Case Study: How Netflix uses Cloud for Innovation, Agility and Scalability

“Planning without taking action is the slowest route to victory. Taking action without planning is the noise before defeat.” – Sun Tzu, The Art of War

Introduction to cloud computing

It is said that the world evolves at the speed of technological evolution. Organizations are constantly looking for new technologies such as cloud computing to meet their goals strategically and to drive business value. This article will address how cloud computing can possibly help organizations adopt efficient technologies and also improve productivity.

Cloud computing refers to computing on a network of remote servers accessible over the web, in order to store, manage, and process data. It utilizes computing resources of cloud providers, such as their data centers, instead of having the organization build their own local infrastructure.

Regardless of whichever industry one’s company belongs to (finance, retail or real estate), it is always advisable to understand the technology that other corporations are adopting. This is to solidify a competitive advantage by examining the lessons learned and best practises developed along the way.  In order to understand this better, let us illustrate how Netflix utilized cloud services to reach its level of success today.

Amazon Web Services used by Netflix

Service Type Name of Amazon Web Service
Hosting EC2
Storage S3
Content Delivery Network Cloudfront
Database (essential prerequisite for data analytics) Relational Database Service (RDS), DynamoDB
Events driven programming Lambda

 

Innovation

The cloud is an enabling technology for AI to mine and analyze data for deeply embedded insights. Cloud computing contributed an innovative breakthrough of accelerators for AI software. An accelerator is a class of microprocessor or system that is designed to provide hardware acceleration for AI applications such as neural networks, computer vision and machine learning. Currently, it is rather difficult for on-premise hardware to match the processing power of the accelerator hardware residing in the worldwide data centers of cloud providers (Source: Gartner, The Google Guys). Furthermore, cloud providers possess one more advantage over non-cloud AI: their extensive global network of data centers are in the better position to process the massive amount of data being generated all over the world. This alone makes it substantially easier to train machine learning models and neural networks for data insights and pattern recognition.

Analyzing customer data creates customer insights for any organization. It helps management avoid making assumptions about customers, which may be misinterpreted by the customer as apathy. Data analytics and personalized customer assistance (PCA) features are actually the largest areas of innovation on the cloud for organizations, up till 2019 (Source: InsideBigData, Google Cloud, IBM).

What sort of cloud services aid in discovering data insights and building personalized assistance features for customers? For one, Netflix uses Amazon RDS and DynamoDB, which provide the structural organization that these are cloud services that helps to build, develop and deploy custom machine learning models for each organization based on its unique goals and work environments.

While deciding whether to produce “House of Cards”, whereby 26 episodes cost $100 million in production, Netflix decided that it was more intelligent to use data analytics to determine which fan bases its new drama should target. These data were captured on their database for analysis. Using machine learning, they were targeting its marketing appeal at the fans of the British House of Cards, as well as the long-time fans of actor Kevin Spacey and director David Fincher.

With cloud-based AI services, organizations can index their entire product/service catalogue based on each customer/user’s profile. Age, location, gender, and other profile data helped to determine which products should be ranked first for each individual customer. Customers with different likings and profile data would see a personalized set of recommended products specially curated for their viewing. These personalized services tend to make users feel important and valued by the enterprise, instead of just being a source of revenue and hence retains the organisation’s customer base.

Agility

Cloud agility refers to the rapid provisioning of computer-related resources. The Cloud environment can usually provide compute instances or storage in minutes. Before cloud providers took off with IaaS, one had to email infrastructure suppliers and wait for a few weeks before the supplier replied with the requested provisions. (Source: Netflix, Amazon Case Study on Netflix). The existing IaaS delivery is executed using the consoles of cloud providers, allowing a faster release of new features for users. The benefit of such services reduce the time taken to develop, test and deploy software applications.

Most successful companies share a common trait: they had people who started developing a product/service prototype way ahead of their peers. The reason for their success is rather obvious – the first-mover advantage. Cloud computing is a technology designed to help organizations obtain the first-mover advantage, as evident from their rich variety of service offerings.

How did Netflix utilize agility features of the cloud for the cloud migration of their operations? They rebuilt their app functions inside the native cloud development environments first, later including app development for business operations. The large, cumbersome Netflix service of 2008 was refactored into microservices and unstructured scalable databases.

Netflix’s cloud database usage followed a pay-as-you-use basis, which helped them save costs whenever they rolled out the AI based feature called top personalized recommendations. (the AI has to mine data from their database, and so the database has to be hosted properly and securely on Amazon’s cloud). This AI feature, top personalized recommendations, showed users niche titles that would not be available on traditional cable networks but were similar to content liked by the user. As such, users purchased these niche titles more, generating more revenue; Netflix no longer had to spend so much money on acquiring new content to sell to users. The costs saved were estimated to be $1 billion by Netflix’s Vice President and Chief Product Officer, in a research paper published by them.

With such a progressive implementation, the management became more strategic and informed about budget evaluations and approvals. The purchase of hardware and the progressive release schedule of the re-morphing Netflix became more streamlined day by day. Gradually, a large organization like Netflix was no longer constrained by physical compute-resources and grew to become the global Internet TV network everyone knows today.

Scalability

Scalability refers to a software-based product or service which retains its intended function with no quality compromise when moved to an environment with more incoming customers. The user’s needs must be met no matter what changes and the response time should not get longer. The elaborations below highlight the relevance of cloud scalability to your organization.

By using services from cloud providers like AWS and Open Connect (for streaming), Netflix expanded its network of servers (both physical and virtual) from North America to the rest of the world, including areas like Europe and India.

Netflix is one example of an organization using the cloud. By running on AWS, it provided billions hours of service to customers around the globe. Users can order its products/services from almost anywhere in the world, using PCs, tablets, or mobile devices. 10,000 customer orders were processed every second during Netflix’s last peak demand season. This is a stark contrast from the few thousand DVD orders Netflix could handle in its early days before streaming and migrating to the cloud. Having 86 million customers worldwide who consume 150 million hours of content daily, this is rather strong evidence about how the cloud has powered Netflix’s scalability of business operations.

Cloud providers like AWS provide technologies such as container auto-scaling and application level load-balancing, to support the customer service that Netflix provides. Cloud providers possess the resources to handle the gigantic operational loads of their client organizations. The compute resources they provide are globally available, enabling customers from around the world to place orders literally anytime they prefer. Organizations that face a small home-country market no longer have to worry about global expansion.

Conclusion and Final thoughts

The most important action taken by enterprise organizations in 2018 was to engage a professional cloud vendor experienced in providing step-by-step solutions and enterprise-level cybersecurity.

Enterprise innovation is now centered upon (but not limited to) cloud-native machine learning models and data analytics. These technologies offer a pleasant side benefit, assisting organizations in managing their vast amount of customer and operations-related data. In the area of enterprise agility, cloud providers and third-party resellers have created intelligent software so as to help enterprises make important decisions faster than ever. In the area of scalability, the cloud has empowered various organizations to serve their users and customers around the world with better availability and response times. Selling to more customers beyond the home-country is now easier.

It is important for organizations to understand global industrial changes. The future of the cloud computing will continue to be several billion dollar industries, such as AI innovation, blockchain and cloud security (Source: Forbes). Hence, most organizations now find their boardroom discussions increasingly centered upon the topic of technology  in business strategy.

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win”

― Sun Tzu, The Art of War

 

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