The Best Product for Who?

What is revolutionary about on-demand streaming in general and Netflix in particular is that the service has no sense of time. On the traditional broadcasting mediums TV and Radio time is everything - a prime time show, from 8pm to 11pm in the US, is there because it is meant to be watched by most people. On Netflix there is no prime time. Sunday 9pm is no different than Wednesday 7am and Friday 1pm.

TV shows get made to appeal to the largest possible audience during the assigned time slot. Obviously there are only so many time slots in a day, forcing TV networks to prioritize which shows to invest to. A show meant for Sunday 9pm prime time gets the largest budget because it is expected to be the best show. That show is also meant to appeal to a wide range of audiences because, again, that time slot only has space for one show.

The limited supply of time slots has over decades created a notion of the best show. In the US those receive Emmy awards. Each network has that one show it is hoping to be the best. They invest the most into it and put it into the prime time slot. If it wins an award even more people flock to watch it, further expanding the prime time audience.

Netflix changed two things. First, there is no prime time. Second, and almost more important, there is no best show. People watch Netflix when and what they want. Thus Netflix is not limited to only focusing on one show meant for the prime time. Which also creates the most important byproduct - it can create shows best for a niche audience. Netflix doesn’t need the best show for the largest audience, instead they want shows to the best for all kinds of audiences. This is why Netflix is set to spend upwards of $8 billion on content in 2018 and will have in the neighborhood of 700 original TV shows on the service worldwide this year, according to CFO David Wells.

The revolution of Netflix is not necessary the almost-unlimited catalog of content. Instead it is how that allows new shows to be created after realizing what traditional broadcasting friction has been removed. As much as Netflix wants to win Emmy awards, they are as happy by having the best show for every person. But unlike traditional broadcasting it doesn’t have to be the same show. It can be one of the thousands Netflix will produce in years to come.

Netflix

Conversion rate has become the key on Amazon. For any search on Amazon the underlying algorithm is measuring which products get bought. The higher it is, the higher a product ranks. Which means Amazon has transition from showing the best overall products matching the search term, to best products for when people search for that keyword. Each different search term on Amazon is a demand segment. Serving that demand segment (both through organic results and advertising) is where the search algorithm makes its impact. Amazon has almost-infinite supply of products, some of which are best sellers, but many more are not best sellers. Yet are best fit for the search query.

Amazon sales rank, the concept as old as Amazon, is a measure of sales relative to all other products in the category. The #1 product in the dog leashes category outsells all other dog leashes. But it doesn’t mean that the #3 dog leash is a worse choice than #1. It probably has unique offerings #1 doesn’t have, like being retractable. And thus the search algorithm might choose to display it first if more people end up buying it when searching for that unique feature.

Being the best product on Amazon, receiving the Emmy of #1 sales rank, might not be the goal. Not unlike Netflix, Amazon is about matching the unique demand with the best choice. On Netflix the algorithm picks the best show for that person given their search terms and their previous watching history. On Amazon the algorithm picks the best product taking all of those into account too. The analogy with Netflix is interesting - they are both platforms where niche content finds its audience through optimizing conversion rate.

Netflix is not the same to everyone. The interface is optimized for each of their subscribers. It can service different audiences simultaneously and separately. Amazon search is starting to look like that too - it is different for each shopper as well. Those differences on Amazon are not as visible as on Netflix yet, but they are coming from the same place - offering products best fit for one. In technical terms this is measured as conversion rate.

Given the explosion of the number of brands on and outside of Amazon, the opportunity is in finding a niche. Building a global billion-brand brand is as hard as it has ever been. Just as hard as finding the next Game of Thrones. But Netflix will make 700 new shows this year, each for a particular audience. Thinking of retail the same is a great place to start.

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Juozas "Joe" Kaziuk─Śnas

Founder of Marketplace Pulse, Joe wears multiple hats in the management of Marketplace Pulse, including writing most of the articles. Based in New York City. Advisor to other startups and entrepreneurs. Occasional speaker at conferences.

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