How Covid 19 accelerated the digital transformation
Very few of us could have foreseen how deeply disruptive the Covid 19 pandemic would be. Both in our lives and the way we work. The most immediate and painful impact has been of course the tragic loss of life and the overwhelming sense of shock. In addition to that, all over the world, people continue to struggle with economic hardships resulting from the lock down. Amidst this chaos, we’ve seen the biggest ever migration of people and business online, resulting in a global acceleration of digital transformation.
People everywhere have tried to shift every kind of activity they were used to, to the internet. From tech enthusiasts to laggards, everyone has deepened their connection with technology. They have improved their skills and discovered new ways of working, shopping, communicating, learning and consuming entertainment, all online.
It is striking to see the speed at which individuals and families who have had their lives upended, shifted their values, preferences and digital habits. It will take us several months for sure to figure out the intensity and duration of these trends. However what is already clear is that the world post pandemic will look very different.
I wanted to share, today, in numbers, how I’ve seen a few tech businesses affected by this phenomenon. I have looked at Netflix, Masterclass, Open table, as I love their business models, and have used their services for a long time. The impact is significant as we shall see below.
For each of these businesses I looked at traffic to their website and compared it pre and post lock down. You can easily do this yourself by accessing a web analytics solution like Similarweb. The results are striking.
Netflix- accelerating the shift from linear TV to streaming:
With 183 million paid memberships in over 190 countries Netfilx is one of the leading global streaming entertainment services. They aim to grow to another 60 to 90 million users in the US on the long term.
In their Q1 results Netflix has announced 15.7 million more subscribers, double what the analysts expected. More importantly, it also forecast an increase of 7.5 million subscribers for Q2 ( including most of the Covid 19 lock down period). This is 4 million more than analyst predicted.
Furthermore, between February and April, the number of monthly visitors to Netflix’s website has gone up from 2B to 3B! A massive jump of 50%. This is likely driven by potentially new customers checking out the service during lock down. They spend about 9 min per visit on the website which is long enough to subscribe.
The increased appetite for movie and TV show entertainment is understandable during confinement. However, the key question is to what extend this phenomenon is going to accelerate the shift from linear TV to streaming, and will it endure. Netflix’s Q2’s final numbers will tell us this story when they come out.
Reed Hastings- CEO and founder of Netflix, described these trends in his recent letter to shareholders. He tries to strike a cautious and realistic tone. It is worth reading.
MasterClass- the massive shift to remote education or distance learning
Many will not be yet be familiar with MasterClass. It is a much smaller but promising Edtech startup that sells celebrity- taught online classes.
MasterClass operates a very successful subscription model through which it charges an annual subscription of 180$. In exchange users access its library of content for an entire year. The essential distinction of MasterClass is that the former positions itself at the intersection of education and entertainment. It also manages to leverage celebrities to drive interest and get credibility for its content. The digital platform currently lines up 70-80 courses. Each is made up of a number of 20-30 minutes video sessions with a workbook and some activities.
This is an overview of traffic to its website compared before and after the lock down. It boasts an amazing growth from roughly 3.75M visitors per month between November and February to 11.36M in April 2020. This is most likely driven by two types of users. Firstly there is existing users who are deepening their engagement with the platform and pursuing their courses to completion. Secondly, there are new users enrolling and trying to make confinement more bearable by picking up new skills.
On May 20th, TechCrunch reported that MasterClass had raised 100M$ to create new content and fuel its expansion. It might be a while before they disclose revenue and user numbers but they certainly have great momentum.
OpenTable- the demise of a leading restaurant booking and review platform
At the other end of the spectrum are businesses that have been hit hard by the pandemic and lock down measures. For example- restauration, hospitality and travel. This includes online platforms that service them and work with them directly such as OpenTable. OpenTable is the innovative restaurant booking and review platform that caters to nearly 40,000 restaurants worldwide.
20 years ago, OpenTable promised to revolutionize the tedious and often frustrating restaurant reservation experience. It offered to do so by replacing the phone with an online interace. In a few clicks diners can choose from a wide variety of well documented options, book their table and get confirmation at any time.
At its peak, OpenTable.com received nearly 20 million visitors a month. This is an amazing number of customers that generates a recurrent cashflow and justifies the subscription fees charged to restaurants.
This number of monthly visitors has now dropped down to 2.59 M per month, representing a decline of nearly 87%. As a result, the OpenTable business model is going to be seriously undermined after the lock down.
To help mitigate this effect and protect their restaurant base, OpenTable just announced that it will be waiving fees for restaurants as they prepare for reopening post Covid 19. They are right in doing so.
The world post covid 19, will look different to what it was. It will certainly take two or three months for customers to settle and internalize the experiences they have gone through. What is clear however is that strong digital content platforms that were already growing have accelerated. While others connected to hard hit sectors will take time to recover. I am even sure whether their business models will emerge intact.
The next few months are going to be very interesting, as we follow-up on these businesses and learn the lessons of this pandemic outbreak.
