Understanding the Difference Between Company Strategy and Product Strategy: The Case of Netflix

In the world of Product Leadership, understanding how a company’s overall strategy aligns with – or diverges from – its product strategy is essential. The case of Netflix is a fascinating example of how these two strategies can evolve both together and independently over time, responding to changes in business priorities, customer needs, and market conditions.

1. The Early Netflix Strategy: Logistics-Focused

When Netflix started, it was in the business of delivering DVDs to customers' homes. At the time, the core of the company’s strategy was built around logistics – the efficiency and effectiveness of delivering physical DVDs by mail to customers.

1. Primary Focus: Initially, the key metric of Netflix’s performance was logistical efficiency. Questions such as “How quickly can the DVD reach the customer?” and “How efficient are our distribution centers?” were at the heart of the company's strategy.

2. Distribution Centers: Netflix began in a single city, likely San Francisco, and eventually expanded to have multiple distribution centers. These centers were strategically located to reduce mailing times, ensuring quick delivery and returns, which was crucial to customer satisfaction.

3. Logistics-Driven Strategy: At this stage, the company’s strategy revolved around building a reliable infrastructure for physical distribution. This was essential for achieving Netflix’s goal of providing seamless entertainment, although in a very different way from what we associate with Netflix today.

While Netflix's mission was always about providing entertainment, its product strategy at this stage focused on logistics to enhance user experience. This phase highlights that a product strategy can sometimes be about delivering efficiency, even if the end goal – entertainment – remains the same.

2. Transition to Streaming: A Shift to a Tech-Driven Product Strategy

As technology evolved, Netflix saw an opportunity to offer content through streaming. This marked a significant shift in the company’s strategy, moving from logistics to a technology-focused approach.

1. Moving to Digital: The shift to streaming meant that Netflix no longer needed to physically deliver DVDs. Instead, they could deliver movies and shows instantly online. This transformed the company’s core capabilities and strategic priorities.

2. New Performance Metrics: With streaming, the company’s performance was no longer measured by shipping times or DVD return rates. Instead, the focus shifted to:

   • User experience: Immediate content delivery.
   • Content availability: Offering a wide variety of movies and shows.
   • Technical reliability: Ensuring smooth, high-quality streaming with minimal buffering.

3. Algorithm-Driven Personalization: As streaming took hold, Netflix recognized that users wanted quick and easy access to relevant, enjoyable content. The recommendation algorithm became a major part of the product strategy, helping users discover content that suited their preferences. This personalization became a key competitive advantage, enhancing the overall entertainment experience.

At this point, Netflix’s product strategy was deeply intertwined with technology. The company’s strategic focus was now on developing a platform that could deliver a superior, personalized viewing experience. This marked a shift from logistics to tech-focused innovation.

3. The Shift to Content: Today’s Netflix Strategy

As the streaming market matured, competitors began launching their own platforms with exclusive content. Netflix’s strategic focus once again shifted – this time, from technology and personalization to content creation.

1. Emphasis on Original Content: With more studios and networks creating their own streaming services, Netflix realized that content itself would be the key differentiator. The company began investing heavily in producing its own shows and movies, like Stranger Things and The Crown, that would draw and retain viewers.

2. Data-Driven Content Decisions: Although content is now the focus, Netflix still uses its technology and recommendation algorithms to guide content creation. By analyzing viewer data, Netflix can identify popular genres, themes, and even the best release times, informing where to allocate its content budget.

3. Product Strategy in Support of Content: While content is now the core focus of the company strategy, the product team at Netflix continues to work on ways to enhance the viewing experience, such as by optimizing the recommendation algorithm, adding new viewing features, and improving app functionality. The technology and product teams ensure that the platform effectively supports and showcases Netflix’s content.

This phase illustrates how Netflix’s overall company strategy shifted towards content, while the product strategy continues to support this focus through user-centric technological innovation.

4. The Dynamic Relationship Between Company and Product Strategy

The Netflix example highlights that while company strategy and product strategy are often interconnected, they may not always align perfectly:

• Company Strategy: Refers to the broader vision and mission of the company. For Netflix, this has consistently been centered on entertainment but has evolved in focus from logistics to tech and, finally, to content.

• Product Strategy: Focuses on the specific ways to deliver on the company’s mission through its offerings. At Netflix, this has involved evolving from physical DVD distribution to a tech-focused streaming platform and now to a content-driven approach, with the tech and product teams still enhancing the user experience.

Throughout Netflix's journey, the product strategy has adapted to support the company strategy, even as both evolved in response to changing market needs and competitive landscapes.

Key Takeaways for Product Leaders

1. Understand the Core Mission: The company’s mission provides the foundation for both company and product strategies. For Netflix, the mission of “delivering entertainment” has remained constant, even though the strategic focus shifted.

2. Adaptability is Crucial: Both the company strategy and product strategy should be flexible enough to adapt to industry shifts. Netflix moved from logistics to technology to content as the market changed, illustrating the importance of adaptability.

3. Alignment, Not Duplication: While product strategy should align with company strategy, it does not have to mirror it exactly. A product team can focus on enhancing user experience, even if the core business strategy shifts to content creation, as with Netflix.

4. Data-Driven Decision Making: Netflix's success in adapting its strategy has been fueled by its use of data to understand customer preferences. Data-driven insights allow companies to pivot strategies based on actual user behavior.

5. Anticipate Market Trends: By keeping an eye on market dynamics, Netflix anticipated the rise of streaming and the importance of original content. Product leaders should similarly anticipate shifts in user expectations and technological advancements to keep their product strategies aligned with evolving customer needs.

The evolution of Netflix serves as a reminder that successful companies and product teams must be willing to pivot and adapt as both technology and market demands change. Company strategy and product strategy may not always be perfectly aligned, but when each informs the other, they create a powerful engine for growth and innovation.