How Netflix Used Big Data to Transform its Business

Brian CantoniOne of my favorite thinkers and writers on Big Data is Bernard Marr, also known as the “Big Data Guru” over at the Smart Data Collective blog. Most recently, Marr took an inside look at how Netflix used Big Data to help it make an epic transition in its business.

Originally known for mailing customers DVDs in red envelopes, Netflix has successfully shifted its business to focus on streaming movies (though it does still deliver DVDs in some markets). The shift may seem obvious, but it’s the kind of reinvention few businesses navigate successfully. Even if they can see the future, most business leaders have a hard time letting go of their past to make changes that are bold enough.

Today however, Netflix can, at peak times, account for one-third of all Internet traffic in the U.S., Marr points out. And though the company constantly faces skepticism about its ability to keep growing its streaming business, it once again recently beat all expectations for adding new subscribers.

So, what’s the secret? Marr says it’s a canny mix of Big Data and analytics. “It is the combination of this data with cutting edge analytical techniques that makes Netflix a true Big Data company,” Marr writes.

Marr notes that not only does the company hire a large number of data scientists, but it hires them into very specialized areas. He writes: “Specialists are recruited to join teams specifically skilled in applying analytical skills to particular business areas – personalization analytics, messaging analytics, content delivery analytics, device analytics… the list goes on.”

But the key is that Netflix has, to a large degree, been able to do what most business leaders can only dream about. They have been able to take their data and their analytics and leverage that into wildly accurate predictive systems. If you are a Netflix customer, then you see this as the “recommended” suggestions that blanket the home page.

Marr says these wildly accurate recommendations had their roots in 2006 when Netflix offered a $1 million prize to anyone who could write the best recommendation algorithm. At first this system only had four data points: customer, movie, rating, date watched. But with streaming, the number of data points exploded.

“Data such as time of day that movies are watched, time spent selecting movies and how often playback was stopped (either by the user or due to network limitations) all became measurable,” Marr explained. “Effects that this had on viewers’ enjoyment (based on ratings given to movies) could be observed, and models built to predict the ‘perfect storm’ situation of customers consistently being served with movies they will enjoy. Happy customers, after all, are far more likely to continue their subscriptions.”

The company also pays people to tag some of the movies, to further enhance the descriptive data elements. And the company has been able to leverage those data and analytics predictions to launch original series like House of Cards.

As Netflix executive Ted Sarandos explained at an entertainment conference last fall, “Our ability to invest in ‘House of Cards’ at the level we did was enabled by analytics,” Sarandos said. “Which basically said if you have David Fincher and a script by Beau Willimon, and Kevin Spacey and Robin Wright, that show could be quite large.”

While competition for video streaming services is fierce, and getting fiercer, Marr notes that for the moment Netflix has a gained a decisive edge by becoming a Big Data leader. Whether other companies can match that data-driven approach might be as critical to determining who wins as what kind of movies and TV shows they acquire.

“Netflix has used Big Data and analytics to position itself as the clear leader of the pack. It has done this by taking on other distribution and production networks at their own game, and trumping them through innovative and constantly evolving use of data,” Marr writes. “Time will tell – but the race to develop more accurate and insightful analytic strategies will be a key decider.”

Image credit: Brian Cantoni

 

Posted in Uncategorized by Lisa Petrucci

Lisa Petrucci is Vice President of Dun & Bradstreet Global Alliances and Partnerships.

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