Netflix is currently one of the most recognizable brands around the world. It offers access to one of the largest collections of film and serial productions for a flat fee. Undoubtedly, the development and strategy of the company are governed by data and forecasts. Netflix is famous for not being afraid to face the challenge of changing its current strategy and is very flexible in this regard. In this article, I will try to showcase how Netflix has used the Product-Led Growth strategy over the years, what benefits and losses this strategy has brought them, what plans they have for the future, and of course, what smaller companies can learn from them.
What is the Product-Led Growth strategy?
Product-Led Growth is an end-user-centric growth model that relies on the product itself as the primary “driver” of customer acquisition, conversion, and expansion. Companies with a PLG strategy are able to grow faster and more efficiently today.
This is because such organizations have effective ways to streamline the process of deploying their services to customers around the world – saving on sales teams and hiring new sales reps every time. These companies are characterized by having great knowledge of their users, which translates into subsequent sales results and increased percentage bars. The products are matched to the needs of users so well that they often prove invaluable to them. The fact is that nowadays, in order to succeed in the digital industry, software companies have to meet the demands of the market – this means creating the best possible products for the end-user.
User acquisition model
Most companies following the PLG strategy follow the so-called user acquisition model. There are four stages of acquisition:
In the first stage, companies usually make their services available to users for free for a limited period of time. The goal is to present the service to users. Those companies often offer free tutorials to help you explore the service and show you all of its benefits and the opportunities it presents. The user then personally experiences the service by using it for a certain period. The companies put a tremendous amount of energy and effort in enabling users to use the service independently. They tempt users by offering them the immediate value of this particular product. It is worth noting here that companies gaining active users for their service can gain extremely valuable long-term information about how a particular type of user uses their product. This allows companies to improve their services continuously. When the user already knows the value and the whole logic behind the service, and the product offered by the company has contributed to the fulfillment of the user’s needs and created a kind of bond with the user, there is a good chance of final success. I mean here that the user creates a network effect so that they become the “best possible advertisement” (metaphorically) for our service. At the end of their trial period, the user pays for the service to continue using it because it provides value to them.
Netflix and the PLG Strategy
In the case of Netflix, the PLG strategy proved to be, in part, a trap of sorts. Netflix has historically offered access to their services with a free monthly trial subscription. The goal for many years was very simple – gathering as many users as possible through a free limited trial period and providing them with material that will make them stay with the platform for longer.
In March 2020 (at the very beginning of the pandemic), the company took steps to disable this option in many foreign markets, including Poland. The official position of the company’s activists was that “tests” are being performed to better understand the value the platform brings to their users. However, it is unofficially said that it was actually about the alarming number of fake accounts because of which Netflix lost millions of dollars. It is estimated that there were approximately 50 thousand such accounts in Poland alone. The mechanism was simple – a group of friends agreed that each, in turn, would create a Netflix account and share it with their friends and then delete it after a month. That way, a person received a free trial month that allowed a whole group of friends to watch films and TV series. After a month, the maneuver was repeated by the next person in the group. And that went on for several months. Bloomberg Agency reports that streaming services like Netflix are losing up to 10% of subscribers each month – after the free trial period expires. According to a published report, only about 1/3 of subscribers continue to use the offer after the free trial period ends using a previously provided email.
There’s no fooling around – this is a scary prospect for any platform, which is why companies like Apple TV, HBO GO, and Disney+, for example, are implementing all sorts of streaming strategies in an effort to reverse the trend. An example of this strategy is, for example, releasing new episodes of series and shows every week to generate more reach on the platform.
The beginning of the pandemic was a game-changing moment for major streaming services. The maneuver towards paid subscription only was necessary to minimize any losses generated by theatrical productions that were added to the platforms and ultimately would be released in theatres. Despite the fact that Netflix didn’t have as high-profile movie premieres in 2020 as, say, Disney+, it didn’t change the fact that they offer an incredibly broad arsenal of popular and original productions on their platform and that they’ve spent years reinvesting their revenue into producing their own content. It is also worth noting that platforms such as Peacock, Apple TV+ and Discovery+ continue to offer a one-week free trial to new users. This is part of their strategy, which is largely based on trying to intercept as many users as possible from the biggest players. The more subscribers the platform has, the more revenue it generates, and the market for streaming services itself operates on the principle of a Snowball, i.e., the more films and series they have, the more good content can be found, the easier it is for them to attract more subscribers, thanks to which their revenue grows, and they can invest in content and advertising, the product turn over on its own and the circle closes.
Is the Product-Led Growth strategy for Netflix only a loss?
Definitely not. When we look at the data, we can see that the platform is still experiencing growth. In Q4 2021, Netflix managed to grow their subscriber base by 8.28 million users – exceeding their previous projections.
In 2021, subscriber growth was stabilized (it is growing but at a lower rate), although this must take into account the increasing competition and the fact that over 90% of new viewers from the previous year came from outside the US/Canada regions. This shows how saturated the North American market is and is an epitome of the platform’s emphasis on other regions. Free access as well as the ability to add multiple accounts within one subscription available on different devices has resulted in two unimaginably important things from the creators’’ perspective:
1. The product carried value for users who wanted and needed it so badly that they created fake accounts to extend their limited free time to continue watching their favorite shows. After abolishing free access during the lockdown, when we were all locked inside our homes, these users were now ready to pay a subscription fee and watch without limitations.
2. Netflix has gained access to a huge amount of data, acquiring information about trends, tastes, and what people like or even love to watch. By increasing their network, they can continue to grow effectively.
If the strategy, on the one hand, brought losses to the company and, on the other hand, did a lot of good, why was it withdrawn? This is because Netflix is an example of a company that has taken the PLG strategy one step further in perspective. As I mentioned earlier, their strategy based on a free trial month stopped paying off at some point. Netflix became such a recognizable brand that they could afford to move to a paid subscription only. Several factors make Netflix hard to copy. Despite the dynamic situation that occurred in Q1 2020, the company brilliantly managed to turn a period of global crisis into the most profitable period in the company’s history. I mentioned earlier that the strongest factor in attracting new users for streaming platforms like Netflix is to invest in its own base of movies and series productions that users won’t be able to see anywhere else. That’s the path Netflix has taken, as you can see in the chart below:
The chart shows that in 2021, Netflix nearly doubled the number of their original productions compared to 2019, which was still the year when there was a free trial period for using their subscription. It is also worth mentioning here that some of the productions scheduled for 2021 had to be postponed due to delays caused by the pandemic.In 2021 alone, they spent nearly $17 billion on content production – compared to $11.8 billion in 2020 and $13.9 billion in 2019. In order to visualize the invested sum as an interesting fact, I would like to mention here that the GDP – i.e., the value of all goods and services produced in a given area – of five Polish provinces is lower than the sum that Netflix spent on creating their content last year.
This comparison only shows the scale of the company’s operations and how dramatically it has grown over the last 25 years.
The chart below, on the other hand, shows the overall content library of the five largest streaming services as of (01.01.2022)
It should be noted that despite its apparent lead over the rest of the pack, Prime Video’s statistics are not entirely reliable.
Why? Because their library is actually much larger due to smaller clips increasing their overall number – which many reviewers say reflects heavily on the quality of the platform. Most of Prime’s content is simply average titles. What is also noteworthy in this list is the Disney+ platform, which will officially become available in Poland in the summer of 2022. Disney has entered the market with a “strong strike”. In the long run, many prominent film industry experts suggest that the biggest battle for subscribers will be between Disney and Netflix. Going back to Netflix – the next chart shows the division of the library into original productions and those that are present on the platform thanks to a valid license. The list of original content depends on where you live. In the pie chart, the term “Netflix Originals” refers to the platform’s original content.
In the United States, the percentage of original content seen on the platform in December 2021 reached 43.89%. Based on the current trajectory, it is projected that Netflix should reach 50% original content by August 2022. If this trend does not change abruptly, the platform should reach 75% by December 2024. “Netflix Originals” aren’t always global releases, and Netflix libraries elsewhere rely much more heavily on licensed titles, but they still largely follow the same trend as in the US.
Taking advantage of opportunities generated by the market
The platform has also proven its ability to exploit opportunities generated by the market efficiently. For example, an external service (Netflix Party). This is a plug-in generated for users using the Chrome browser.
It allows users to watch the same video at the same time. Users can communicate with each other in real-time while watching a movie or their favorite show. In times of isolation, many people used this extension more and more to enjoy the shared remote viewing with their friends and family. The application was quite successful as it grew dramatically in just 60 days, gaining over 10 million downloads. In this case, the so-called network effect worked in the company’s favor: the users invited their nearest and dearest to watch together, generating the company’s acquisition of more and more new viewers.
In a truly metaphorical sense, in this case, it is the person/user who is the means of advertising and marketing for the company.
We can anticipate that Netflix will want to be as universal as possible in the future. Their goal is to be the first choice of every viewer, to whom they will be able to offer anything literally for a certain amount. As one of Netflix’s main assets are intangible assets such as their brand and reputation – It’s hard to value their profitability clearly. Despite the fact that the PLG strategy turned out to be partly a trap in their particular case, it has to be admitted that the company is an excellent example of how to react flexibly and dynamic manner to the changing conditions generated by the market. The PLG strategy has undoubtedly had a huge impact on the company and the way we users now perceive Netflix. Smaller companies suffer from the misconception that a strategy based on Product-Led Growth has a right to exist only in million-dollar ventures with huge capital and a large margin for error. The truth, however, is quite different. Any company – even those operating in niche markets – can adopt the PLG concept to improve the service user experience and generate more profits because of it.