Netflix, the largest online DVD rental service, relies on user ratings to recommend films tailored to individual users’ tastes. Founded in 1997, it boasts a collection of 100,000 titles and over 8.2 million subscribers.
Description of user contribution system
Netflix developed and maintains an extensive personalized video-recommendation system (dubbed “Cinematch”) based on ratings and reviews by its customers, similar to the system used by Amazon.com. The company believes this gives it an edge in competing with newcomers such as Blockbuster Video and Apple Inc.
On October 1, 2006, Netflix launched the “Netflix Prize,” which will award $1,000,000 to the first team that improves the effectiveness of Netflix recommendations by 10% over Cinematch. The contest is open to anyone, anywhere (with a few exceptions). The terms of the contest dictate the prize only be paid out if the winners share their method with Netflix and describe to the world how they did it and why it works. Although the 10% target has not yet been achieved, a $50,000 “Progress Prize” is awarded each year to the team posting the greatest improvement (must be at least >1%) over the prior best
Benefits for the users
Netflix recommendations offers similar customer benefits to Amazon’s recommendations. Namely, customers are more likely to find something they like. Improvements to Cinematch would make customres more likely to act on recommendations and enjoy the films.
Participants in the contest stand to win $50,000 or $1,000,000 if they succeed.
Benefits for the creators of the system
The Netflix recommendation engine drives two benefits to the business. First, accurate recommendations drive customer satisfaction and, in turn, retention and recommendations. Second, understanding users’ tastes enables Netflix to recommend a broad range of titles and thus have more of its library in circulation (preferable to the cost associated with managing huge demand for the top few titles).
Although they don’t go into details, Netflix states that a 10% improvement to the effectiveness of Cinematch would have substantial impact on their business.
Access to much larger talent pool to solve this key challenge is another benefit of the Netflix Prize. With 37k contestants in 172 countries, Netflix may see better solutions and reach their target 10% improvement more quickly than if they did it themselves.
History of the idea
Netflix was founded in 1997 by Marc Randolph and Reed Hastings, who previously had worked together at Pure Software. The Netflix website launched in April 1998 with an online version of a more traditional pay-per-rental model (US $4 per rental plus US $2 in postage; late fees applied). Netflix introduced the monthly subscription concept in September, 1999, then dropped the single-rental model in early 2000. Since that time the company has built its reputation on the business model of flat-fee unlimited rentals without due dates, late fees, shipping or handling fees, or per-title rental fees. (Wikipedia)
Scale
Netflix has over 100,000 titles (totaling 55 million discs) and 8.2 million subscribers, with annual revenue of $1.2B in 2007. The Netflix Prize competition features 37k contestants in 172 countries.
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