From Microsoft to Netflix: Growth Through Partnerships

The value and importance of partnerships should never be overlooked.

In 2007 at the Wall Street Journal D5 conference Bill Gates and Steve Jobs sat down for a joint interview together. During the interview Steve Jobs and Bill Gates were asked the following question; “What did you learn about running your own business that you wished you had thought of sooner or thought of first by watching the other guy?”

Steve Jobs response about Microsoft was “they learned how to partner with people really well”. Mr. Jobs was correct, Microsoft built the business through partnerships and a software licensing model that still controls 57.12% of the operating system market.

Netflix strategically adopted the Microsoft growth through partnerships model in January 2007 when they first debuted their streaming service with a tiered pricing model. Early adopters of the Netflix streaming service had only 1,000 titles to choose from and were limited to six hours of streaming a month on the $5.99 plan and eighteen hours for the $17.99 plans.

The decision by Reed Hastings, Founder & CEO of Netflix to launch a streaming service in 2007 was an example of a forward looking executive who is focused on the consumer’s experience and growth.

During the launch of the streaming service Mr. Hastings said the following about streaming; “While mainstream consumer adoption of online movie watching will take a number of years due to content and technology hurdles, the time is right for Netflix to take the first step”.

Mr. Hastings was correct about the future, but more importantly he understood the future wants and needs of the consumer. As the Netflix streaming business expanded during it’s first year of operation, it would not hit it’s major growth period until late 2008 after Netflix publicly announced their first hardware partnership with LG Electronics at CES earlier in the year.

For the first time consumers were able to watch Netflix on their TV without having to connect a computer. The LG Electronics deal would forever change how consumers interact and consume video content from all online video providers including Netflix.

In an interview with The New York Times in January 2008, Mr. Hastings reflected on his vision for the future of Netflix by stating; “We want to be integrated on every Internet-connected device, game system, high-definition DVD player and dedicated Internet set-top box. Eventually, as TVs have wireless connectivity built into them, we’ll integrate right into the television.”

He was correct about the future and over the next six years the team at Netflix would build one of the greatest video distribution pipes in history with over 53.1 million paid subscribers globally as of Q3 2014. The growth from 6.8 million paid subscribers in Q1 2007 to 53.1 million paid subscribers in Q3 2014 came through hard work, determination and partnerships.

The case could be made that without the game changing 2008 LG Electronics deal, Netflix would be a different company or could have been possibly acquired by Blockbuster. But history was not written that way as Mr. Hastings and his team at Netflix followed the Microsoft growth through partnerships model and succeed in creating a great business that delivers value to millions of subscribers.

Who will be the next great company to adopt the Microsoft growth through partnerships model?

From Microsoft to Netflix: Growth Through Partnerships is an article written by Brulte & Company Co-Founder Grayson Brulte.