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The idea of disruptive innovation has garnered considerable attention over the years among both academics and practitioners although a common misunderstanding about its basic principles, as well as the lack of a definitive theory, persists. This research aims to analyse the correlation between the video streaming platform industry and the concept of disruptive innovation. Netflix, which used video streaming to introduce a completely new and disruptive business model, will serve as an example to explore this connection in more details. The presented paper will examine and analyse the existing literature around the concept of disruptive innovation, including contributions, and points of view of several authors, in order to achieve a comprehensive understanding. Aim of the reserach is to analyse Netflix's success adopting the theories presented in the literature review to evaluate whether it can fit into the definition of disruptive innovation.
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Table of Contents
INTRODUCTION ............................................................................................. 2
LITERATURE REVIEW ................................................................................... 4
INTRODUCING THE CONCEPT ................................................................. 4
DEFINING DISRUPTIVNESS ...................................................................... 5
THEORIES AND ADAPTATIONS ................................................................ 7
THE CASE OF NETFLIX ............................................................................ 10
NETFLIX AS A DISRUPTOR ..................................................................... 11
INFERIOR PERFORMANCE .................................................................. 12
NOT VALUED BY MAINSTREAM CUSTOMERS ................................... 12
SIMPLER AND CHEAPER OFFERINGS ................................................ 13
PRICE-SENSITIVE CUSTOMERS AS MAIN TARGET .......................... 13
FROM LOW-END TO MAINSTREAM ..................................................... 13
CONCLUSION ............................................................................................... 17
REFERENCES .............................................................................................. 19
The existing academic literature indicates that emerging media technologies
are transforming how people engage with television (Ellingsen, 2014;
Tefertiller, 2018). Currently, various media companies provide streaming
services with high-quality content, accessible through a variety of digital
devices (Groshek and Krongard, 2016).
Although a growing proportion of individuals are choosing this form of
technology, rather than traditional media (Pwc, 2019), it represents a highly
competitive branch of the industry. Several brands like Amazon Prime Video,
Youtube and Netflix are constantly innovating their technology to offer their
consumers an extensive media catalogue (Tefertiller, 2018).
Furthermore, over time, such organisations implemented their offer, by
introducing mobile applications, based on a customised recommendation
system to enhance the users experience, retain existing consumers and
attracting new ones (Camilleri and Falzon, 2020).
This research aims to analyse the correlation between the video streaming
platform industry and the concept of disruptive innovation. Netflix, which used
video streaming to introduce a completely new and disruptive business model
(Christensen, Raynor and McDonald, 2015), will serve as an example to
explore this connection in more details.
The presented paper will firstly examine and analyse the existing literature,
including contributions, and points of view of several authors, in order to
achieve a comprehensive definition of disruptive innovation.
Subsequently, Netflix's success will be analysed and, adopting the theories
presented in the literature review, it will be evaluated whether it can fit into the
definition of disruptive innovation. Finally, in the last section, the impacts that
video streaming technology is currently having, and will have in the future, on
digital marketing will be discussed.
The idea of disruptive innovation (DI) has garnered considerable attention
over the years among both academics and practitioners (Christensen et al.,
2018), although a common misunderstanding about its basic principles, as
well as the lack of a definitive theory, persists (Christensen, 2006; Raynor,
The concept was originally introduced by Christensen in the 1990s, when he
examined the failure of hard disk market leaders in competing with new
entrants (Christensen, 1997). He also outlined the idea that emerging
technologies can generate a new market, or fundamentally alter an existing
one (Nagy, Schuessler and Dubinsky, 2016).
In other words, DI is identified as a phenomenon able to successfully convert
a product or service which was previously so complex and cost intensive that
relatively few individuals could have access to it, making it cheaper and more
accessible to a wider audience (Christensen, 2012).
Hence, as outlined by Charitou and Markides (2003), Danneels (2004) and
Adner (2002), DI is a process that enables the expansion and development of
new markets, as well as the introduction of new functions which, in turn, lead
to the disruption of existing dynamics.
However, talking about a new technology which approaches a market, it is
appropriate to differentiate between sustainable and disruptive. The former is
an innovation which aims at the same audience and brings improvements in a
product or service’s attributes that customers already value; while disruptive
innovation, on the other hand, introduces a completely new product, often
with low performance than what the market offers, and aims to serve different
customers positioned at the bottom of the market, e.g. price-conscious and
unsophisticated users, and then ascending over time (Bower and
Christensen, 1995; Cohan, 2020).
However, despite Christensen's research was essential for the coinage of DI
and contributed to show the impact of the innovations on business dynamics,
some outstanding points remained unresolved (Govindarajan and Kopalle,
In the last 20 years this concept seems to be erroneously applied, and the
lack of information led to an oversimplification of the term (Christensen,
Raynor and McDonald, 2015), commonly applied to identify any scenario in
which industries are shocked by a new technology (Christensen et al., 2018);
however, there is much more to consider (Danneels, 2004, Markides, 2006).
Christensen (1997) argued that DI are generally more affordable, easier and,
in most cases, more comfortable to use; but what are the key attributes a
technology must have to be considered disruptive?
An examination of Adner's (2002), Charitou and Markides' (2003) and
Govindarajan and Kopalle's (2006) contributions emphasises the identification
of five essential attributes, established by Bower and Christensen (1995), that
an innovation must possess in order to be defined as disruptive:
1. the innovation is under-performing in terms of the features expected by
mainstream customers.
2. It offers new attributes, but which are not originally appreciated by the
mainstream segment.
3. The new technology is generally easier and less expensive than the
existing one.
4. Once introduced, the new entrant targets the low end of the market, in
particular price-conscious and not-sophisticated segments.
5. Further advances over time enhance its performance, enough to meet
the mainstream customers’ needs, attracting a greater portion of users.
In other words, DI indicates a technology that offers a new set of innovative
features, but which are initially underappreciated, compared to existing
products (Christensen, 1997). However, although the existing literature
agrees that disruptive innovation induces significant market responses (Nagy,
Schuessler and Dubinsky, 2016), at what point can a technology be classified
as disruptive?
During the initial phase, the disruptiveness of an innovation is often difficult to
perceive (Henderson, 2006); however, over time, its performances tend to
overcome those of the dominant technologies (Bower and Christensen, 1995)
until, ultimately, dominate the market and attract the attention of a larger
number of segments (Guo et al., 2019). Therefore, DI is not a single event but
an ongoing process (Christensen and Raynor, 2003).
Manyika et al., (2013) have contributed to the definition of the characteristics
of DI, identifying some key attributes required to be classified as such. As
stated by them, a disruptive innovation typically:
1. leads to changes in terms of both cost and performance.
2. Improves the overall effectiveness.
3. Has a wide outreach, impacting multiple areas of companies across
the globe, as well as the population's lifestyle habits.
As specified by Kumaraswamy, Garud and Ansari (2018), DI follows a
particular path in which the technology would be considered disruptive
regardless of whether it fails or not. In general, Danneels (2004), summarises
Christensen’s works by arguing that disruption happens when the entrant
overtakes the incumbent. Nevertheless, there might be some exceptions in
which well-established companies can survive by focusing on satisfying their
own customers (Yu and Hang, 2010). Hence, as Schmidt and Druehl (2008)
argue, DI might have a significant influence on the market without entirely
transforming it.
In a general perspective, explains Danneels (2004), disruptive innovations
alter the competitive landscape among companies, by bringing a new
performance dimension in which products were not competing previously.
Overall, most of the cited authors support Christensen’s ideas, even though
they presented their slightly different perspectives. For instance, Danneels
(2004) criticised the lack of a precise and consistent definition of DI; while
Tellis (2006) emphasised the difficulty in differentiating an underperforming
technology from one which is initially less performing but then results to be
disruptive. In this regard, Markides (2006) argues that Christensen's principle
should not be used to explain all sorts of DI, since each innovation can
produce a variety of competitive effects which might, subsequently, lead to
the creation of different types of markets.
However, some experts argue that it is fundamental to deal with this
phenomenon in a multidimensional perspective, since external influences,
such as countries’ economic conditions and legislative context, could
potentially affect the success of a disruptive innovation (Wikhamn and
Knights, 2016).
Following a detailed examination of the above-mentioned authors' inputs and
contributions to outline a comprehensive description of DI, the framework
which seems to be the most appropriate to present a coherent explanation of
the concept is the Disruptive Innovation Model, introduced by Christensen,
Raynor and McDonald, (2015).
Figure 1, Disruptive Innovation Model (Christensen, Raynor and McDonald, 2015)
The presented graph combines the long-term performance trends required by
the various customer segments, considering customers willingness’ to pay (in
blue), and of the performance of the alternative technologies, showing how
the new product will improve (in red).
In particular, while incumbents are mainly focused on strengthening their
products or service for their more exigent, and often more lucrative, users,
they tend to ignore the necessities of the less sophisticated ones. Entrants
approach the market by targeting the segments that have been previously
ignored, providing them functionalities, often at a lower price. At this point,
incumbents tend not to respond vigorously, while the new technology, already
adopted by the lower segment, gradually ascend towards the higher ones.
Once the latter begins to embrace the new offer, a disruption has materialised
(Christensen, Raynor and McDonald, 2015).
In other words, in accordance with the presented graph, disruption appears in
the intersection point between the new technology's performance trajectory
and the one of the performances required by the mainstream market.
Netflix is considered as one of the most disruptive video streaming platforms,
which revolutionised the well-established cinema industry by providing users
a broad range of premium material at an unprecedented low rate
(Christensen, Raynor and McDonald, 2015).
Founded in 1997, revolutionising the film and online streaming industry
(Levin, 2019), Netflix is a digital service, which has offered a premiere
alternative to traditional rentals. However, another feature that has elevated it
to a unique level of innovation, as mentioned by Alsin (2018), is the creation
of its own material.
Netflix originally targeted early adopters and provided a DVD rental service by
mail (Satell, 2014). Thanks to this, consumers were able to browse a
collection of movies and select the desired one; the DVD was then dispatched
directly to the home address.
However, Netflix soon realised that the shipping costs per customer far
exceeded its net revenues; hence, they subsequently introduced, in 2007, a
subscription-based online streaming service (Voigt, Buliga and Michl, 2016).
Nowadays, its platform is used by over 200 million people across the world.
An essential component of their service was to provide a more convenient
way of renting movies, as well as to eliminate “delays fees” that Blockbuster,
the market leader at that time, charged for returning DVDs after the deadline
(Mcalone, 2015).
In other words, Netflix's business model was designed to allow users to rent
movies directly from home and it addressed the lower end of the market,
which had been overlooked by Blockbuster (Christensen, Raynor and
McDonald, 2015).
The graph beneath (Figure 2) illustrates Netflix's evolution from its beginning
to its success, in comparison with the performance of its rival Blockbuster,
which faced a steady decline from the moment Netflix established itself in the
medium to high end of the market.
Figure 2, Netflix vs Blockbuster (Cloud Technology Partner, 2017)
To assess the disruptiveness of Netflix, the definition introduced by Bower
and Christensen (1995), presented in the literature review, has been adopted.
Below is outlined an explanation of the five core features that the platform
must have to be defined as disruptive.
Online streaming quality less performant than existing DVD
rental services (Cohan, 2020).
At the time it introduced the postal service, the company was
not targeting the mainstream customers of its rival
Blockbuster, who were only interested in new material on
demand (Mcalone, 2015).
No late fee, only registration cost (Mcalone, 2015).
DVDs delivered by post directly to the customer's home
address (Voigt, Buliga and Michl, 2016).
Main target: early adopters/segments that have been
overlooked by Blockbuster (Christensen, Raynor and
McDonald, 2015).
Huge transformation in 2007: introduction of the streaming
High-quality and cost-effective content attracted Blockbuster's
mainstream customers (Christensen, Raynor and McDonald,
Table 1, The key features of Netflix's disruptiveness (Author, 2021)
In 2007, Netflix introduced a new online streaming service, the same year that
Apple launched the iPhone. Consumers, who until then purchased DVDs,
were unable to watch movies on their smartphones. Thus, many of them were
attracted by this new service and started to adopt it. However, at that time,
the online video and audio streaming quality was considerably weaker than
on DVDs (Cohan, 2020).
Hence, it can be observed that the introduced technology is underperforming
in comparison to the established one.
Mcalone (2015) argues that a major reason why Netflix can be described as
DI is because, at the time Netflix introduced the postal service, did not target
the mainstream clients of its rival Blockbuster; in fact, these users were
asking for renting new releases on-demand, a service that Netflix did not
originally provide.
As mentioned above, Netflix was designed to offer a more convenient and
simple rental service.
Contrary to Blockbuster, which applied late charges if a customer exceeded
the return date, Netflix’s only costs were subscription fees (Mcalone, 2015).
Moreover, once users finished a DVD, they simply returned it and requested
another one, which was delivered directly to their home address, enhancing
the customer's experience (Voigt, Buliga and Michl, 2016).
Related to the second feature, it is relevant to mention that Netflix's target
audience was initially the lower end of the market, where unsophisticated
customers were located, i.e., those who were looking for movies, but not
exclusively for new releases.
Christensen, Raynor and McDonald (2015) argue that Netflix can be defined
as disruptive innovation since it targeted market niches which were ignored
by the industry leader, offering an inferior, but cheaper, alternative.
As previously indicated, Netflix's initial business was aimed at price-sensitive
customers. However, the huge transformation occurred in 2007, when it
introduced the streaming platform. Here, Netflix succeeded in attracting
Blockbuster's main audience by offering an extensive selection of high-quality
and cost-effective content (Christensen, Raynor and McDonald, 2015).
Hence, an increasing number of users started embracing and appreciating
the new functionalities, leading the incumbent, unable to react promptly,
towards a continuous decline into bankruptcy, declared in 2012 (Cloud
Technology Partner, 2017).
In other words, as Rodriguez (2017) suggests, the reason why new entrants
tend to succeed quickly, is related to the fact that their biggest rivals ignore
them, since initially they do not compete for the same customers; however,
once they begin to attract more sophisticated users, the incumbents are often
not responsive.
An examination of the above characteristics, considered essential by
practitioners and academics, helped the presented study to conclude that
Netflix can be defined as disruptive, since its path and peculiarities support its
identification in each of them.
Over the past year, the use of video streaming platforms in Europe has grown
at an unprecedented rate, partly due to the Covid-19 crisis, which, due to the
continuous lockdowns, led citizens to seek new leisure options. Several
studies have shown that during this period, British users tended to watch an
average of two to six hours of video content per day (Media, 2020) and Netflix
registered a 16 million new subscriber growth in just the first three months of
the year (BBC, 2020).
The rapid expansion of video streaming platforms has had a major impact on
digital marketing and, in particular, on advertising, amplifying the opportunities
through the introduction of a new way of delivering content, which goes
beyond traditional TV (Shaw, 2020).
Thus, whereas previously audiences were forced to watch several
commercials, often out of their own interest, video streaming marked the
transition to a new concept of advertising, denoted as OTT, or 'over-the-top'
advertising (Cox, 2021).
Considering the numbers of users embracing streaming, more and more
marketers are now evaluating and adopting this opportunity. In particular,
Rowan (2020) identified three advantages that are increasingly driving brands
to invest part of their budget in OTT ads:
1. Personalised advertising OTT gives brands the ability to target their
audience more appropriately than traditional TV, by relying on users'
online browsing information and purchase history.
2. Multi-channel retargeting OTT advertising enables to retarget
customers through various channels, including website and apps, to
supplement the overall cross channel communication cycle.
3. Campaign tracking contrary to traditional TV commercials, OTT
enables brands to track the success of the advertising campaign.
The expression “disruptive innovation” was originally presented by
Christensen in the 1990s and indicated as a process which transforms a
complicated and expensive product, accessible to only few people, in a more
affordable and available one (Christensen, 2012).
Over the years, various authors have tried to contribute to the definition of this
concept, adding their own ideas, opinions, and criticisms, to create a common
and explanatory description of the term (Christensen, Raynor and McDonald,
2015). However, despite its importance, relatively little academic studies have
been conducted on its characteristic (Govindarajan and Kopalle, 2006).
In the presented paper, Netflix has been used as a video streaming platform
example to assess whether it could correspond to DI theory and be defined
as such. Hence, after having applied the five fundamental characteristics
introduced by Bower and Christensen (1995), it can be defined that the
chosen technology fits in every part of the definition of disruptive innovation.
However, although some platforms such as Netflix do not allow commercials
so as not to annoy the audience, video streaming is still changing the
landscape of digital marketing advertising, with the introduction of OTT ads
(Shaw, 2020).
This is a new method of advertising that offers different benefits, and in which
viewers are not oppressed by multiple commercials while watching a movie,
as is the case on TV, but with this new concept, advertisements are targeted
at a specific audience, identified through the analysis of data about their
online browsing behaviour (Rowan, 2020).
However, this trend seems to be continuing in the future, leading marketers to
approach this type of advertising (Hudgens, 2021) since, as illustrated by
Pwc’s research (2019), in the next years an increasing number of people will
adopt video streaming and, particularly the young generation, will tend to
distance themselves from the traditional television.
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Purpose: The outbreak of the Coronavirus (COVID-19) pandemic and its preventative social distancing measures have led to a dramatic increase in subscriptions to paid streaming services. Online users are increasingly accessing live broadcasts as well as recorded video content and digital music services through Internet and mobile devices. In this context, this study explores the individuals’ uses and gratifications from online streaming technologies during COVID-19. Design/Methodology/Approach: This research has adapted key measures from the ‘Technology Acceptance Model’ (TAM) and from the ‘Uses and Gratifications Theory’ (UGT) to better understand the individuals’ intentions to use online streaming technologies. A structural equations partial least squares’ (SEM-PLS 3) confirmatory composite approach was used to analyze the gathered data. Findings: The individuals’ perceived usefulness and ease of use of online streaming services were significant antecedents of their intentions to use the mentioned technologies. Moreover, this study suggests that the research participants sought emotional gratifications from online streaming technologies, as they allowed them to distract themselves into a better mood, and to relax in their leisure time. Evidently, they were using them to satisfy their needs for information and entertainment. Research implications: This study contributes to the academic literature by generating new knowledge about the individuals´ perceptions, motivations, and intentions to use online streaming technologies to watch recorded movies, series, and live broadcasts. Practical implications: The findings imply that there is scope for the providers of online streaming services to improve their customer-centric marketing by refining the quality and content of their recorded programs, and through regular interactions with subscribers and personalized recommender systems. Originality/Value: This study integrates the TAM and UGT frameworks to better understand the effects of the users’ perceptions, ritualized and instrumental motivations on their intentions to continue watching movies, series and broadcasts through online streaming technologies, during COVID-19.
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Most studies on disruptive innovations adopt technology-centric assumptions when explaining how industries are affected by a technology’s creative destruction. This paper argues that the power of a technology lies in how it performatively associates with the cultural and social norms of the wider society. Hence, a technology is not disruptive or sustaining in itself but is potentially a productive outcome of network linkages with other social and material elements. To illustrate this claim, two digital music services will be analyzed, respectively a misfit and a maverick both challenging mainstream providers of music – The Pirate Bay and Spotify – in relation to each other and how they are positioned toward the transformation of the music industry as a whole.
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A large body of existing research has consistently demonstrated that the use of social networking sites (SNS) by citizens in elections is positively related to different forms of both offline and online participation. The opposite argument, however, is often advanced with regard to increased viewing broadcast or cable television, particularly entertainment programming. This study proceeds from this broad vantage point by examining survey-based indicators of active SNS use and conventional television viewing in the 2016 presidential primaries, as well as the frequency of streaming television viewing during the early stages of this campaign. Data for this study was drawn from a representative nationwide online panel, and findings observed here suggest that more personalized communication through the ongoing morphology of social networking sites and streaming both political and apolitical television content are significant factors in positively shaping both online and offline participation. Comparisons with other media including conventional television viewing are introduced, and theoretical implications from a media system dependency framework are discussed.
This study sought to better understand what factors best predict consumers’ intention to cut the cord on cable television and adopt video streaming as their primary source of television. Utilizing media substitution theory as the conceptual framework, this study conducted a nationwide survey (N = 200). Findings show that perceived advantages of streaming applications over traditional television best predicted intentions to cut the cord on cable and adopt Web streaming; these perceptions mediated the relation between user frustrations with using older television technology and intentions to cut the cord. Entertainment needs were not significant predictors of cord-cutting intentions.
Netflix is a company that reinterpreted business ideas and processes from other industries and brought these to a field where it perceived an upcoming market demand. At the end of the 1990s, with more and more people owning a PC and beginning to feel comfortable online, the Netflix founders, Reed Hastings and Marc Randolph, saw an opportunity for improving the pattern of watching movies at home. They understood that customers did not necessarily like to drive back and forth to a video store in order to rent movies, and used this insight as a new business prospect. Netflix’s main disruption came from introducing DVD technology to the market, and establishing the DVD-by-mail business. The company started a technological transition, which soon became unescapable for competitors such as the movie rental chain Blockbuster. Since its launch, Netflix redefined its value proposition twice: first, it switched to a subscription model in 1999, providing customers unlimited DVD rentals for a monthly fee, without due dates or additional late fees. Hereby, Netflix introduced a form of flat rate for DVD rentals. Second, in 2007, Netflix did what it considered the next logical move, by launching its online movie streaming service, which is the main pillar of its business model today.