The Netflix Law, Or, You Cant Reinvent The Wheel

This is sort of a strange news post that also gives you better insight into how one of the greatest content resellers on earth, Netflix, operates.

Thanks to Microsoft and Google, it’s very, VERY, easy to see that it’s pretty simple to make huge pots of cash when you don’t have to make and ship a product.  Digital download is the way things are moving, and with them, the need for warehousing, storage, and production costs are falling through the floor.

But, as Netflix has shown us in a development the Motley Fool refers to as “The Netflix Law”, it’s extremely difficult to improve on software.

Sure, we’ve all seen new versions of Windows come out every few years reliably–but how many of us are rushing to upgrade?  My laptop and my backup desktop BOTH run Windows XP.  I’m two versions behind–is that stopping me from computing?  Not hardly, kids.  I’ve tried Vista, and I’m not terribly happy with it.  I’m not hugely upset with it, but I’m not falling all over myself to change.  Netflix ran into this exact problem when it offered its million dollar Netflix Prize, a chance for users to improve the recommendation system.  The best they could get was really only an incremental improvement over the original, and that took three years to generate about a ten percent improvement.

So while hardware will be running under Moore’s Law (performance doubles every eighteen months on average), software will be lucky if it gets eighteen percent better every two years.  Software has to take an early lead and hope to hold it, just like Netflix has done so far.