In Defense of Netflix
Today is awash in the fuss of Netflix splitting into two distinct services – streaming video and DVD mailing. The CEO, Reed Hastings, posted an “apology” about the way things were handled regarding changes in pricing structure a few weeks back. Everybody seems to be up in arms about this decision and proclaiming the downfall of Netflix. I will take the controversial stance that I think Netflix did the right thing here for several reasons.
1) People proclaiming the “death of Netflix” is nothing new. From its IPO in 2002 (and Walmart and Blockbuster’s entry into to market), people have been proclaiming doomsday for Netflix (see this from 2002 and 2004 and 2008 and this week – there are more, this is just the result of my lazy Googling). I have yet to see the doom for Netflix that has been prophesied for a decade.
2) Splitting the streaming and DVD mailing service was a necessity. The battleground is Video-on-demand, and make no mistake – it is the future for video. Everyone knows it, including competitors (i.e. Apple, Hulu, Amazon, cable companies, to name a few) and content providers (movie studios, television companies, etc). Netflix currently has a slight edge. To remain competitive, they likely have to focus on VoD full time. If they are going to win (and survive) they have to focus on this market full-time with no baggage.
3) No matter what Netflix did, customers were going to be upset. Customers were paying for the services based on licensing deals that were years old, were negotiated for much cheaper than would have been possible today, and were expiring. Netflix costs were going up, and they had to raise prices to compete. Would customers have been happy about a unilateral 50% raise in prices? No. Netflix could have been content (maybe) with streaming content nobody wanted to watch, but it cost money to offer better content.
4) There is likely still money to be made from the DVD delivery service, and the new Qwikster will be able to milk that one until its dry. Perhaps one way is to add video games to their arsenal, but that seems to be a losing proposition long-term for reasons I won’t go into now.
5) Oh, by the way, Netflix entire DVD delivery business model is dependent upon a healthy and functioning US postal service. If you hadn’t noticed, that not in such good shape these days.
6) Finally, thanks to @Brennan-JB for making me soften my position. Despite the fact THAT the change was necessary, they could have done a much better job announcing/communicating it. No need in intentionally irritating their customers, which it seems like is much of what they accomplished.
So, how does this relate to social media? I do think there is a danger of listening too much to the crowd. The crowd will always fear change and look out for their best self interests. A good example is the launch of Facebook Newsfeed in 2006 spawning a group of nearly 500,000 angry students. Facebook today would be unmanageable without newsfeed, but lets not forget nobody wanted it in the beginning. Everyone threatened to leave Facebook in response. How did that turn out? It take visionary leadership to not only react to the situation as it is today, but to cast a vision for where an organization is going. Managers should listen to the crowd, but they should also have the courage to ignore if they think they know better. Many companies (most famously Apple and Pixar) say that they know better than the crowd about many aspects of their business…and I’ve come to believe them.
So, is this the beginning of the end for Netflix? You’ll forgive me if I withhold judgement for the time being.
The end of Netflix? Of course not. People will still use their service. Their service is by far the most popular in the industry. Their decisions, not so much. I agree with what you said about managers should listen to the crowd but ignore them if they know better. That is definitely true. This goes in line in Brad’s blog post about the market knowing everything. The crowd knows a lot and can alert a company of trends. However, that doesn’t mean it’s the right trend to follow. Then you brought up something humorous, “Many companies (most famously Apple and Pixar) say that they know better than the crowd about many aspects of their business…and I’ve come to believe them.” I found it funny that they would say something like that. It’s like saying, “The sky is blue.” I exaggerated of course but as much as the crowd gets upset over some company’s decision, the company knows more of its business than the crowd actually knows. The people in the companies really know how to operate the business. The crowd just knows how to use the product/service. They don’t know exactly what processes were put in what they’re using. As much as Netflix messed up big time, it’s definitely not the end. We’ll have to see what happens in the future.