Storing video and other files more intelligently reduces the demand on servers in a data center.
By David Talbot
Why: Inexpensive video on demand, delivered over the Internet, undercuts cable and points the way to a likely future for TV.
Key innovation: Built demand for a streaming video service by including it free with DVD-by-mail subscriptions.
Netflix has successfully capitalized on the increasing speeds of consumer broadband to begin streaming movies over the Internet to subscribers' homes rather than delivering them in the mail. The company is also working on perfecting the algorithms that suggest movies to subscribers based on which movies they watch and how they rate them. A successful competition in 2009 challenged researchers around the world to figure out ways to improve the algorithms, with the winning team receiving $1 million from the company.
Netflix added 7.7 million new subscriptions in 2010, most of which were for its newly introduced streaming plan, which includes no DVD delivery. The service as a whole now has over 20 million total subscribers.
Netflix is constantly adding to the number of devices through which subscribers can stream content. In addition to stand-alone boxes like Roku, which stream content from Netflix and other websites to users' TVs, the service also works through gaming devices like the Nintendo Wii, Internet TV systems like Google TV and Apple TV, and even on the iPhone and iPad (the company will launch an app for Android devices this year).
Challenges and Next Steps:
Netflix has to constantly manage its relationships with the broadcast networks and movie studios who supply it with content and who may feel threatened by the company's new streaming model. Amazon.com, which already offers a video-on-demand rental service, appears poised to introduce a streaming service similar to Netflix's.