Mail time at my house is always a happy time -- not counting tax season, of course. My three-year-old son sings that catchy ditty from Blue's Clues, and we're off to the mailbox looking for slender, red envelopes. Maybe there's another clue in this one!
Those envelopes are the hallmark of Netflix
Legend has it that CEO Reed Hastings came up with the Netflix business model when he was charged $40 in late fees for Apollo 13. Being an engineer by trade, he proceeded to optimize the end-user experience to the max, and that obsession with top-notch usability resulted in excellent word-of- mouth marketing, very low customer churn, and a sizable, patented moat around the business. The nationwide network of shipping centers is an important ingredient in Netflix's secret sauce, and for a company so dependent on efficient mail traffic, it's smart business to hire a former U.S. Postmaster General as COO, as Netflix did.
In 2004, Wal-Mart
Blockbuster came late to the game, and its online service is but a shadow of Netflix's intuitive masterpiece. I've tried both and reported my findings. There's no meaningful competition left for the video-by-mail pioneer, and it's suing Blockbuster for encroaching on its patent-protected territory.
Some people say that video on demand will kill this market entirely, expecting the likes of Apple
If the team behind that service is half as talented as the company's web developers, Netflix could very well become the VOD service to beat, even when everyone from Amazon to Barnes & Noble and your local cable operator have entered the fracas. The lessons learned from recommending and mailing physical discs should translate very well into a purely online model.
Will Netflix rise to new heights in 2007? I think so. If you agree with my assessment, let us know in our Motley Fool CAPS investing community. Just rate Netflix "outperform," and fill out your virtual portfolio with a few more of your best -- or worst -- ideas. (If you think Netflix's days are numbered, don't hestitate to rate the company an "underperform" instead.) Make your mark today, and don't forget that you can add your own opinions on any stock along with your rating. Based on your thoughts, we'll declare the best e-commerce stock of 2007 early next week.
Fool contributor Anders Bylund is a Netflix subscriber and shareholder, but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is always available in glorious hi-def.