Hello, welcome back. In this lecture we are going to look at Netflix and Netflix's recommendation in particular. And if you ever been to Netflix's site before you've seen how they have something where if you watch movies or watch whatever, watch TV shows and they have a recommended section for you. And they'll say, oh we think you should watch this. You probably would like this. And so we'll look at some of the main ideas as to how they bill that recommendation out. We're not going to look at the mathematical specifics because it would take a course in many mathematical courses to explain all that. but we'll look at some of the main ideas. And we'll see some interesting stories behind how it came to be, the way it is. And so the main over arching principle here, remember in the optional textbook we base everything in principles is that crowds are wise. And we didn't look at the chapter before this in the book or the section before this, rather in the book on Amazon. And it we looked at how Amazon ranked products on the display page. And there is actually something called the wisdom of crowds. Where basically it's saying that if everyone is guessing on the value of something, right? In this case or in Amazon's case it would be on the, what the ranking of a product should be on the scale of one to five where everybody submits their view. I think it's at three stars. I think it's a five star. I think, you think it's a four star. Someone else thinks it's a two star, whatever, then they When you average those estimates, you get something that is closer to the true value, provided that they may make some assumptions on how the estimates are made. we didn't have time to go through that here, but the, the main ideas still play a part in that we're going to rely on what people think about ratings, in order to make predictions as to what other people's ratings would be. So let's start off by looking at a brief timeline of Netflix's history. So you've, if you've ever rented something or seen a box on Netflix, you know it comes in this red packaging. Typically this is their trademarked red boxing that you could see in the mail, or anything along those sorts. And Netflix all started with a movie of Apollo 13, way back when in about 1997. One of their founders Reed Hestings, had rented Apollo 13 out as a movie. And he had already been six weeks late on returning it, so he had racked up already a large sum of late fees. And so, one thing that he thought was, why should I be charged a late fee for every day that I'm late for this movie? This is the only movie that I have out right now. Why, why shouldn't I be able to keep it out as long as I want as long as I don't, for instance take another movie out. And that was kind of one of his ideas as he started to get fed up with these, these late fees. And so in that same year as a matter of fact, in 1997, Netflix was founded and they started off with their standard DVD rental service. And they still operated according to that pay per rental. They didn't move on to the other scheme that I just described yet. They they were still operating under the assumption that you would rack up late if fees if you returned a movie late and so on. And then in 1998, they opened up their online store, which started to add more convenience to the customers. Because rather than having to drive out to the store or anything like that, you could just order the DVD's offline and have them shipped to your house in an envelope that kind of looks like this. And then in 1999, that's when they really made that switch to rather than pay per rental to a monthly subscription plan. Where you can keep any movie out as long as you want and you just, you pay Netflix a monthly subscription, however much each month I'm not sure what their prices are even now. But they have a monthly subscription basically. You can keep a certain number of movies maybe one, two, three, depending on for how long as you want, but you have a limited number that you can keep out at one time. Right, so if you had the movie Apollo 13 out and you had it out for six weeks, that's okay but you just can't get a new one until you return that DVD of Apollo 13. And this also works for the online store basically until you ship it back, you can't get a newer DVD back that you want. But you can only have a limited number out at one time, that's the idea. So rather than paying for each rental that you have, right, so paying per rental would be that every DVD you take out, you actually have to pay and have the late fees associated with that. You just pay a monthly subscription, you can keep each of these out as long as you want. But you can only have a limited number amount, at one time. So now in terms of Netflix operation, there is two things that we should note. They've been really scalable over the years, and we've looked at scalable in terms of algorithms and things along those sorts. But, what we really mean by scalable here is that the cost that it takes them to operate is less as they have more users basically, so the cost per user is going to be less. And so basically if you plot this out, right and this would be their cost of operation in dollars, say. And then this is the number of people or the number of subscribers that they have. It's going to look at, it's going to be a curve kind of like the utility curve that we looked at in the last lecture, right. Kind of like this, right. Where it's going to tip off in the, the increase is going to get less as the number of people goes higher and higher. And there are also, in addition to being scalable, they also operate with a lot of stickiness, and that means customers tend to stay.
