It’s not like Neflix is the new kid on the block. They’ve been around since 1997. They started out as a pure DVD through mail operation but Reed Hastings, their CEO, has made claims he visioned Netflix eventually as solely providing streaming content over the net from the beginning.
So what is Netflix all about? Dig deep enough on their website and you’ll come to a spot where you can download their logo (https://signup.netflix.com/MediaCenter/ImagesLogo). In those guidelines you’ll find: “For the love of movies. We do what we do because we believe in making it ridiculously easy for everyone to enjoy the TV shows & movies they love.” Looks like the mission of Netflix is to make it easy for you and me to sit back and enjoy our favorite shows - provided Netflix holds the rights to distribute them.
Reed Hastings was prescient when it came to his vision of streaming media. The business model of mailing out DVDs and dropping them off at your mailbox blew competitors like Blockbuster, with its mortar and brick stores, out of the water in the mid 2000’s. Netflix was a hit across a broad demographic with that model but Hastings sought to make using Netflix “ridiculously easy” and the best way to do that was to cut out the trip to the mailbox — stream directly to various media devices. This also targeted a much younger demographic and best of all it was possible to do once the world began the transition from Web 1.0 to Web 2.0.
In keeping with that vision, according to the company’s timeline (https://signup.netflix.com/MediaCenter/Timeline) in 2008 they teamed up with “consumer electronics companies to stream on the Xbox 360, Blu-ray disc players, TV set-top boxes and the Apple Macintosh computer.” In 2009 they get the PS3 and internet connected TVs and devices. In 2010 they’re found on iPads, iPhones, iPod Touches, the Nintendo Wii, along with other devices. Life is good! They end the year 2010 with 20 million members! What could go wrong?
Which brings me to the subject line: ignorant or just incredibly stupid? Hastings is on a roll, Netflix is flying high with stock prices in the $300 range. The company is worth billions. So why introduce an abrupt change in the winning business model that will, by the way, stick it to your customers in the form of a 60% price increase for your basic product which combined unlimited streaming and one mailed dvd? Sure! let’s split those two items and charge for each separately. I’m sure no one will mind or even notice.
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Well, as you can see from these charts customers and stockholders did notice and they were not very happy. After losing 810,000 subscribers (check out: http://business.newsfactor.com/story.xhtml?story_id=12100005TEBH) Hastings delivered a mea culpa but did not budge on the price increase or the new model.
Ignorant or stupid?
I'd say a refusal to pay attention to what the subscribers want is plain stupidity. Nowadays, people are so vocal about what they want and don't want, it's ridiculous not to even consider what is said. Can't be ignorance as they seem to know what's going on. We also thought of dropping Netflix after the split, but ended up with the streaming part.
ReplyDeleteI agree. They have lost many customers and still will do so.
ReplyDeleteGreat use of visuals Joel!
ReplyDeleteMaybe Hastings is trying to move everyone over to the "on-line" rental business and away from the mail order model. I love Netflix on my Ipad, and I don't know of any other competitive application for movie rentals and ownership that tops Netflix. ITunes is very expensive. I may buy some of this stock. Remember Apple took some major dips in its day for what was a first look a mistake, but when the Apple shrunk - wham $$$$ rolled in. - Lucy Cox – Classmate
ReplyDeleteI've been a loyal Netflix customer for quite some time and have stuck with them. I pay $7.99 a month and enjoy unlimited streaming videos. That said, I think their recent move was in fact incredibly stupid. Why rock the boat now? Particularly in this economy, and with competitors chomping at the bit.
ReplyDeleteNetflix is obviously a company that had people interested, but with price increases it wouldn't surprise me if they continued to lose customers.
ReplyDeleteNice use of the charts; I have yet to actually become a Netflix customer. However, my friends are in LOVE with it. I'm thinking there's stupidity with a little bit of ignorance sprinkled in Netflix's decision. They had a good thing going and decided to push their luck juuuuuust a little bit too much. However it's not like they lost ALL their customers and went bankrupt.
ReplyDelete*cough* Blockbuster.
I remember getting that email saying that Reed Hastings was trying to make a new program called "Quixter", allowing people to have a separate dvd service from the online streaming service.
ReplyDeleteThat failed incredibly quickly :P
I haven't been using netflix for that long yet, and while I do say that I was brought on by the streaming functionality, I do agree that they are a bit dumb for making this shift a bit too early. It should have been something a bit more gradual, and more accepted, with a whole-lot more testing.
Very good summary of their history and situation, and nice graphics. I have to say i think Netflix had a to big to fail mentality like BlackBerry did when they started losing massive market shares. Both companies felt that everyone used them and loved them so they wouldn't bother going anywhere else, but they were wrong.
ReplyDeleteThe visual is a great touch.
ReplyDeleteI don't use Netflix, since I'm more of a book fan right now than a film/television/etc. fan.
However, I have read a lot of business cases, and this looks like a classic example of "We're on a roll and can do no wrong, so let's do something stupid instead."
I'd like to give him the benefit of the doubt and say that when his pocketbook gives him too much pain, he'll return to better times, but I have seen ego and the refusal to REALLY admit doing something wrong win out over pocketbooks until it's too late to return.
I would be interested, however, to hear something about his rationales for doing it in the first place and for continuing to do it after it failed. When he issued his mea culpa without relenting, did he say why? I think some information about is required to conclude your opening point.
Anyway, this is a good piece that tells a story well.