(Webinar Summary) The Netflix Effect on Homebuilding

In a recent webinar, our president, Mr. Frank Guido, discussed the Netflix effect on homebuilding. With more than 32 years of experience, he highlighted the digital transformation in different industries and what home builders can apply in home building industry.

1.The Evolution of Consumer Empowerment:

Frank Guido reminisced about the early days of his business in ’91, starting with VHS tapes and evolving into a platform that allows complete online customization and purchasing of homes. This journey mirrors the consumer empowerment seen in the entertainment industry, transitioning from Blockbuster’s physical rentals to Netflix’s digital streaming.

2.Blockbuster vs. Netflix – A Tale of Adaptation (or Lack Thereof):

At its peak, Blockbuster boasted a $5.9 billion revenue with $800 million from late fees, a major consumer pain point. Netflix, identifying this gap, eliminated late fees and invested in streaming technology, leading to their exponential growth. Today, Netflix’s lean operation model with a smaller workforce generates significantly higher revenue and customer base compared to Blockbuster’s peak.

3.Applying Netflix’s Strategies to Home Building:

Guido urges builders to adopt Netflix-like strategies, focusing on customer convenience and leveraging technology. He emphasizes the importance of allowing consumers to explore and customize homes online, reflecting the growing trend of internet-based home searches reported by the National Association of Realtors (NAR).

4.The Power of Online Tools and Data-Driven Decisions:

The webinar highlighted the effectiveness of online tools in enhancing customer satisfaction and business efficiency. Case studies demonstrated how digital solutions could lead to a 96% reduction in appointment times and a significant increase in revenue and customer satisfaction.

5.Creating Unique Customer Experiences:

Just as Netflix created its own content for a competitive edge, builders can use VR and AR to offer unique, memorable experiences in home customization.

6.Scalability and Flexibility:

Netflix’s online model allowed rapid global expansion, a strategy builders can emulate to scale their operations efficiently without the overheads of physical showrooms.

7.Risk Mitigation and Empowerment:

By offering virtual models of homes, builders can reduce investment risks and empower customers with more choices and information.

“Less people doesn’t mean lower customer service. In fact, it’s higher customer service and better experiences.”

“Empowerment. Netflix gave control to the consumers… That’s what we aim to offer in home building.”

“Consumer expectations and technology advancements… This is what people expect, and the technology exists today to meet these expectations.”

If you want to see more information using this technology, feel free to give us a call. We’d love to give you a demo of our product.

Andrew Lett:

Good morning, everyone, and I’m Andrew Lett, I’m sales team leader at Aareas Interactive. Our last webinars have been kind of condo focused and what kind of options you can do with your house with your houses. Today, we’re gonna talk more about how the digital landscape has really changed, what we’re doing across some industries and really across with the home building industry as well. And we will. I’m gonna introduce our CEO, Frank Guido. He’s been aareas interactive CEO, founder. 30 years ago, when we talk about digital transformation, he was dreaming about this when we were using Betamax and VHS. This is his passion. He’s got a lot of experience, maybe a little bit of his obsession, but yeah, so. If you’ve got any questions for during the seminar, please type them in the chat. We’ll deal with them afterwards. Without further ado, I will introduce Frank.

Frank Guido:

Hey, great. Thank you, Andrew. Thank you for joining us. Can Andrew, can you see my screen and hear me OK? Absolutely yes. Alright, great. Fantastic. Ohh well, thanks again everybody for joining and appreciate it. My name is Frank Guido, the president, CEO of Aareas interactive. I started the business back in ’91, and it was originally started because we had a desire. I used to work for a builder, and there was a big desire to try to help people visualize and understand what the house has looked like in those days. You know, we started on VHS tape and rendering, so once we create a virtual tour, people would have to put in a VHS tape on the machine and then watch a virtual tour. Just watching, they check that VHS cassette. That was back in ’91. Today we do all kinds of different technology, everything from our platform allows people to shop and purchase online to picking their homes using architectural control rules and even designing their house all online or inside the design center. So it’s all about empowering the consumer. That’s a little bit about us. Uh, today we’re really gonna look at the parallels between Blockbuster and Netflix and how they apply to the home building industry, where we want to understand and learn from the strategies that Netflix empowered to take on this behemoth and talk about why it’s time. I think that for builders to transition and take some of these Netflix-type strategies and at the end, we’ll have a Q&A session, time permitting. Uh, OK, so who remembers the, you know, Friday night, you’d go to Blockbuster, you’d go look for a movie or Saturday night, and you could spend 30 minutes, 45 minutes in a store looking for a movie or a couple of movies to rent and watch. It was fantastic at the time. It was groundbreaking. You know, you’d have to go to a movie theater before that or just wait for what would show up on TV. So there was a good revolution, or you’d have to buy your own DVD. So Blockbuster grew exponentially, and, you know, I got some stats for you. At its peak, it had 25 to 30% world market share, 9,000 plus stores, 84,000 employees, $3 billion market cap, and they were generating $5.9 billion in revenue. So that’s at their peak. Pretty impressive company. A lot of people, a lot of stores. You know what’s interesting is I’ve got $5.9 billion, $800 million were in late fees. You know, one of the things that worked every consumer was, which led to its downfall, was these late fees. So $800 million of their $5.9 billion, and, you know, frustrated many consumers, and that’s one of the things that Netflix leveraged, identified, and started their business on this. And they had 65 million registered customers at that time. And when Netflix first started off, you guys remember it was, they rented DVDs, they had a DVD month club. You could go online, pick the DVDs you’d want, they’d ship them to you. You could watch the DVDs. There were no late fees. They didn’t charge any late fees, and they were growing in popularity. Now what’s interesting is, you know, they were investing a lot of time and money identifying that that was really a stopgap. They said, “Okay, we’ve got a business here that’s growing, and we’ve identified what consumers want,” and as the technology improved, so in ’98 when they started, the streaming technology was at its infancy. It wasn’t anywhere close to where it would need to get to, and as the technology improved, they invested a lot of money and developed their streaming service. And that’s when things really took off for them. For a low monthly fee, you could watch unlimited content anytime you want, thousands of shows and movies anytime you want. It was just that on-demand streaming convenience, they just exponentially grew. So you could see, you know, Blockbuster had a big peak, and you could start to see after 2004 they start going down. There’s growth, and in 2007 is when Netflix launched their streaming platform, and they’ve had this continuous exponential growth ever since then. Some of the Netflix, you can see Netflix’s growth here: $4.49 billion in net income in 2022, 11,300 person workforce (a fraction of what Blockbuster was), 247 million subscribers as of Q3 2023. Huge numbers I think. And this little chart here summarizes the, you know, two companies that their peaks. I’m using 22. Netflix is not peaked yet. They’re still growing, but 2023 is not over yet, so I’m using 222022 numbers 5.9 billion to almost 32 billion, 84,000 employees to 11,000 employees, and 65 million customers to 230 million subscribers. So with 13 half percent of the workforce, they were able to generate five times the revenue in 3 1/2 times the customer. That is an incredible statistic. It just shows that leveraging technology. Whereas, yeah, Blockbuster had all these bricks and mortar and a lot of people to manage all these bricks and mortar experiences. Netflix being, you know, primarily using technology with a much smaller footprint, much smaller overhead, much smaller employee base, five times the revenue, 3 1/2 times customers. And that’s what I hope that I can help parallel and show some builders how they can leverage technology to gain these kinds of efficiencies and create these great customer experiences that you can actually continue to grow your revenue and your customers. So less people doesn’t mean lower customer service that actually, you know, they’re proving that it’s higher customer service and higher, better experiences. Umm, so you know that’s what we’re talking about. Some of the strategies. Uh, you know what started adapting consumer behavior. So Netflix identified the good and the bad of Blockbuster, and they identified the inconveniences of having to spend half an hour to an hour inside a store to try to find a product that you wanted, or a movie you wanted. And then go home and watch it. And then if you didn’t return it back in time, you’d get these late payment fees. So that was the main core, the main soul of Netflix’s approach. And you know, how does that parallel in for a builder? Allow the consumer to do as much as they can online when they want. Give them the convenience, the tour to customize, to visualize your home. Just don’t force them always to come into your design center. Give them that convenience. Allow them to do these things from home. Here’s just a statistic from NAR, National Association of Realtors. And this is showing you know where people, these are actually people that bought a home where they found homes and Internet and all the different demographics is 51%. The next largest is real estate agent and even in the 70s. What’s interesting here, even in the 77th and 97 category, 38% Internet and to 31% real estate agents, people start online, it’s easy, it’s convenient, it’s at your fingertips. It’s what people expect and I think that number is gonna only continue to increase. And I think the reliance on real estate agents over time will decrease as well. You know, the landmark, some of these landmark lawsuits that just happened in terms of commissions is shaking up the industry and you’re gonna see some more fallout. So they’re, you know, what, one at a tap, you know, when I know for sure, but most likely they’ll be newer business models that come out more real estate agents leaving the industry. And I think the reliance on technology will become even greater in this industry. So I would expect that that 51% will probably get into the 60 with dementia is over the next five to six years. Umm, leveraging technology for convenience, you know it. It definitely looks they had a growing business in their add. EM subscriber model sending out DVD’s, but that was they identified that that had limited growth capacity and they started investing significantly in streaming technologies and that is, you know, identifying that. They really want to continue that growth. How do we add and give powerboard people? They had this online catalog and it’s like, wouldn’t it be awesome when they’re looking at their own catalog online catalog that they could just start watching it as opposed to, hey, they picked the movie and then I gotta send it to them and it arrives in two or three days, then they watch it and they send it back. So identifying the real potential, they still investing a significant amount of time and money building out their streaming platforms. How can a builder do use that same technology? Today, the top technology exists that you could do the same we there is streaming technologies out there. We’ve developed one at, I think is, you know, top of the business, but there’s lots of streaming technologies where you could actually virtually tour folder realistic homes, customize and design them. You can even shop online, design your house, put it on a lot. See what it looks like in the neighborhood. This technology exists today that you can actually do the same thing. There’s another statistic from NAR, National Association of Realtors. And some of the value of website features people really value photos and to new home builders. You know, equipment would be renderings. People need to see what they’re buying. No detailed information. Virtual tours? Interactive maps. These are all really important things that people value and in need. So the lesson to be learned from here is provide as much content to consumers as possible. Give them the detailed information. Give them everything that they need so they can make intelligent business decisions and frankly, that’s, you know, the other industries are creating these expectations. Cost efficiency, you know, high cost to Blockbuster was one of its downfalls. I mean, when you have 84,000 employees, 9000 storage as you can imagine the overheads are massive and growth is slow to grow. You need to build out more, more, more stores. Stockholm hire people, so there’s a slower, uh, a growth rate and it it’s a very expensive where’s Netflix extremely lean. Once it became streaming, all they had to do was beef up their infrastructure. And you know, hire more people to manage that infrastructure, but it’s completely scalable and across the planet, as you saw with 11,000 employees, they could, you know, five times the amount of revenue that Blockbuster was doing. I’ll give you a real client case study of ours. One designer handling the work of three, they could do 420 units in three months and their appointment times went from 3 hours to 30 minutes. That’s real numbers. One of our clients, one person they’re handling the job of three people. That means 90 in their case 95 percent, 95% of finishes selections were done online, 96% reduction in appointment time and overall 80% designer time saved. And you know, at the end of the day, this is similar to the blockbuster tapes or Netflix type scenario. One designer can handle five times the selections and 20 times the employee.

Andrew Lett:

Point, yeah.

Frank Guido:

Netflix, with 13 1/2% of the workforce, generated five times during 3 1/2 times customers. This is the efficiency that you can gain using technology, and you don’t have to look at and say, you know what, my short force is gonna shrink. It allows you to grow, and Netflix looked at this and said, hey, I could do more with a lot less, and they were able. They’re five times revenue, and the same thing can happen here with builders, is still looking at saying, hey, you know, designers gonna lose their job or anything. No, I mean, this builder could do, you know, five times or five times more selection. That means if they’re successful in selling more homes with the same overhead, they could produce a lot more, which gives them efficiencies and a lot more net profit at the end.

Andrew Lett:

Frank, I think we could say that Blockbuster never produced a stranger things or something like that. They just never had that revenue available, right? Like this is just opening new doors.

Frank Guido:

Absolutely. And then, you know, they Netflix started creating their own content and a lot of different reasons why they did that. Ohh, like it gives a competitive edge and saving costs and having to pay from big markets. There’s a lot of different reasons why they did that. More dynamic, yeah. Umm, yeah. So let’s keep going here. Staying ahead of the competition, you know, constant innovation and to Andrew’s point in a minute ago, as they tried to stay at the competition as more players started to get into the streaming business. How do we stay ahead? You can create that additional content. So now I’m creating unique content that only Netflix has, and others don’t, so it keeps people wanting to continue to use Netflix.

Frank Guido:

You know how builders can use this in their space. They are experiences you could use VR or augmented reality to allow people to design and customize their house. So if someone were to say, hey, I’m walking into a builder’s office and, you know, I’m looking at this model home, which is just absolutely fantastic. Fantastic. No one’s arguing about that. But then someone says, you know, what’s that gonna look like? What’s that back splash gonna look like? What are those cabinets are gonna look like? And by the way, you only have one model home, but you have 15 that you’re selling. VR will allow you, ohh, consumer to actually see all 15, and if you haven’t experienced VR, you should because it really feels like you’re actually in the space when we show this at trade shows, and we have a lot of builders that come to trade shows, they’re just absolutely blown away with how it feels like you’re actually in the space. So that’s a great experience and a differentiator. People will remember this when they leave and they’ll say, ohh yeah, that was the place we saw the VR from, and those are important if you want to try to increase your business. Scalability. Flexibility. You know, being on online streaming allowed Netflix to expand really rapidly, whereas, you know, Blockbuster would have to build a store, find space, rent it out, stock it, you know, between planning and execution. It’s many, many months. Yeah. Get permits and all the rest of it. Finally, space. Whereas Netflix can expand and go into any marketplace virtually instantly, I mean, they may need to get content if they’re going into a different country, different languages, but there’s nothing stopping their growth rate. I mean, if they have 20 million people in country X and they want to increase to 30 million, I mean, that can literally happen overnight. They may have to put a promotion or something to try to bring on more people, but they can actually expand extremely rapidly. By your experience? You know, they really focused on creating a fantastic experience. One of the first things that they came up with streaming, which I personally really, really loved, is that you can watch one episode you want and what the next episode. So you’re watching the show, and it doesn’t matter what device you’re on. So I’m watching in the living room. When I go up to the bedroom, when I want to watch, it picks up exactly where I was. So you’re in the middle of that episode 3, it picks up right from that point, and they were the only ones at that time. So they continuously. Not only did they have that market share, but how do we make a better customer experience? How do we make it more convenient? And to this day, some streaming services and I won’t name names, but major brands they don’t parallel. I mean, Netflix is being doing this for more than a decade, and others from big studios still don’t have that kind of technology. So you know those buying experiences, those consumer experiences are invaluable. And again, how? How? What? What kind of builder do in parallel you know today you can do online shopping. You can have a person come into your design center or your sales office and they can actually take a look at some of your models and you know this, this actually personally happened to me. I was out of builders location and me and my wife were there. We looked at, you know, five or six different builders and we compared it one that one evening, we’re sitting around the kitchen table. We’re looking at all these different plans and we said, you know, OK, we think we want this model on this lot. So we had made that decision. I remember it was a Tuesday evening. We had made the decision of what we want to purchase and this was in the early 2000s when this actually happened and up, you know, being a business owner very busy could get out there till the Saturday. So we get out to the Saturday to purchase in person because they there was no online purchasing at that time and the lot was sold. So we ended up buying from that builder and we ended up buying resale actually at the end of it, we ended up buying resale and yeah, the builder sold that lot. But if we had that, if the builder had the ability for me to go online on that Tuesday evening, the reserve for my credit time of reserve, it they would have had my sale and you never know, they would have maybe the person about my they’re the same law, they may have bought something else with them. So it’s not just will people buy online? Yeah. Today, people buy everything online. If I look at Tesla, that’s the only way they sell. I mean, look, look at the two of the richest men in the world, you know, Tesla and Amazon, those guys, you know, the two, two of the richest, where they talked to two of the three richest in the world and everything to do is purchased online. Let’s keep going. I know we’re getting tight on time here, so just continuing it on allow people to customize, right. Like I can go in here. Here’s the here’s the house with two car garage. Here it is with A3 car garage. Umm. Here’s a another one of our clients case studies 92% satisfaction rate with their software 120% revenue target over achievement. In other words, they sold 127 more revenue than expected, 110% higher Net Promoter score. So that is again allowing and empowering people to be able to do this online and or in the design center cause it picked on you can be used in either in either in either way. Data driven, data driven decision. So because all their information is real time info, Netflix could make decisions in real time based on what consumers are actually doing. So I’ll give you an example how a builder could do this. So if you will allow this is, you know, a chart or report from one of my customers that have this online and they can actually see and I can almost guarantee you that in the traditional method you would have no idea you could actually see it. If I’m looking at the foyer floor, you’re 37%. Was this calacatta empire 12 by 12 costar straight and you see, you know, the third one was only 1% and some were 2%. So you can actually see and it doesn’t matter even if someone’s purchased you to the actually before they started selling. So they’re using this to decide what products to sell. Well, how to narrow down their what people are looking for so we can actually allow consumers to go online, pick colors, see what they save in their carts. So then the builder can make more intelligent decisions. Decide what products to actually sell when people come into design center or what should they put in their model homes. This kind of analytics is invaluable. Risk mitigation, right? And how can builders can use some of their risk mitigation. You can put we have models online virtually. So instead of building, you know file model role with five homes and you know some of them might sell or not sell, you can actually go online and show them and have people take virtual tours of those different models and determine what are winners are not winners. So there’s a lot that you can do to test pilot before you actually make physical investments in in actual either design centers and or actual physical models. So it helps to mitigate some of that risk. Empowerment. You know Netflix gave control to the consumers of. I’ll give you an example of what when I another one. I’m our customers. They have some like 120 models. People go online. They could. They could not only search for them, they can take tours, they can, they can customize and personalize every one of their homes fully empowering. What the consumer can do, they give him full control and all the information is exposed. There’s nothing, nothing hit in pretty much everything, including allowing people to cut, go in and customize both the exterior and the interior. Frank, did they do that all at once or did they do it? Kind of piece meal overtime. No, it’s everything comes over time. 120 models. Absolutely everything. A lot, yeah. Yeah, you know it. It comes over time. You start and you whittle away at it, and over a bunch of years you end up having you get to that point. I mean, Rome wasn’t built in the day. Right. No builder should try to sit there and say, hey, I wanna convert everything at once. Absolutely not. Always do pilots always test stuff and then just build things over time. Why now? It’s real simple. Consumer expectations and technology advancements, this is what people expect with visualizers and everything else that’s online today. This is consumers’ expectations and the technology exists. Could you do this five years ago? No. Can you do this today? Absolutely, the technology exists today just like the 1998 blockbusters block Netflix. Rather, Netflix could induce streaming in 98, but they did it in 2007. And just like, you know, five years ago, you couldn’t do this at the quality that really will make a difference today. You can so technology today does allow you to do this. One of my clients summed it up. Best digital online studios are becoming more of an expectation from home buyers because the increase in visualization tools available in other industries. That’s a fact. You anybody looking to buy a car today could go online and configure your car. Find they’ll get pricing on it where they go and test drive. Except Tesla only allows you to do this online, and I’m going to show you a couple of examples from A to the other industries retail industry and Amazon being the biggest player started off in the book business and they are the largest e-commerce company on the planet. Second richest man in the world and one of the most successful ventures ever created because it’s, you know, just like the picture it shows there. It’s so easy and convenient to shop. Black Friday broke all kinds of records, you know, even on CNN, I was looking on CNN. The days of people rushing to Walmarts they have significantly reduced because you just you know, you, you, you rush to your computer screen and you buy on your phone. So you don’t have to go in and all those crazy lineups and I think Shopify had its best year ever this Black Friday best performance ever. Look at the music industry. Spotify. Apple completely has changed it. I think today only 9% of the industry buys music. Everything else is either streamed online. There’s a small portion on radio and live, but streaming is completely dominated. Why? It’s easy. It’s convenient, you know, having the ability to listen to millions of songs for a flat monthly fee is far more appealing than having to pay 10 bucks or 20 bucks for an album or CD or a virtual album. It just that that that monthly payment make it easy. That convenience is just changed. Everything auto industry. Same thing here. Tesla only sells it completely changed the paradigm. Not only are their cars unique and different, but how they sell their cars. And you know, he’s become the richest man on the planet. Ohh kind of rushed it at the end there, but I think it made it right at 11:30. So umm, if everyone has a few more minutes it could take some Q&A and then we’ll go from there.

Andrew Lett:

Yeah. If anyone has any questions they wanna ask us, please just put them in the chat and no question is too small. No question is too big. So just Frank Netflix, their strategic, their most strategic step and how did that affect the home building industry?

Frank Guido:

Uh, I think just the customer experience identifying the pains they identified. What are the problems identified? They identified those issues and they put a solution to it. What would be the equivalent today? You know, allowing it, especially when you’re doing color selections, allowing people to make color selections started online and reduce the amount of time they have to spend in a design center. You know, instead of someone having to sit there and spend 2, 4, 6, 8 hours in a design center making selections, being overwhelmed with all the choices, and have to make decisions. Give them the ability to do it online. So me and my wife wanna spend 20 hours, 40 hours, 80 hours at home on our own, creating all kinds of different. That’s up to us. We can enjoy. We can decide what we want and then we go in and finalize it and the designers can be far more efficient. Just like that example I showed of one of our clients, they took the average 4 hours down to 30 minutes and sold more, and one designer can do a lot more. That is probably the single biggest parallel that I could see in the building industry.

Andrew Lett:

So just to put a bow on this, because we really have gone a little over time, why do you think just quickly, Frank, why do you think home builders have been resistant to do this thus far?

Frank Guido:

Yeah, I think that’s a great question. I think, yeah, change is one of the hardest things that people have to do. You know why break something that ain’t broke, as the old expression goes, so there’s always a little reluctance on change. I think the technology hasn’t been there. I mean, we’ve been doing this for 31 years for since 1991, so 33 years and it all this technology that we’ve typically implemented was always in the design center in the sales office with builders would have to have big computers with special graphics cards and you need proper support. The fact that everything is now in the cloud and can be streamed to any device, smartphone, smart TV, it doesn’t matter your computer. Just like Netflix, if you can watch Netflix, you can use this technology. Today I think is you know, so the technology is now there, uh, the consumer desire is there. The expectations there, they want this. I think now is the time that builders really should be doing this and you know builders that don’t. My, my, my fear here is that they don’t do this. Will you end up being like Blockbuster can very well because there will be, you know, smaller players, you got, you know, very large builders and you got smaller players that they wanna grow. They can grow like exponentially very quickly leveraging technology, get more efficiencies. And if I think no one wants to go the route of blockbuster or Blackberries and other famous one that that that didn’t change, it didn’t evolve and you know Android and.

Andrew Lett:

Just like Netflix. Right. But they didn’t need to, right? Yeah, they were. They didn’t see the writing on the wall. They were dominant. They were the biggest on the blockbuster BlackBerry. Everybody had a BlackBerry. The president had a BlackBerry. Everybody had a BlackBerry and it was like, well, we don’t need to change. Making tons of money. It’s like both, yeah. Are you know we are the best and that was until Steve Jobs introduced the iPhone and absolutely flipped it on its head and it was a very rapid demise and Google quickly jumped on the bad way and incompatible created Android that could be like against the Apple and those are the two dominant players today. OK, well, in this is all about customer experience and we’d like to thank everyone for coming. Sorry if we went a little long, but there’s a lot to say on the subject. We will send out an email with any content that we’ve had here. Please feel free to jump online. We’re always happy to meet with you guys and discuss your particular situations and give you that full hour and kind of go through what you need to do this transformation. But thank you very much and please check your emails. We’ll have another webinar and following month, a new exciting topic and thank you very much and have a wonderful day and dress warmly. OK. Thank you everyone. Have a great day.