How Netflix and Spotify compete for a share of your daily habits
Original Publish Date: Aug 27, 2020
Think about your daily routine right from the moment you wake up till you call it a night. There are so many choices you make over the course of a single day. Some of these fine-tuned choices turn into habits.
Now realize that there are companies eager to monetize your habits. They want to encode themselves into your DNA to stay relevant and continue to grow. I like to offer Netflix and Spotify as examples.
Both companies share a similar mindset about their users. They pride themselves on thinking more holistically about their value to users, slightly differently about competitors, and much more creatively about future growth prospects.
Understanding this mindset can help you uncover the hidden value and growth potential of your own business. We can best understand this mindset by studying Netflix and Spotify in their own words. See if you notice the common philosophy.
NETFLIX
“We compete for a share of members' time and spending for relaxation and stimulation, against linear networks, pay-per-view content, DVD watching, other internet networks, video gaming, web browsing, magazine reading, video piracy, and much more.” – Investor Relations Page
SPOTIFY
“For us, it will always be about capturing the share of time listeners spend elsewhere and prove out that their time is far better spent with us.” – Daniel Ek (CEO), Q1 2020 Earnings Call
“THE SHARE PHILOSOPHY”
The above excerpts show a willingness by Netflix and Spotify to break away from the traditional ‘product’ definitions of what they offer. Too often narrow product-based definitions don’t capture how the company fits into the activities of users and why their presence in the marketplace matters.
Netflix sees itself as fighting for a share of your viewing habits (‘eye share’ or ‘visual share’). Maybe even broadly to include your relaxation habits. Similarly, Spotify is in the chase for a share of your listening habits (‘ear share’ or ‘audio share’).
Avoiding a product-based definition of what your company does makes an enormous difference – especially in the consumer space. Netflix and Spotify can make smarter choices on innovation, growth, operations, user experience by looking through the lens of the ‘share philosophy’. Unlike many other companies, they don’t have to sit down and hope to figure out the next steps or wait on a breakthrough idea.
The ‘share philosophy’ offers a roadmap on how each company plans to carve the future to fit its worldview. Netflix and Spotify can use this philosophy to speculate on how the competition will react to their choices and run through scenarios on how to react best. They can evolve their offerings to suit the “use cases” in the life of an average person. Make their products fit seamlessly into the daily routine of new and existing users.
HOW DOES NETFLIX BRING “THE SHARE PHILOSOPHY” TO LIFE?
Understand non-traditional competitors
Netflix keeps tabs on indirect competitors that also vie for a share of an average user’s relaxation time. Epic Games in fact received a shout out in an earnings report (Q4 2018) from Netflix – “we compete with (and lose to) Fortnite more than HBO”.
Preempt competitor actions
It didn’t surprise anyone to see ‘House of Cards’ become a colossal hit on Netflix as its first original offering. Obviously, the company was sitting on top of a wealth of data on user preferences that it put to good use. Original programming was still a calculated long-term move. Netflix had enough reason to believe that big media companies might stop licensing its catalog and enter the streaming space.
Netflix studied user habits and built a large following. Right now, original programming consumes a lot of money, but analysts expect original content to save the company a lot of money on overhead and ownership rights in the long run.
Remove decision fatigue
Netflix has a “short window” to get the average user to commit to watch something. This also adds to their push for fresh content. Netflix “spends over 70% of its revenue on content”.
As a Netflix user, I pay a lot of attention to the content homepage. The teams at Netflix put a lot of effort to improve the user interface, offer new curated lists, continue to provide better recommendations through continual improvements to its algorithm, and much more. All these efforts aim at reducing delays in decision making during relaxation time. Plus, it helps to prevent ‘Netflix decision fatigue’ from turning into a cultural phenomenon.
Explore related growth areas
In the past, Netflix said ‘NO’ to streaming live sports on its platform. The buzz created by Amazon Prime Video (for example) through streaming of Thursday NFL games might be too hard to ignore. The quest to gain a share of relaxation time might also force Netflix to consider expanding into video games (another area it has avoided in the past) while exploring novel ways (like VR) to let users engage with their content. Yet, as the co-CEO Reed Hastings likes to remind everyone, Netflix will only enter areas where “streaming adds value to the overall experience”
HOW DOES SPOTIFY BRING “THE SHARE PHILOSOPHY” TO LIFE?
“Spotify is now going after all of audio and that’s obviously a significantly larger market than just the music industry.”/ “We want to be the de facto audio platform of the world.” – Daniel Ek (CEO), Q2 2020 Earnings Call
Add original audio content
Spotify understands there’s no difference compared to Apple Music on the song catalog. Adding podcasts and producing original content is one way to differentiate and dominate the audio space. For example, Spotify is partnering with “DC and Warner Bros to exclusively produce and distribute a new slate of narrative scripted podcasts”. The company will probably bring content from other creators like “audiobook narrators, news reporters, cultural critics, spoken-word poets, voiceover actors” into their platform.
Solve the ‘discovery’ hurdle
Spotify may also very well be on the way to turn itself into the “Google for audio search”. One feature that blows me away on Spotify: smart playlists like Discover Weekly that make recommendations based on past song streams. The company can extend this discovery functionality to podcasts as it becomes a curator for content from highly sought-after names while also offering a venue for newer podcasts to find their footing.
Stay open to the ‘publishing’ option
While Spotify is busy signing licensing deals with popular podcasters; it’s also using acquisitions like Anchor to make podcast creation easy for everyone. This will open a flood of new content, while also making it hard for Spotify to fight off speculations on turning into a record label pretty soon. This is a balancing act for Daniel Ek, especially if he doesn’t want to further alienate the folks in the music industry.
Find audio integrations
Spotify continues to improve user engagement by looking for audio integrations into activities of an average user over any given day. This sometimes takes the form of “new playlists for commute” to aid with in-car listening. Spotify also partnered with Alphabet to “offer premium subscribers a free Google Home smart speaker” to promote in-home listening.
“THE SHARE PHILOSOPHY” – ANOTHER WAY TO UNCOVER HURDLES FACING YOUR BUSINESS
Interestingly, Netflix and Spotify face the same hurdles of relying on a few third-party entities for content and channels to push their product to potential users.
With Netflix, quality, and breadth of options for Internet Service Providers (ISPs) can affect the end user’s experience. No surprise they promote “strong network neutrality”. Even though it’s consistently growing its selection of original programming; Netflix still relies on major studios (for example) for content. These studios have their own streaming services these days.
As for Spotify, there are constant rumors about the company exploring hardware options like speakers, wearable devices, etc. Major competitors like Amazon, Apple have huge ecosystems of connected products and services (ex: voice assistants) that can drive traffic away from Spotify. Sometime last year, the company was also blaming Apple for using its app store to unfairly drive users to Apple Music.
A FORMULA FOR YOUR NEXT BUSINESS VENTURE?
“The Share Philosophy” shown here through the eyes of Netflix and Spotify combines the best elements from popular theories and tools over the past few years like ‘jobs to be done’, competitive arenas, customer journeys, empathy mapping, to highlight a few.
The benefit of this philosophy lies in letting go of product-based business definitions and moving the focus to user behavior. Understanding how you supplement or affect the regular sequence of user habits will help you uncover the primal motivations on why someone chooses your product over all available options.
On a lighter note, it won’t be a bad idea to list an average person’s daily routine one by one. Feels like the next big business idea will come from outsourcing or monetizing one or more of these habits.