Netflix announced last week that they were splitting their DVD-by-mail business – soon to be called Qwikster – and their streaming video service that will retain the Netflix name. The response from the public, as one might expect, has been quite colorful. Just take a look at the number of comments on the blog post referenced above. There are over 27,000 comments. Combine those comments with 58K Facebook likes and 5K tweets, and the thousands of other conversations that have taken place on blogs, social media and around the water cooler, and you’ve got yourself a rather large groundswell.
Unfortunately for Netflix, this groundswell is based mostly in negativity. Add to that the negative reaction when they announced a price hike in July and you have quite a situation on your hands.
Does this mean that Netflix has made a fatal flaw? Is Netflix a ship on its way down to the abyss of no return? Or were these decisions made to bolster Netflix, so that it is armed for success in the on-going war for streaming content?
From a customer perspective, this decision seems obviously flawed. I personally believe that the public has not heard the full story. While it’s fairly clear in looking at the history of the company and statements made publicly by Reed Hastings that the intent for Netflix has always been to deliver movies over the Internet, I believe this move to drop the DVD service is premature. Reed himself commented that he wondered if they were moving too fast. As he said, “it is hard to say.” It’s possible, as Reed mentioned in his post, that they have lined up some “substantial” additions to streaming content, and that these additions are expected to subdue the “throngs of angry torch-wielding peasants.” Just this week they announced that they have secured the streaming rights to Dreamworks content. If a few more of these announcements were to occur in the near future, then it’s possible to see why Netflix is so ready to de-emphasize the DVD service. For their sake, let’s hope they are right in this calculation.
Business motivations aside, many are claiming that this move is a strategic failure on the part of Netflix to understand their customers and what they value: namely, the convenience of managing video queues for both services from a single interface. In other words, the user experience of the existing service is what is considered valuable, and consequently is what is at stake with the move to separate the two services. This is fairly easy to understand. Who wants to log in, manage preferences and billing, and a queue for two separate services when they are essentially for the same thing – video content? Yes they are delivered differently, but who cares how it’s delivered? I just want to watch a good movie on Friday night, and whether it’s delivered to me via mail or instantly via broadband is inconsequential. I have no desire to manage two services, especially when I’ve already experienced the convenience of managing one. I presume that a vast majority of Netflix customers out there feel the same way.
At its core, UnboundID is in the business of helping companies build customer-centric infrastructures. With our software, we help large Cloud and Telco service providers build a unified infrastructure for their customer data. This unified view of their customers' identity data (profile, preferences, devices, billing, etc.) is then provided as a service for all the various customer-facing applications and services offered by their company. We believe having this unified view is core to the customer experience. In fact, if it is absent, or not properly secured, it can lead to the loss of customers and damage to brand. That’s why the recent announcement from Netflix is so intriguing to us. With so many companies striving to provide a single unified experience for their customers – so that they can earn the right to sell additional products and services to those customers – it’s strange that a company like Netflix who, until this point, had a good reputation for providing a positive customer experience, would chose to splinter the customer base. I do appreciate Reed pointing out the negative consequences of such a decision:
“A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa.”
This is exactly the type of negative experience that we are working to help our customers avoid. Apple is a really good example of a company who gets this approach. I know Apple is the poster child of comparison for a myriad of other successful qualities, but the success of their online store model is hard to beat. Telcos are also pretty good at running subscription and ARPU (average revenue per user) driven businesses. These businesses require that your customers or subscribers be at the core of business success. You take care of them and offer a unified experience, and they chose to buy more from you.
Maybe Netflix is moving toward this model with their streaming service and felt that the DVD business was just too distracting and disjointed from the new content-streaming core of their business? It’s too early to tell. Let’s just hope that if they do recover from this, grow their subscription business, and decide to add a new content type to the mix – say music, books, or games – that they don’t choose to split me in half again.