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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
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7 Powers summary
Hamilton Helmer
The Foundations of Business Strategy
16 mins
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7 Powers
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Key idea 1 of 7
Netflix
Back in 2007, Netflix finally left Blockbuster in the dust. They had already given Blockbuster a run for its money by positioning themselves as the rent-from-home company. Even though Blockbuster tried its own version of mailing DVDs, the name Netflix had become solidly associated with the practice.
However, what Netflix did even better was foresee the future. They knew that DVDs had a limited lifespan. Netflix realized that streaming capabilities would soon make it viable for people to view shows and movies via streaming rather than DVD. So, in 2007, they made their way into the streaming market.
This foresight wasn’t a one-time thing for Netflix. Throughout the course of developing their streaming platform, Netflix found it difficult to manage the contracts that would allow them to use properties in various regions for various timespans. They knew that to retain power, they would need to do something different. So in 2012, they ventured into originals with Lilyhammer and House of Cards.
At that time, Netflix had over 30 million users. A single episode of House of Cards cost $4.5 million to make – meaning that per episode, they would need to be making $0.15 off each user.
Where it gets interesting is when you think about the economics of this. The price per episode is not a fixed thing, but is dependent on the user base. So the more users Netflix could attract, the lower the cost per user to provide content.
This is called scale economy, and it is the first power. Scale economy exists when your cost of doing business decreases as your product supply increases.
It is extremely difficult to unseat the company that has the power of scale economy. Imagine being a newer streaming platform with only three million users and trying to create House of Cards. Your cost per user would be ten times Netflix’s cost, so the cost of beating them at their game becomes prohibitive.
Scale economy constitutes power because it represents the potential for long-term entrenchment at the top of the industry, and it’s very challenging for competitors to overcome.
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What is 7 Powers about?
The 7 Powers (2016) is about the strategic positions that have won great success for many companies and brought great failure to others. It gives case studies for each power as well as insights into why these powers did or didn’t work.
Who should read 7 Powers?
- Entrepreneurs
- The Executive Suite
- Business Students
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