Case Study: Netflix’s 67% Decline

+ Your Roadmap is not a Product Strategy

From 2011 to 2021, Netflix did not report a single quarter of decreasing subscribers. This year, it’s reported two. In the process, it’s declined from $300B in market cap to $100B. For students of product growth, it’s an amazing case to study.

5 lessons from Netflix’s 67% decline:

1. Competition changes your market

In the first phase of the streaming wars, Netflix was dismantling the dominance of cable TV. It could pay the major content houses (like HBO & Disney) for the rights to their shows & movies. That has changed with the entry of these players.

In the new second phase of the streaming wars, each player is keeping their content exclusive. You don’t see Stranger Things on HBO Max, Obiwan on Netflix, or Game of Thrones on Disney+. This has changed the nature of the market Netflix plays in.

2. Content CAN trump product

In this new market, Netflix’s higher quality streaming product only matters on the periphery. Sure, its search, smart downloads, & home page algorithm are best in class. But the main turf for competition has shifted to content.

This is a major takeaway for product leaders. Unlimited optimization of every surface isn’t always how to move the needle.

3. Entertainment is hits-driven

There is a big difference between products that solve problems and products that entertain. For products that entertain, hits matter.

Netflix’s outdated approach of Metacritic rated 40-70 niche shows isn’t going to work anymore. Disney recently surpassed Netflix in subscribers due to its Star Wars, Marvel, and Pixar blockbuster HITS.

4. Big tech is always a threat

Big tech has come in with its own hits. Arguably some of the best new shows are from big tech: Apple with Ted Lasso, and Amazon with The Boys. Big tech is also a threat in markets Netflix WANTS to enter, like gaming & advertising.

Big tech just completed a beat-down in ads. Apple’s privacy changes took the air out of stocks like Meta & Snapchat. Amazon, meanwhile, grew a $40B ads business in just a few years. Always build a moat against big tech.

5. The tyranny of spend

When a paid acquisition channel, like content budget, starts working, it can become tyrannical. The temptation becomes: let’s just keep doing more of this. But this has led Netflix’s economics to more closely resemble media than tech.

This has led to multiple compression. DTC companies have fallen similarly. Their tyranny was performance marketing. SaaS companies too. Those with expensive outbound sales motions have fallen. To maintain tech multiples, companies must generate operating leverage as they grow.

This usually means: create a differentiated product. What if Netflix had positioned its product as a $60 cable bundle and compensated the competition more to stave off their entries?Maybe it wouldn’t have worked. But maybe it could have.

Maybe it still can.

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Your roadmap is not a product strategy

Of tasks a PM should do, strategy tends to be the most confused. Too often, some window dressing on a roadmap is called strategy.

Strategy needs to be a level higher than roadmaps:

1. It connects vision & roadmap

2. It considers competition

3. It helps prioritize

1. It connects vision & roadmap

A simple heuristic to remember is the 5 questions.

Product strategy helps answer the question, “what are we going to build to achieve the vision?”

Unlike vision, which is timeless, strategy should be specific to the state of now. It should describe key focusing points to inform the roadmap.

2. It considers competition

Consider the word, “strategy.” It comes from general business strategy.

The reason strategy was a revolutionary concept was accounting for competitors. Great product characterizes competition & counter-positions.

Consider the word, “product.” It is about building something for someone.

So product strategy is the plan for how the product will drive its part of the company strategy. Great product strategy helps justify why a product team even exists.

3. It should help prioritize

Strategy is created on the 1-2 year timeframe. Roadmap can be as fine grained as next month or quarter.

A roadmap prioritizes the sequence of features you will work on. Its critical input is the strategy.

Take these examples of different strategies in a similar market - Discord, Slack, & Teams:

• Discord: bringing together communities of gamers & crypto enthusiasts

• Slack: tasteful chat for the technically inclined

• Teams: integrated chat for O365 users

This informs the roadmap for these teams.

For instance, a particular quarter might look like -

• Discord: gamer integrations

• Slack: third party bots

• Teams: ability to live edit word docs

Strategy helps products in the same market pursue different features.

So what does a strategy look like?

The format itself is different. What I’ve seen done best is:

Roadmaps : spreadsheets

Strategies : docs

Great strategy docs encapsulate the principle of “Smart Brevity.” It’s not a long novel. It’s a short, well-written doc.

Summary: A dressed up roadmap is not product strategy.

Product strategy:

• connects vision & the roadmap

• characterizes competition

• & helps prioritize

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Bonus: Product Lessons from Paul Graham

What do Reddit, Airbnb, and Stripe have in common? Early mentorship from Paul Graham.

Of all the tech sages out there, Paul Graham might be the best. His advice goes against the grain.

9 counter-intuitive product lessons from the man, the myth, the legend:

1. Design differently

Quote: “Big companies want to decrease the standard deviation of design outcomes because they want to avoid disasters. But when you damp oscillations, you lose the high points as well as the low.”

> Build different designs big tech wouldn’t dare to.

2. Gratify exacting taste

Quote: “The recipe for great work is: very exacting taste, plus the ability to gratify it.”

> Develop and enforce exquisite product taste.

3. Avoid any “burnt dishes”

Quote: “A restaurant can afford the occasional burnt dinner. But in tech, you cook one thing. So any difference between what people want and what you deliver is multiplied.“

> Deliver well-baked experiences in every nook & cranny of the product.

4. Take extraordinary measures to make users happy

Quote: “Take extraordinary measures not just to acquire users, but also to make them happy”

> Too many people stop at acquisition. Deliver delight, with extraordinary measures as needed.

5. Learn from the most & least sophisticated users

Quote: “Different customers are right about different things; the least sophisticated show you what you need to simplify and clarify, and the most sophisticated tell you what features you need to add.”

> Simplify AND add depth.

6. Build hard things

Quote: “If you can develop technology that’s too hard for competitors to duplicate, you don’t need to rely on other defenses. Start by picking a hard problem, then at every decision point, take the harder choice.”

> Don’t just build low effort items.

7. Over easy things

Quote: “If there were two features we could add, both equally valuable in proportion to their difficulty, we’d always take the harder one. We delighted in forcing bigger, slower competitors to follow us.”

> Build harder things when proportionally impactful.

8. Build hidden tech advantages

Quote: “In business, there is nothing more valuable than a technical advantage your competitors don’t understand. In business, as in war, surprise is worth as much as force.”

> Unseen tech differentiators (eg, performance) can be huge advantages.

9. To do so, empower the best devs

Quote: “The top 5% of programmers probably write 99% of the good software.”

> Listen to, enable, and treat like royalty your best devs.