The best long term strategy for Netflix

The case discusses 3 options for Netflix:

1. Partner with an existing VOD player by contributing their proprietary rating technology thereby avoiding the technology challenge of linking the computer and tv.
2. Integrate a streaming online video feature into their core product which would leverage many of their core strengths.
3. Create a stand alone online video offering.

I think the first option sacrifices too much of the company's talents and assets.  The proprietary rating system is an extremely valuable aspect of their business and divesting ownership rights so early in this industry's life cycle seems like a case of itchy trigger finger syndrome.  I think Netflix should keep the rating system, a key market differentiator, in house.

Another key differentiator for Netflix is their distribution efficiency.  This capability not only supplies a strategic advantage, it acts as a significant barrier to entry into the market.  To even think about joining the market, a firm would have to compete with 1 day delivery turnaround...a talent Netflix took 10 years to perfect.  For this reason I do not believe Netflix should go with option 3.  That option potentially allows this great strategic advantage to whither away sooner than the market would demand .

However, I do believe that over the very long term (15-20 years) online or media-less content distribution will be the norm.  Access to high definition content over the internet and through VOD services is already growing and I expect distribution to become easier and more cost effective over time.  This eventuality will begin to dwindle and possibly eliminate Netflix's DVD/Blu-ray rental service profits.  For this reason, Netflix should consider media-less distribution as a long term foundation for the company.  In the intermediate time frame, Neftlix can utilize option 2 which keeps their DVD/Blu-ray rental business thriving and growing as the market exists.  At the same time it sets up an online streaming option for consumers and lays the foundation for their long term goals.