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This is a tangential pricing-related question: Why does Netflix, which is solving some hard and interesting problems both on the technical (delivery/algorithms

This is a tangential pricing-related question: Why does Netflix, which is solving some hard and interesting problems both on the technical (delivery/algorithms) as well as business side (licenses etc) only charge $9-$15 a month whereas online services like dating sites and project collaboration SaaS tools that are arguably much easier to build get away with charging anywhere from $30 to $60 a month? If pricing is about supply and demand, shouldn't Netflix be able to charge a lot more (at least double of what they do now) since there aren't any comparable services with the level of user satisfaction as Netflix. I would gladly pay $30 a month for Netflix just because of how great the service is - I mean unlimited instant watching, access to some amazing foreign films, DVDs. Dating sites and some other SaaS services - dime a dozen. When a Match.com asks me to pay $30 a month, I cringe. I'm perplexed by this.

minouye 16y ago
I don't think I would pay $30 a month for Netflix. From my perspective the demand for their services is fairly elastic, especially considering the substitutes. However, I do expect that prices will be recalibrated once video streaming makes up more substantial portion of their business. I'd imagine the economics of streaming vs. sending a DVD are quite different.
- deleted 16y ago
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danilocampos 16y ago
Perhaps it's a volume thing? I suspect that "I want to be entertained" is a bit more universal than "I want to find a mate" or "I want to manage my project." So maybe they're finding some kind of sweet spot there? The thing is, I use Watch Instantly sporadically. Sometimes hardcore, every night, for a week when I just need a break from everything, and other times not more than once or twice a month. $9 is such a fair amount of money to ask, I just let them bill away regardless, because I want to have it immediately if and when I want it. So it could also be that <$10 is just the right amount of auto-pilot billing to maximize their revenue for spotty users.
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cowboyhero 16y ago
Remember that Netflix came around in a consumer culture that was renting videos and DVDs from corner shops for maybe $2-4 a pop. Throughout their history, all of Netflix's pricing structures have been designed to stay within that range. It costs Netflix pennies to stream movies. ("Akamai charges a customer like Netflix about 5 cents for an HD movie, compared with about 3 cents for standard definition." See: http://www.businessweek.com/magazine/content/10_34/b4192038586570.htm http://www.businessweek.com/magazine/content/10_34/b41920385...) I expect their prices to rise, though. If they want to stream first run movies (a la cable), they're going to have to pony up serious dough for the licenses. That means higher costs to the end consumer.
- rjurney 16y ago
  Why would they want to do that? They're kicking ass on the long tail.
dabent 16y ago
I will take a shot at this. Netflix does have competition, from RedBox and pay-per-view on cable. People probably spend about $9-$15 on those competing services. When it comes to those SaaS and dating services: Never underestimate the value assigned to hooking up or getting paid. People will pay if it thinks it will help them make more money or meet someone. The question I have is how is Match.com still charging $30/month when Plenty of Fish is still pretty much free?
- duck 16y ago
  how is Match.com still charging $30/month when Plenty of Fish is still pretty much free? 100% branding and brand ranks probably at the top when it comes to things that people perceive as "serious" - like finding a mate.
sangaya 16y ago
I think it's a sweet spot. For $9 a month my wife and I don't need to discuss it. For $30 a month recurring, one we'll discuss it, and two, we'd better see a lot of value. The price is at a point where even if we're busy and don't watch more than 1 or 2 movies that month, we won't mind, because of the convenience of having them instantly available via streaming, and knowing that the price is low. It's low effort, high convenience.
chadgeidel 16y ago
Here's my take. A recent blog post at OkCupid (http://blog.okcupid.com/index.php/2010/07/07/the-biggest-lies-in-online-dating/ http://blog.okcupid.com/index.php/2010/07/07/the-biggest-lie...) indicated that most people use dating sites for 6 months. I would estimate Netflix users are multi-year users. Just using those numbers you need to charge more per user. Obviously this isn't a really deep analysis, but it's perhaps one reason.
- frossie 16y ago
  It's a pretty big reason. I've been a Netflix customer continuously since 1999. There isn't a single subscription service I have signed up online or offline (magazines etc) that comes close to that kind of longevity. And I pay them a hell of a lot more than 9.99, too, being that I have a fondness for HD/BluRay and a modest broadband connection.
smartrly 16y ago
Let's look at a couple factors: 1) Customer Acquisition Costs. I'd be surprised if NetFlix pays more than $20-30 per customer. Dating websites have a lot more competition and are probably closer to $50/customer. 2) Lifetime Value. Customers of dating websites are transient, there only for a matter of months. As such, their lifetime value is not particularly high (I'd guess something in the $150 neighborhood). Netflix customers have long lifetimes (I've been a customer since 2000, with no intention of quitting) which adds up to a LOT of value. 3) Customer Price Elasticity. Dating websites are catering to people who will spend many hundreds of dollars on dates in their pursuit of happiness. $30/mo is a drop in the bucket if it helps increase your odds of finding that somebody. Netflix charges between $10 and $30/mo, depending on your plan, which is comparable to the cost of a few premium channels on cable, which is a cost their customers are accustomed to paying. 4) Price as value. If Netflix is more expensive, it does nothing to help you, it just costs more. If Match.com is more expensive, then the people on the site are likely to treat it a bit more seriously, which can make it a better product for some.
trunnell 16y ago
Prices are always based on demand, not costs. So the difficulty of creating something is irrelevant to its price in the market. If there is a perfect substitute for a good, competition might drive the price down. In a perfect market, the price of a perfect commodity will equal its cost (in theory), but in practice there are no perfect commodities-- not even toilet paper.
lionhearted 16y ago
> When a Match.com asks me to pay $30 a month, I cringe. I'm perplexed by this. As other commentors said, it's partially volume. Second, it's partially strategy - Netflix could charge more, but have a smaller customer base. Even if the net profit for the short term was higher at a higher price point, they might think it's worth it to get market share, word of mouth, and future expansion. Third - for some services, customers see higher price as a desirable attribute. That could be the case in dating - people in certain demographics might prefer to know whoever else is using the site is serious enough to pay a decent chunk of coin, not just throwing a profile up for kicks. Lots of factors. Shortest answer is - strategy. Netflix might be able to make higher short term revenues and net profit, but they might prefer the lower-price driven expansion to get economies of scale, volume, market share, word of mouth, and loyalty. Match.com might be able to make higher short term revenues and profits by lowering price and attracting more users, but instead they prefer trying to brand and position themselves as a premium, curated, high-quality site for serious people. Strategy is complex, lots of layers you can look at it, especially when playing at that really high dollar level.
eavc 16y ago
Netflix can get a customer in perpetuity at $9-$15. Much higher than that, it becomes a budget item that's scrutinized once a month, twice a year, or when times get tough. I canceled cable with enthusiasm because it saved me $50 a month. I look at the value I get for $10 from Netflix, and it's clear that canceling it would be a mistake. If it was $20, I'd cancel it. Instead, they have me forever and ever.

minouye 16y ago

I don't think I would pay $30 a month for Netflix. From my perspective the demand for their services is fairly elastic, especially considering the substitutes. However, I do expect that prices will be recalibrated once video streaming makes up more substantial portion of their business. I'd imagine the economics of streaming vs. sending a DVD are quite different.

deleted 16y ago
[deleted]

danilocampos 16y ago

Perhaps it's a volume thing? I suspect that "I want to be entertained" is a bit more universal than "I want to find a mate" or "I want to manage my project." So maybe they're finding some kind of sweet spot there? The thing is, I use Watch Instantly sporadically. Sometimes hardcore, every night, for a week when I just need a break from everything, and other times not more than once or twice a month. $9 is such a fair amount of money to ask, I just let them bill away regardless, because I want to have it immediately if and when I want it. So it could also be that <$10 is just the right amount of auto-pilot billing to maximize their revenue for spotty users.

deleted 16y ago

[deleted]

cowboyhero 16y ago

Remember that Netflix came around in a consumer culture that was renting videos and DVDs from corner shops for maybe $2-4 a pop. Throughout their history, all of Netflix's pricing structures have been designed to stay within that range. It costs Netflix pennies to stream movies. ("Akamai charges a customer like Netflix about 5 cents for an HD movie, compared with about 3 cents for standard definition." See: http://www.businessweek.com/magazine/content/10_34/b4192038586570.htm http://www.businessweek.com/magazine/content/10_34/b41920385...) I expect their prices to rise, though. If they want to stream first run movies (a la cable), they're going to have to pony up serious dough for the licenses. That means higher costs to the end consumer.

rjurney 16y ago
Why would they want to do that? They're kicking ass on the long tail.

dabent 16y ago

I will take a shot at this. Netflix does have competition, from RedBox and pay-per-view on cable. People probably spend about $9-$15 on those competing services. When it comes to those SaaS and dating services: Never underestimate the value assigned to hooking up or getting paid. People will pay if it thinks it will help them make more money or meet someone. The question I have is how is Match.com still charging $30/month when Plenty of Fish is still pretty much free?

duck 16y ago
how is Match.com still charging $30/month when Plenty of Fish is still pretty much free? 100% branding and brand ranks probably at the top when it comes to things that people perceive as "serious" - like finding a mate.

sangaya 16y ago

I think it's a sweet spot. For $9 a month my wife and I don't need to discuss it. For $30 a month recurring, one we'll discuss it, and two, we'd better see a lot of value. The price is at a point where even if we're busy and don't watch more than 1 or 2 movies that month, we won't mind, because of the convenience of having them instantly available via streaming, and knowing that the price is low. It's low effort, high convenience.

chadgeidel 16y ago

Here's my take. A recent blog post at OkCupid (http://blog.okcupid.com/index.php/2010/07/07/the-biggest-lies-in-online-dating/ http://blog.okcupid.com/index.php/2010/07/07/the-biggest-lie...) indicated that most people use dating sites for 6 months. I would estimate Netflix users are multi-year users. Just using those numbers you need to charge more per user. Obviously this isn't a really deep analysis, but it's perhaps one reason.

frossie 16y ago
It's a pretty big reason. I've been a Netflix customer continuously since 1999. There isn't a single subscription service I have signed up online or offline (magazines etc) that comes close to that kind of longevity. And I pay them a hell of a lot more than 9.99, too, being that I have a fondness for HD/BluRay and a modest broadband connection.

smartrly 16y ago

Let's look at a couple factors: 1) Customer Acquisition Costs. I'd be surprised if NetFlix pays more than $20-30 per customer. Dating websites have a lot more competition and are probably closer to $50/customer. 2) Lifetime Value. Customers of dating websites are transient, there only for a matter of months. As such, their lifetime value is not particularly high (I'd guess something in the $150 neighborhood). Netflix customers have long lifetimes (I've been a customer since 2000, with no intention of quitting) which adds up to a LOT of value. 3) Customer Price Elasticity. Dating websites are catering to people who will spend many hundreds of dollars on dates in their pursuit of happiness. $30/mo is a drop in the bucket if it helps increase your odds of finding that somebody. Netflix charges between $10 and $30/mo, depending on your plan, which is comparable to the cost of a few premium channels on cable, which is a cost their customers are accustomed to paying. 4) Price as value. If Netflix is more expensive, it does nothing to help you, it just costs more. If Match.com is more expensive, then the people on the site are likely to treat it a bit more seriously, which can make it a better product for some.

trunnell 16y ago

Prices are always based on demand, not costs. So the difficulty of creating something is irrelevant to its price in the market. If there is a perfect substitute for a good, competition might drive the price down. In a perfect market, the price of a perfect commodity will equal its cost (in theory), but in practice there are no perfect commodities-- not even toilet paper.

lionhearted 16y ago

> When a Match.com asks me to pay $30 a month, I cringe. I'm perplexed by this. As other commentors said, it's partially volume. Second, it's partially strategy - Netflix could charge more, but have a smaller customer base. Even if the net profit for the short term was higher at a higher price point, they might think it's worth it to get market share, word of mouth, and future expansion. Third - for some services, customers see higher price as a desirable attribute. That could be the case in dating - people in certain demographics might prefer to know whoever else is using the site is serious enough to pay a decent chunk of coin, not just throwing a profile up for kicks. Lots of factors. Shortest answer is - strategy. Netflix might be able to make higher short term revenues and net profit, but they might prefer the lower-price driven expansion to get economies of scale, volume, market share, word of mouth, and loyalty. Match.com might be able to make higher short term revenues and profits by lowering price and attracting more users, but instead they prefer trying to brand and position themselves as a premium, curated, high-quality site for serious people. Strategy is complex, lots of layers you can look at it, especially when playing at that really high dollar level.

eavc 16y ago

Netflix can get a customer in perpetuity at $9-$15. Much higher than that, it becomes a budget item that's scrutinized once a month, twice a year, or when times get tough. I canceled cable with enthusiasm because it saved me $50 a month. I look at the value I get for $10 from Netflix, and it's clear that canceling it would be a mistake. If it was $20, I'd cancel it. Instead, they have me forever and ever.