Friday, December 2, 2011

The Consequences of Not Knowing What Business You Are In: A Sad Little Netflix Story

In 1998 Reed Hastings founded Netflix, the lar...Image via WikipediaThere was a time when I called Netflix’s CEO, Reed Hastings, brilliant. I take it back.

Ten years ago, when Netflix started mailing DVDs to customers, the idea was new and unexpected. It was an extension of the DVD corner store, with the added value proposition that you didn’t need to leave home to rent a new movie. Along the journey, Netflix did a few things that led me to believe they were very smart marketers:
  • They made their service very easy to use – there were no forms to fill out. Movies were delivered fast, and returning them was easy.
  • They built an impressive and streamlined distribution system.
  • They allowed users to build a wish list of movies. The phrase, “Let’s put it on the Netflix list” became synonymous with, “That’s a movie we should see.”
  • They continued to enhance services while lowering the price of the offerings.
But more recently Hastings has failed to recognize that his business isn’t just about mailing DVDs.

In the past few months I have received three e-mails from Netflix. The first, notified me that my costs for subscribing to Netflix were going up – nearly doubling – if I wanted to both continue to receive DVDs by mail and have the option for streaming. The company also announced that the two businesses would be completely separated, and I would need to use two websites and two different movie lists.


The second – an apology of sorts, attempting to explain the change, which read (in part), “We realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.”

You can’t be serious.

While the company took some heat for the price change and for splitting the two services, the second letter just poured fuel on the fire. And so the company sent a third letter notifying me that DVDs would be staying at Netflix and that I could continue to maintain one movie list.

Whew. Maybe.

I can’t help but wonder if the company has a strategy.

A lot of damage has been done. In just one quarter, the company has suffered a serious toll, losing 800,000 members. While they still count me as an active member, I am reconsidering whether the single DVD that sits around my house collecting dust is worth $7.99 per month. And I am exploring other (less expensive) streaming services.

The most critical problem for Netflix is a failure to recognize what business they are in. Hastings second letter defines DVD mailing and streaming as two separate businesses, and as soon as he did that he opened the door for trouble. Netflix was singularly poised to be able to serve all of our movie-watching needs (short of the theatre), and they have now opened the door for other streaming services (like Amazon Instant Video) to poach their business.

A word of advice for Netflix: Recognize that the movie-watching experience needs to continue to evolve as technology evolves, and that, while the list is important, it’s not really about a list – it’s about the experience and allowing me to watch what I want, when I want, how I want… easily.


Steve in POK said...

OK, they screwed the pooch. So what are you suggesting? One website, 1 wish list, check off DVD or Stream it to me?? How would you price it? Same price either way? - hmmm, that will take more consideration.

Carol Kilgore said...

This decision by Netflix should have been more solidly thought out before bringing any changes to the public. All the changes need to be in the back of the house by Netflix and keep ease of operation in the forefront for the customer. My two cents.

Madeleine said...

What a shame you are feeling disatisfied. Sadly that has happened to me in the past with other companies.

Liz Fichera said...

I too scratched my head at the whole Netflix fiasco. It just so happened that we were considering Netflix when the whole thing happened. Now? Forgettaboutit. I think they mistakenly assumed they were the only game in town.

Liz Fichera said...

P.S. I love your new profile pic! :)

Colette Martin said...

Liz, thanks for noticing the new picture. I had a photoshoot done recently for publicity photos for my new book -- the one on this page was a runner-up to the one I chose for the book.