Netflix: A glance to its strategy

The Evolution of Netflix

Netflix, the #1 source of downstream web traffic in North America, started off with a very different business model and has evolved over time, unlike many other companies that were at the top of their game at the height of video rentals. Originally a DVD mail-order service, Netflix was founded in 1998 by Marc Randolph and Reed Hastings, two dot com entrepreneurs. Two years later Netflix added the monthly subscription service and killed the late fees, then in 2000 it dropped the single DVD rental option. 2002 saw the company’s initial public offering (IPO), and in 2003 Netflix had its first profitable year with revenues of $272 million dollars.

2005: it was shipping 1 million DVDs a day. Early on, the company found a way to take a traditional mail-order business and look ahead to what customers would want next. Most of the revenue comes from the monthly subscription of the service.

2007: Company successfully navigated shifts in consumer demand, especially with the addition of streaming TV and movies.

2008: It added streaming video via Xbox 360, TV set-top boxes and Blu-Ray players.

2009:  The service was available from Internet enabled smart TVs, the PS3 and other Internet -enabled gadgets.

2010: Netflix became available in Apple devices and even more internet connected devices. That year also saw Netflix begin to grow internationally with its expansion into Canada.

2015: it streamed more than 1,348 hours of content per second or about 2 months of content per second.

An assumption can also be made that Netflix with eventually work their way into the film industry where they start producing Netflix Original Movies that can only be viewed on the streaming service.


Can you imagine the amount of work, the technical architecture, the research, the billing systems, the kind of people that they needed and the thinking about these kinds of problems in order to make that happen?

The journey began when Netflix decided to move from its own data centers to the public cloud.

In 2008, Netflix was running relational databases in its own data centers when disaster struck. A data center failure shut the entire service down and stopped DVD shipments for three days.

The company’s owners faced a choice: turn Netflix into a world-class data center operations company or move the service to the public cloud.

Netflix was growing fast. The thousands of videos and tens of millions of customers was already generating an enormous quantity of data. The company would struggle to rack the servers in their own data centers fast enough to handle the ever-growing volumes, but the cloud would let them add thousands of virtual servers and petabytes of storage within minutes.

A. Microservices: A migration to the cloud was the clear choice. They soon became a poster child customer for Amazon Web Services (AWS), choosing the company for its scale and broad set of services and features.

The move would require a complete re-architecting of the company’s traditional infrastructure though. They could have fork-lifted all their monolithic enterprise systems out of the data center and dropped them into AWS, but this would only have brought all of their old data centre problems to the cloud. Instead, they chose to rebuild the Netflix technology in AWS and fundamentally change the way that the company operated.

The decision was for moving towards microservices, which made the infrastructure much more agile by breaking aspects of the service up into multiple microservices, managed by their own small teams who understood how their service worked and interacted with other systems.

In short a microservices architecture is a term used to describe the practice of breaking up an application into a series of smaller, more specialised parts, each of which communicate with one another across common interfaces such as APIs and REST interfaces like HTTP.

Each microservice tends to manage its own database, generate its own logs and handle user authentication. This also usually means that containers are involved at the management and operations level.

This provides clear, specific insights that make it easier to change the service, which leads to smaller and faster deployments. It also allows them to isolate services to understand the various performance profiles, patterns and securities in each microservice, and move away from any individual piece that’s causing a problem.

B. Cloud: It took Netflix seven years to complete the migration to the cloud. In 2016, the last remaining data centres used by the streaming service were shut down. In its place was a new cloud infrastructure running all of Netflix’s computing and storage needs, from customer information to recommendation algorithms.

The migration improved Netflix’s scalability and service availability and the velocity by which the company could release new content, features, interfaces and interactions. It also freed up the capacity of engineers, cut the costs of streaming, drastically improved availability and added the experience and expertise of AWS.

The cost model is also supporting that demands the payment for the service, which in turn allows to do a lot of experimentation. This gives them greater freedom to test new features and improve existing ones, such as the rows of content recommendations that are personalised every day.

C. Content Delivery: The cloud is only one part of the Netflix user experience. Everything that happens before they hit play takes place in AWS, but the video content that follows comes from a separate system: Netflix OpenConnect, the company’s proprietary content delivery network (CDN). The OpenConnect appliances store the video content and deliver it to client devices.

CDNs are designed to deliver internet-based content to viewers by bringing it closer to where they’re watching. Netflix originally outsourced streaming video delivery to third-party CDN suppliers, but as the company grew, these vendors struggled to support the traffic. Netflix needed more control over the service and user experience.

The company decided to design a CDN tailored to its needs.

It now installs OpenConnect appliances that store and deliver content inside local Internet Service Provider (ISP) data centres, which isolates the Netflix service from the wider internet. Popularity algorithms and storage techniques help distribute the content in ways that maximise offload efficiency. The system reduces the demand on upstream network capacity and helps Netflix work more closely with the ISP networks that host its traffic. OpenConnect is designed in caching boxes to hold the content, and wherever they can they install them inside user’s internet service provider’s network, so that when user see those video bits user aren’t actually transiting off of user operator’s network.

The new system cut the appearances of the loathed buffering wheel by an order of magnitudes. It also allowed Netflix to make the CDN software more intelligent. Now, whenever a customer presses play their device can get its content from numerous places on the internet.

The investment paid off when a fire in an ISP data centre in Brazil burned down Netflix’s entire stack of machines. Customers who had been streaming from the ISP didn’t experience any change in their user experience.

D. Chaos Engineering Culture: Netflix developers are well known these days for their unique approach to engineering culture. A self-service chaos engineering tool called the Chaos Automation Platform was pioneered to test problems in their production environments, so they can be sure that their software will behave as they want during a failure.

If the systems cannot auto recover, if they cannot handle bad situations, if they cannot self-repair, by the time I get a human involved, in the best-case scenario, minutes have gone by. You can get an idea of how many of our customers we’ve disappointed in the three or four or five minutes it may take to get a human involved, and in the right place and working. Chaos engineering is an excellent inoculation to failures.

They use the chaos engineering method to ensure Netflix can survive a failure in one of three AWS regions it uses. Every month, they turn off one of the regions and test that they can move all the customers that it was serving to another one within six minutes.

To embrace chaos without causing destruction, Netflix had to create a corporate culture that supported such ideas.

The relationship between Netflix and Amazon is mutually beneficial. Netflix is one of the largest customers of AWS. If Netflix one day decided to just leave AWS, it would hurt Amazon’s cloud division a lot, so Amazon has every incentive to keep Netflix happy.

Netflix also owns the most vital part of their infrastructure, which is the CDN. Infrastructure-wise, that’s their secret sauce. What Netflix has done by agreeing to use Amazon’s AWS is essentially to off-load the parts of their business that aren’t that special, so they can focus on the parts of the business that will give them the most strategic advantage.

Something else to keep in mind is that the only reason Amazon has a cloud service is for historical reasons. Amazon was built in the 90’s when there was no such thing as a cloud.

It made sense for Amazon to spend a ton of resources buying lots and lots of servers and data centers, so that they would dominate online shopping. But the main reason Amazon needed all that server capacity was for one time of the year, Christmas shopping. If people went to Amazon’s web site and it timed out because it was overloaded during these shopping spikes, people would get a bad impression of the company. So Amazon needed to have all of this server capacity, but most of the year, that capacity would be completely idle and wasted resources.

In other words, Amazon would have been the ideal customer for cloud computing. But since it didn’t exist at the time, they had to invent it. There is no reason for every other company to re-invent the wheel. Especially a company like Netflix that is trying to focus on just one business, streaming.

E. Multi-cloud: Recently, Netflix has embraced Google Cloud for certain workloads, mostly focused around artificial intelligence. It’s not clear how much work has shifted from AWS data centers to Google but even a minor shift marks the end of an era in which Netflix was held up as a model “all-in” AWS customer.

Times change. Google has been playing catch-up in the cloud market ever since it started to get serious about the business, but it is widely serceived as the leader in AI cloud services, which more and more companies are starting to find useful in their applications. It also has a world-class network built to handle the demands of Google search, and that infrastructure could be very useful to Netflix as a hedge against AWS issues as Netflix continues to grow.

There’s also a cost consideration. Google has been willing to come in much lower than other cloud providers in competitive bidding situations, according to lots of cloud industry watchers, as it tries to ramp up its cloud business. Google is well behind AWS and Microsoft in the cloud market, but it has started to sign deals with prominent customers such as Apple.

Netflix will likely keep a good deal of its workloads on AWS for the foreseeable future, given the investment it has made developing its infrastructure around AWS. But you probably won’t see Netflix on stage on re-Invent, the big AWS developer conference, in the future.

Netflix’s move also signals that multicloud strategies are moving from hopes and dreams to reality. Cloud vendors don’t always make it easy to move workloads between different public clouds, but companies are finding a way to spread their eggs around several baskets with technologies like containers and Kubernetes.

The migration improved Netflix’s scalability and service availability and the velocity by which the company could release new content, features, interfaces and interactions. It also freed up the capacity of engineers, cut the costs of streaming, drastically improved availability and added the experience and expertise of AWS.


In short, we can say that in its 20-year history, the strategies adopted by Netflix has converted it from a DVD rental website with 30 employees to a global streaming service with over 5,000 titles, 130 million subscribers and $11 billion annual revenue that has drastically transformed the entertainment industry.

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