Netflix vs. McDonalds vs. iTunes


McDonalds likes to boast about its billions of burgers served. According to a BusinessWeek article it took slightly more than 8 years for the franchise to hit the first billion mark. But Netflix reached the same milestone in seven months less, which is the main point of the article. At its current pace of 1.5M DVDs in the mail every week, the projected time for next billion is another two-and-half years. Even more telling is the growth rate which promises to cut down that time drastically: Netflix added over 2 million customers last year to reach 6M+ total subscribers and expects to reach 20M by 2012.

While entertaining, this comparison between making burgers and mailing out DVDs falls flat for many reasons. First is relative population: McDonalds started in 1955, when US population stood at less than 200M. Today in the wake of crossing 300M, Netflix has a much larger customer base to draw on. In relative terms, McDonalds expansion in its earlier years was faster. On the other hand a single Netflix DVD could mean multiple views, since the average family of 4+ individuals will all watch the same single disc. Burgers are not exactly intended for sharing. Netflix also does not face the same geographical challenges. While the company operates warehouses around the country for receiving and shipping DVDs, its reach within the continental US is a function of the postal service. No physical presence is required. By contrast proximity to customers is crucial in retail and the Golden Arches depends on a relentlessly following suburban sprawl to build new franchises.

A better comparison may be iTunes, which recently crossed the 2B threshold. A creature of the technology industry, free from any geographic limitation or even the problem of transporting stuff around by mail, its meteoric rise has been hailed as a sign that traditional music distribution is obselete. (A cautionary second opinion points out that online sales are still a tiny fraction of all music purchases and news of the RIAA dinosaur extinction may have been slightly exaggerated.)  It shows similar exponential growth pattern: hitting half billion on July 2005, one billion in February 2006 and two billion recently in January 2007.

cemp

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s