those customers today. Hence, our resources will continue to focus on growing these product lines. AdRoll should continue to treat innovations as mini-startups within the company, arming them with more materials as their proofs of concept become stronger.

  4. Hiccups are OK if you confront them quickly. When Netflix divorced their streaming and DVD services in 2011—making the two products more costly than before—there was an uproar. The stock dropped 45% in three weeks, so the CEO apologized and reversed course. Good will bounced back, and the stock is up 134% this year.

    As AdRoll’s product suite becomes more complex, we will confront very real questions about how to differentiate and price the component offerings. Experiments may help us here to gauge market reaction before wider deployment. Intuitively, we should probably price and package our offering so that customers enjoy economies of scale. (The more products they buy with us, the cheaper each component becomes—basically the opposite of what Netflix did.) But we may not get everything right here initially, and we think that’s OK. Customer passion is a sign that they care.

  5. People trump everything else. By now the Netflix culture deck has become famous. The company screens actively against jerks, pays high for “fully-formed adults,” and demands high performance.

    The good news is culture is paramount at AdRoll too. Like Netflix, we look for autonomous, responsible folks and throw tremendous responsibility their way. We believe the next SendRoll will start as the seed of an idea from a Roller’s customer conversation or market research. That seed germinates in her brain and becomes an experiment. Later, her data look promising so she rallies a team, a sprint, a launch, an iteration. That only happens when our Roller is so passionate that she drives the idea to fruition and relentlessly improves it. No lazy bones here. People are AdRoll’s biggest product superpower.