Question 1

Even if Netflix gave Cinematch away to its rivals, they would still not be able to make the same kind of accurate recommendations as Netflix. This is because of Netflix's _____.

Accepted Answer

Netflix's ability to make accurate recommendations comes from its vast collection of data on user preferences and viewing habits, which rivals would not have access to even if they had the Cinematch algorithm.

Question 2

The long tail is a phenomenon whereby firms can make money by:

Accepted Answer

The long tail phenomenon refers to the strategy of offering a wide variety of niche products or services, which, when taken together, can make up a significant market share that rivals or exceeds the bestsellers and blockbusters, despite the low sales volume for each. This is in contrast to traditional retail models that focus on selling large volumes of a small number of popular items.

Question 3

User ratings act as _____ for Netflix's customers.

Accepted Answer

User ratings increase the value of the Netflix service for an individual as they tailor recommendations more accurately, making it harder for a customer to switch to a competitor without losing this personalized experience. This acts as a switching cost.

Question 4

Churn rate is a term that refers to the:

Accepted Answer

Churn rate refers to the rate at which customers stop doing business with an entity, indicating the percentage of service subscribers who discontinue their subscriptions within a given time period.

Question 5

While the size of the tail in the long tail phenomenon is disputable, one fact that is critical to remain above this debate is that:

Accepted Answer

The long tail phenomenon is based on the idea that businesses can make significant profits by selling a large number of unique items in relatively small quantities, facilitated by the Internet. This is because the Internet allows for large-selection inventory efficiencies that offline firms can't match, due to lower costs associated with digital storage and distribution compared to physical inventory and shelf space.

Question 6

While it may be possible for rivals to match technology, the true exploitable resource created and leveraged through collaborative filtering technology is the data asset.

Accepted Answer

Collaborative filtering technology relies heavily on user data to make recommendations. The more data a company has, the better its recommendations can be. While rivals can develop similar technologies, the unique and extensive data asset that a company accumulates through its use is difficult to replicate, making it a true exploitable resource.

Question 7

Brands are built through _____.

Accepted Answer

Brands are built through customer experience because it is the sum of all interactions a customer has with a brand, and it is these interactions that shape the customer's perception of the brand.

Question 8

Netflix offered its subscribers a selection of over one hundred thousand DVD-by-mail titles, while other video rental firms can only offer as much as three thousand. This presents a significant _____ for Netflix over its rivals.

Accepted Answer

The correct answer is E) scale advantage. This is because having a significantly larger selection of DVD titles (over one hundred thousand compared to three thousand) indicates that Netflix can leverage its size and the breadth of its offerings to gain an advantage over its competitors. This is a classic example of a scale advantage, where a company's larger size or scope of operations allows it to outperform competitors.

Question 9

How does the Cinematch recommendation system work?

Accepted Answer

Cinematch, the recommendation system used by Netflix, functions by mapping user ratings and suggesting titles that are preferred by users with similar tastes. This approach allows for personalized recommendations based on individual viewing habits and preferences.

Question 10

Collaborative filtering is a technology that allows customers to meet and select titles for viewing parties.

Accepted Answer

Collaborative filtering is a recommendation system technology used to predict the preferences of a user by collecting preference information from many users. It does not involve meeting for viewing parties.

Question 11

Within the DVD-by-mail segment, Netflix remained bigger than both Wal-Mart and Blockbuster.

Accepted Answer

Netflix successfully outpaced both Wal-Mart and Blockbuster in the DVD-by-mail rental service, eventually leading Wal-Mart to exit the business and refer its customers to Netflix.

Question 12

By going public, Netflix encountered competition from the large, established firms Wal-Mart and Blockbuster. What aspect of Netflix going public lured these firms into the market?

Accepted Answer

Netflix going public required it to disclose its financial position, which provided competitors with insights into its business model and profitability, potentially attracting them to enter the market.

Question 13

Internet retailers serve a larger geographic area with comparably smaller infrastructure and staff. This fact suggests that Internet businesses are more _____.

Accepted Answer

Internet businesses can more easily adjust to changes in demand without significant changes to their physical infrastructure or staffing levels, making them more scalable.

Question 14

Netflix has used the long tail in the DVD-by-mail business to its advantage, crafting a business model that creates close ties with film studios. What do film studios stand to gain from taking advantage of the Netflix model targeted at increasing the firm's long-tail offerings?

Accepted Answer

Film studios gain a cut of the subscription revenue from every disk sent out by Netflix, which incentivizes them to provide a wide range of titles, including less-popular ones, thus benefiting from the long-tail model.

Question 15

Collaborative filtering is a classification of software that:

Accepted Answer

Collaborative filtering is a technique used to monitor trends and patterns among users to provide personalized recommendations, enhancing the individual customer's experience.

Question 16

One challenge that Netflix faced was that Blockbuster and Walmart were able to quickly extend their strong brands to also become synonymous with a DVD-by-mail subscription service.

Accepted Answer

Netflix faced challenges from Blockbuster and Walmart, but these companies struggled to become as synonymous with DVD-by-mail subscription services as Netflix, which pioneered and dominated this market.

Question 17

In exchange for a percentage of the DVD-by-mail subscription revenue for every disk sent out by Netflix, movie studios offer Netflix:

Accepted Answer

C) Movie studios offer Netflix DVD titles at a discounted or wholesale price in exchange for a percentage of the DVD-by-mail subscription revenue for every disk sent out by Netflix. This arrangement allows Netflix to acquire a vast library of DVD titles at lower costs, benefiting both Netflix and the studios by increasing the distribution of the studios' films.

Question 18

The yearly cost to run a Netflix-comparable nationwide delivery infrastructure is about $300 million.

Accepted Answer

The given statement explicitly states that the yearly cost to run a Netflix-comparable nationwide delivery infrastructure is about $300 million.

Question 19

For traditional retailers selling physical goods, _____ is the biggest constraint limiting a firm's ability to offer customers what they want and when they want it.

Accepted Answer

Shelf space is the biggest constraint for traditional retailers because it limits the amount of inventory they can display and store, directly affecting their ability to offer a wide variety of products to customers at any given time.

Question 20

Which of the following represents an advantage enjoyed by the Netflix DVD-by-mail business over traditional video stores?

Accepted Answer

Netflix's DVD-by-mail service offered a significantly larger selection of movies and TV shows compared to traditional video stores, which were limited by their physical space.

Quiz 4: Netflix in Two Acts: the Making of an E-Commerce Giant and the Uncertain Future of Atoms to Bits