So I am assuming you’ve heard the news, everybody is talking, writing, tweeting about it. Not it’s not about Facebook’s latest update but it seems that Netflix has made another bold move.
After increasing the price of its DVD and streaming side by 60%, it has decided to split its famed DVD rental and streaming business. That’s right, the days when you could order the red envelope and stream one of the movies may be behind us. That is of course if you are not one of the many customers, who was so appalled with the price hike that you cut ties and instead moved to a competitor. I did and now I get superfast shipping and many TV serials and movies online from one provider, Amazon.
But Hastings’s decision to split Netflix struck me as odd because it impacts two aspects, a) its value proposition and b) it’s just poor planning.
Netflix key customer value proposition – i.e. the core value of what the company offers its customer – is convenience. Customers can go on to the site and easily choose a vast variety of titles right from their computers. They can queue movies, and receive superfast delivery of titles to their homes in a red envelope, which oh is the same package in which you can send the movie back. If you have ever used Netflix, this really was revolutionary. No more walking to blockbuster or local DVD store and looking through the titles and rushing back to avoid the late fees. Netflix saw an unfulfilled need and filled it beautifully. The website is easy to use, the recommendation system is on par with Amazon’s and your items are neatly queued up. I always saw its streaming side as part of a value added component. Streaming is highly convenient, but lets face it you don’t want to see old movies but rather the latest and greatest. But it was a good filler. Everyone understood that the production houses did not want to relinquish control over their movies and annihilate their DVD revenues and so Netflix offered us recommendations to art house and low-budget movies. We got it, didn’t always love it but we went with it. In the hope that one day we could stream new movies at cheap prices.
But now the new model hinders this convenience factor. Now there will be two websites, one for DVD – Qwikster and its streaming business – Netflix. Two sites, two payments, two queues – worst part the two don’t even talk to each other. For a site built on how easy it was to rent and watch movies, that’s not very convenient. Businessweek explains the concept and what lead to it really well, so I recommend checking that out. For customers, who are happy with one option sure it works out, but for those who wanted both services, it’s a lot of work. People want easy and complicating it will just drive customers away. I was reading the Netflix blogand read the comment to Hastings post and it was interesting to see just how passionately people felt about the issue. I expect there to be a big backlash and its going to be a lot worse than the drop off from the price increase.I could have understood this move, if the streaming business was good enough to go it alone but it’s just not there yet. Unless Netflix pulls an amazon and starts offering new movies on a pay-per-view basis.
If I was going to make a case or justify Netflix’s I would use a concept of core competence, which is the collective learning in the organization especially coordinating diverse production skills and integrating multiple streams of technologies. A mouthful yes, but the essence of this is that Netflix’s DVD and streaming business have two very different business models. They are very different operationally and have different competitive aspects to them, and Netflix has built up some learning’s and skills in each field. Netflix beats out the competition any day when it comes to DVD’s, Blockbuster and the corner movie store (to name a few) didn’t hold a chance. Although Redbox is a very interesting concept. On the streaming side, it has a stellar website and recommendation engine that keeps the customer so busy with art-house/older titles that they forget about the new releases. But the streaming side has been marred with several challenges, new players have entered the market with varying subscription models and Studio’s have not allowed Netflix to access their full libraries. Netflix even lost its contract with Starz, which will impact its streaming options.
On the planning front, Reed Hastings and his team made an epic mistake. They went ahead and announced that they will be calling the DVD service Qwikster. Hastings’ explains the concept of the name rather well on his blog, the service is Quick, sure we get it. But in this day and age where almost every brand is on Twitter, connecting and engaging with its current and potential customers, they forgot to check if the handle was available or at least attempted to buy it.
Well when I read about it and then went on to Twitter, I was surprised to meet Qwikster. No it’s not elmo.
The @Qwikster handle belongs to Mr. Jason Castillo, a weed loving guy and a penchant for rap. OOPS.
He is an interesting character for sure but I doubt that’s the type publicity Netflix was looking for. Wired put together some of his more interesting tweets. Needless to say his account has exploded he has about 1600 followers yesterday at 12pm, and currently (9/20, 10:17pm) he has 11,442 followers. I wish I had been as creative with my Twitter handle. So the question arises, was Netflix aware of this and if so why didn’t they hold off from announcing it to the rest of the world or at least make this gentleman an offer. Although I read that $1000 is way too low for him.
So what do you think about this move? Are you angry and going to stick it out or just going to move to another channel? Chime in through the comments section.