Review the following case study about Netflix, then answer the questions that follow.

Question

Netflix is the world’s leading internet television network, with more than 200 million members in
more than 190 countries enjoying 125 million hours of TV shows and movies each day. Netflix
entertains the world, providing a wide variety of TV shows, movies, and documentaries to
hundreds of millions of members across the globe in over 30 languages. Users can stream Netflix
shows and movies from anywhere in the world, including on the web, on tablets, or on mobile
devices such as iPhones.
In its first incarnation, Netflix simply provided a better way to rent DVDs. Going head-to-head with
the then giant Blockbuster Video, a company that charged high late fees for DVD returns, Netflix
allowed its customers to rent DVDs by mail with no late fees! Although the Netflix model didn’t
offer the instant gratification of taking home a DVD from a local store, it was simpler to rent from
Netflix, and customers preferred the affordability Netflix offered. In this way, Netflix had seriously
disrupted Blockbuster’s business.
The subsequent introduction of Netflix’s subscription streaming service also seriously disrupted
major television networks such as ABC, CBS, and NBC. Until a few years ago, viewers could only
watch TV shows on their television sets. As a result, TV moguls ABC, CBS, and NBC were able to
charge high advertisement rates and high subscription rates. When Netflix came on the scene,
traditional TV broadcasting companies had to completely reshape how they delivered their
offerings. In doing so, their business operations were significantly disrupted. They no longer had
the bulk of the market, their advertisement revenues dropped substantially, and their costs have
increased to provide Webcasting services such as video-on-demand and Web delivery of content.
However, Netflix didn’t stop at disrupting other competitors—it went on to disrupt itself!
With the entry of more and more digital Webcast services such as HULU, ROKU, Sling TV, Amazon
Prime Video and Netflix were facing increasingly stiff competition. To survive and prosper, Netflix
separated its first-run movie rental offerings from its Web streaming services and runs two
business models simultaneously. In its latest incarnation, Netflix is focusing on edging out its
competition with original programming. At the 2018 Emmy Awards, Netflix had more Emmy
nominations than premium cable giant HBO and took home 23 prestigious awards! In creating a
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new market, Netflix has avoided being displaced by its competitors and is one of the rare
companies that has successfully disrupted itself.
Our journey to the cloud at Netflix began in August of 2008, when we experienced a major
database corruption and for three days could not ship DVDs to our members. That is when we
realised that we had to move away from vertically scaled single points of failure, like relational
databases in our datacentre, towards highly reliable, horizontally scalable, distributed systems in
the cloud. Circa late 2008, Netflix had a single data centre. This single data centre raised a few
concerns. As a single point of failure (a.k.a. SPOF), it represented a liability – data centre outages
meant interruptions to service and negative customer impact.
Additionally, with growth in both streaming adoption and subscription levels, Netflix would soon
outgrow this data centre -- we foresaw an imminent need for more power, better cooling, more
space, and more hardware. In the Netflix data centre, we primarily used Oracle to persist data. In
parts of the movie recommendation infrastructure, we used MySQL. Both are relational databases.
In our data centre, we do not currently use key-value stores for persistent storage. In order to
move data to SimpleDB and S3, we needed to build a data replication system to replicate changes
between our data centre and AWS, transforming the data model along the way.
We chose Amazon Web Services (AWS) as our cloud provider because it provided us with the
greatest scale and the broadest set of services and features. The majority of our systems, including
all customer-facing services, had been migrated to the cloud prior to 2015. Since then, we've been
taking the time necessary to figure out a secure and durable cloud path for our billing
infrastructure as well as all aspects of our customer and employee data management. We are
happy to report that in early January, 2016, after seven years of diligent effort, we have finally
completed our cloud migration and shut down the last remaining data centre bits used by our
streaming service!
Moving to the cloud has brought Netflix a number of benefits. We have eight times as many
streaming members than we did in 2008, and they are much more engaged, with overall viewing
growing by three orders of magnitude in eight years. The Netflix product itself has continued to
evolve rapidly, incorporating many new resource-hungry features and relying on ever-growing
volumes of data. Supporting such rapid growth would have been extremely difficult out of our own
data centres; we simply could not have racked the servers fast enough. Elasticity of the cloud
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allows us to add thousands of virtual servers and petabytes of storage within minutes, making such
an expansion possible. On January 6, 2016, Netflix expanded its service to over 130 new countries,
becoming a truly global Internet TV network. Leveraging multiple AWS cloud regions, spread all
over the world, enables us to dynamically shift around and expand our global infrastructure
capacity, creating a better and more enjoyable streaming experience for Netflix members
wherever they are.
We rely on the cloud for all of our scalable computing and storage needs — our business logic,
distributed databases and big data processing/analytics, recommendations, transcoding, and
hundreds of other functions that make up the Netflix application. Video is delivered through
Netflix Open Connect, our content delivery network that is distributed globally to efficiently deliver
our bits to members’ devices.
The cloud also allowed us to significantly increase our service availability. There were a number of
outages in our data centres, and while we have hit some inevitable rough patches in the cloud,
especially in the earlier days of cloud migration, we saw a steady increase in our overall
availability, nearing our desired goal of four nines of service uptime. Failures are unavoidable in
any large-scale distributed system, including a cloud-based one. However, the cloud allows one to
build highly reliable services out of fundamentally unreliable but redundant components. By
incorporating the principles of redundancy and graceful degradation in our architecture and being
disciplined about regular production drills using Simian Army, it is possible to survive failures in the
cloud infrastructure and within our own systems without impacting the member experience.
Cost reduction was not the main reason we decided to move to the cloud. However, our cloud
costs per streaming start ended up being a fraction of those in the data centre -- a welcome side
benefit. This is possible due to the elasticity of the cloud, enabling us to continuously optimise
instance type mix and to grow and shrink our footprint near-instantaneously without the need to
maintain large capacity buffers. We can also benefit from the economies of scale that are only
possible in a large cloud ecosystem.
Given the obvious benefits of the cloud, why did it take us a full seven years to complete the
migration? The truth is, moving to the cloud was a lot of hard work, and we had to make a number
of difficult choices along the way. Arguably, the easiest way to move to the cloud is to forklift all of
the systems, unchanged, out of the data centre and drop them in AWS. But in doing so, you end up
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moving all the problems and limitations of the data centre along with it. Instead, we chose the
cloud-native approach, rebuilding virtually all of our technology and fundamentally changing the
way we operate the company. Architecturally, we migrated from a monolithic app to hundreds of
micro-services, and denormalised and our data model, using NoSQL databases. Budget approvals,
centralised release coordination and multi-week hardware provisioning cycles made way to
continuous delivery, engineering teams making independent decisions using self-service tools in a
loosely coupled DevOps environment, helping accelerate innovation. Many new systems had to be
built, and new skills learned. It took time and effort to transform Netflix into a cloud-native
company, but it put us in a much better position to continue to grow and become a global TV
network.
Netflix uses AWS for nearly all its computing and storage needs, including databases, analytics,
recommendation engines, video transcoding, and more—hundreds of functions that in total use
more than 100,000 server instances on AWS. AWS enables Netflix to quickly deploy thousands of
servers and terabytes of storage within minutes. Netflix relies on AWS to help it innovate with
speed and consistently deliver best-in-class entertainment. AWS provides Netflix with compute,
storage, and infrastructure that allow the company to scale quickly, operate securely, and meet
capacity needs anywhere in the world. Moreover, Netflix, a leading content producer, has used
AWS to build a studio in the cloud. This virtual studio enables Netflix to engage top artistic talent,
no matter the location, and Netflix artists and partners have the freedom to collaborate without
technological or geographical barriers.
In answering the questions below, consider the following:
• Maintain a balance between theory and application;
• All theory must be referenced from the textbook and supplemented by other credible
sources; E. Turban, Carol Pollard and Gregory R. Wood, GW. 2021. Information Technology for Management: Driving Digital Transformation to Increase Local and Global Performance, Growth and Sustainability. Wiley. 12th edition
• You are required to paraphrase and explain concepts in your own words.
Q.1.1 Explain the concept of disruptive business models in the on-demand economy, with
application to Netflix.
(10)
Q.1.2 Defend Netflix’s decision to move away from a relational DBMS model and adopt
NoSQL.
(10)
Q.1.3 Assess the benefits of and any potential issues in moving to the cloud, with
application to the case study.
(10)
Q.1.4 Suggest factors Netflix would or should have considered when selecting AWS as
their cloud provider.
(10

Answer 1

Q.1.1 Explain the concept of disruptive business models in the on-demand economy, with application to Netflix.

Disruptive business models fundamentally change how industries operate, often creating new markets and displacing established competitors. They typically emerge from innovations that leverage technology to offer products or services in more accessible, user-friendly, or cost-effective ways. The on-demand economy, characterized by instant access to goods and services, is a prime example of such disruption.

Netflix's emergence illustrates this concept perfectly. Initially, it transformed the traditional DVD rental model by enabling customers to rent DVDs by mail without late fees, which significantly contrasted with the rigid practices of incumbents like Blockbuster. This shift not only offered consumers convenience but also reshaped their expectations of rental services.

Further, Netflix advanced this model by introducing streaming services, disrupting traditional television networks. By delivering a wide range of programming on-demand, Netflix reduced the necessity for consumers to adhere to conventional broadcasting schedules and advertising interruptions. This innovation led viewers to reconsider their media consumption habits, pushing traditional networks to adapt their business models to retain relevance. Netflix’s focus on customer-centric solutions exemplifies how disruptive business models can reshape industries and consumer behavior.

Q.1.2 Defend Netflix’s decision to move away from a relational DBMS model and adopt NoSQL.

The decision to move from a relational database management system (RDBMS) to a NoSQL model reflects the need for scalable and flexible data management in an environment characterized by rapid growth and diversity of data. RDBMS formats, while robust for well-structured data and complex querying, can struggle to handle the massive volume and velocity of unstructured or semi-structured data prevalent in modern applications.

For Netflix, the migration to NoSQL was advantageous for several reasons:

1. Scalability: As Netflix experienced exponential growth, it required a database solution that allowed for easy horizontal scaling to accommodate increasing data loads. NoSQL databases can easily scale across distributed systems, aligning perfectly with Netflix’s need to manage vast and diverse datasets generated by user interactions.

2. Flexibility: NoSQL databases, such as key-value stores and document-oriented databases, are more adaptable in handling varied data formats and structures. This flexibility supports Netflix’s diverse content library and user analytics requirements.

3. Performance: NoSQL databases can provide better performance for certain queries and operations by reading and writing data in its native format. This is crucial for Netflix’s real-time data requirements, enhancing user experience through quick access to information.

4. Cost-Effectiveness: Transitioning to a NoSQL architecture can lead to lower operational costs compared to maintaining complex RDBMS architectures, particularly when scaling.

In summary, the shift to a NoSQL model empowered Netflix to operate more efficiently in a data-driven environment, ultimately supporting its growth and innovation objectives.

Q.1.3 Assess the benefits of and any potential issues in moving to the cloud, with application to the case study.

Moving to the cloud presents numerous benefits, as exemplified by Netflix's experience:

Benefits:

1. Scalability: The cloud allows for rapid scaling of infrastructure to meet demand fluctuations. Netflix benefited from the ability to add compute and storage resources dynamically, enabling it to handle increased streaming volumes without physical constraints.

2. Cost Efficiency: Although cost reduction was not the primary motive, Netflix experienced lower costs per streaming session post-migration. The use of cloud services allowed them to optimize resource usage and eliminate the necessity for significant upfront capital expenditures associated with physical data centers.

3. Availability and Reliability: Cloud architecture tends to enhance service availability due to redundancy and built-in failover capabilities. Netflix’s cloud transition resulted in improved uptime and the ability to withstand individual component failures without affecting user experience.

4. Global Reach: Leveraging AWS’s global network allowed Netflix to expand its services internationally while ensuring cohesive performance across various regions.

Potential Issues:

1. Migration Complexity: The transition from a legacy data center to the cloud involved considerable complexity, requiring time, resources, and retraining of personnel to adapt to new paradigms, which Netflix acknowledged as a long-term commitment.

2. Security Concerns: Storing sensitive customer data in the cloud introduces cybersecurity risks. Netflix had to prioritize establishing robust security protocols in its cloud environment to mitigate data breaches.

3. Dependency on Internet Connectivity: A move to the cloud also means that service quality is reliant on internet performance. Any outages or slow connection speeds can directly impact user experience.

In summary, Netflix’s cloud migration presented significant advantages for scalability, cost management, and service quality, despite challenges relating to the complexity of implementation and ongoing security concerns.

Q.1.4 Suggest factors Netflix would or should have considered when selecting AWS as their cloud provider.

When selecting a cloud provider like AWS, Netflix likely considered several pivotal factors:

1. Scalability: Given Netflix’s massive growth trajectory, the ability to scale resources on-demand was critical. AWS offered a robust infrastructure that can accommodate rapid increases in user demand and data processing needs.

2. Global Presence: As Netflix pursued international expansion, AWS's extensive global infrastructure and data center locations allowed Netflix to deliver consistent, high-quality service across various regions.

3. Service Variety and Robustness: AWS provides a comprehensive suite of services and features that cater to diverse application needs, such as databases, analytics, and content delivery networks (CDN). This variety helps Netflix leverage best-of-breed solutions as needed.

4. Security and Compliance: With data privacy a pressing concern, Netflix would have needed to ensure that AWS met high standards for security and compliance, particularly given the sensitive nature of customer data.

5. Cost Structure: Analyzing the pricing model of AWS was essential for Netflix to ensure that the cloud expenses remained manageable and cost-effective relative to the anticipated benefits and growth.

6. Performance and Reliability: Evaluating AWS’s performance metrics and reliability levels was crucial to ensure that Netflix could meet its uptime and responsiveness goals.

7. Support and Expertise: The level of support provided by AWS and the ease of accessing technical expertise would also be significant considerations, as they would impact Netflix’s ability to troubleshoot and optimize cloud operations.

By considering these factors, Netflix could ensure that adopting AWS as their cloud provider would not only support their operational needs but also align with their strategic goals for future growth.