TopLearning Objectives
After completing this chapter, you will be able to:
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Understand a framework for e-commerce systems development;
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Describe architecture of e-commerce systems;
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Discuss various languages and tools for e-commerce systems development;
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Discuss utility computing and services;
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Understand cloud computing;
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Describe Web services and standards.
TopNetflix
Netflix, the Los Gatos, CA firm (Figure 1), pioneered a DVD subscription service when it launched its service in 1999: customers pay a flat monthly fee to rent DVDs by mail. Customers choose the movies they want on the Netflix website, receive from one to eight DVDs at a time (depending on the pricing plan), and using a prepaid envelope, return them in the mail whenever customers have finished viewing. If a movie is not available, the customer's next available selection is shipped. As of March 2012, for $7.99 a month, customers get unlimited movies & TV episodes instantly over the Internet to their TV or computer. They can add unlimited DVDs (1 DVD out-at-a-time plan) for $7.99 more a month. With DVDs by mail, they get an even broader selection of movies & TV episodes.
In 2004, many analysts were predicting the death of Netflix (Friesen, 2005). Both Blockbuster and Wal-Mart had entered the market for online DVD subscription services. With over 9,000 outlets and rental cards held by 43 million US households, Blockbuster was by far the nation's leading video rental chain. Wal-Mart at the time was #1 on the Fortune 500 list. Both had large existing customer bases, well known brands, massive scale, and were attempting to synergize online and offline channels. Blockbuster, for example, offered coupons to its online subscribers, good for two free in-store rentals a month. Wal-Mart heavily promoted the service with in-store displays. Both services undercut Netflix prices with their initial subscription plans. Increased competition forced Netflix to advertise more at a time when online ad rates were increasing. The outlook for the pioneer was not good.
However, at the end of 2005, Netflix profits were up seven fold. During the same period, Blockbuster had posted a loss of $1.2 billion and Wal-Mart withdrew entirely from the subscription DVD market (McGregor, 2005). Subscribers at Netflix topped 5 million, while the firm's year-end customer churn of 4% was at an all-time low. Rather than being crippled by competition, Netflix ended the year in its best shape ever. In terms of infrastructure scale, by year end 2005 Netflix had 37 distribution centers capable of reaching over 90% of the country with one day mail turnaround. The model became profitable when this warehouse scale was combined with customer scale.
In the early 2010, Netflix had over 12 million members, a library of over 100,000 titles, and 58 distribution centers nationwide. Netflix subscribers have grown from 1 million in 2002 to more than 15 million in 2011. Unlike many of its competitors, Netflix allows the “watch instantly” feature which streams television shows and movies directly to all of customers’ electronic devices. The live streaming feature alone makes Netflix the No. 1 choice for online DVD rental providers.