It could be difficult to catch up to the market leader, if the market leader simply continues to improve their core product. First they would need to catch up to the functionality and then also go all that long way of improving. Unless something else comes along replacing / disrupting movies and series or video technology, Netflix could stick to that and improve it.

That is in theory. I think most businesses lose the original vision at some point though and their products worsen, instead of improving. I would guess, that it is not in Netflix' genes to keep one core product and vision of the product.

The idea to show ads on Netflix is like the nail in the coffin. Users would jump to the first capable alternative, that does not show ads. Netflix would inflict itself a weak point, at which competitors could jump in and start eating their market share. It would be a big worsening of their product. Users might think: "I am paying for this, yet I am seeing ads?!"