Netflix wrestles with innovator's dilemma; Customers pan 'Qwikstupid' idea

Summary:Netflix CEO Reed Hastings apologizes to customers and renames the company's DVD by mail service Quikster. Chaos ensues.

Netflix apologized to customers for mishandling its pricing changes and attempted to slice off it DVD business under the rebranded moniker Qwikster.

Despite the best laid plans of the company’s business strategy consultants, the early customer reaction can be summed up in one word: blowback. Customers have a right to ask a few questions. What consultant cooked up this strategy?

Netflix CEO Reed Hastings delivers quite a mixed bag in his mea culpa blog post to customers. The upshot goes like this:

  • Netflix lacked "respect and humility in the way we announced the separation of DVD and streaming, and the price changes."
  • Hastings' biggest fear is that the company couldn't transition from DVD delivery to streaming movies. Hastings is worried about the innovators dilemma. He said:

Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover.

  • To manage this dilemma, Netflix is separating its DVD by mail service into something called Qwikster. Netflix is the streaming brand and Qwikster is the DVD by mail service. Both will be improved, said Hastings, who added that Qwikster will include video games.

Both Netflix and Qwikster will "work hard to regain your trust," said Hastings, who said the current pricing changes stick.

Netflix's moves raise more questions than they really answer. Among the key issues:

  1. Does this Qwikster spin-off really amount to anything more than a quarantine of a business Netflix wants dead? Customers quickly pounced on the possibility that two sites complicate matters.
  2. Can Netflix's streaming service really carry the company? The content library for Netflix's streaming service is lacking. Losing Starz doesn't help either.
  3. Is a name change and business separation really the best way to handle an innovator's dilemma? It's hard to believe that these services will be separate but equal and innovate individually.

Also: CNET: Netflix CEO's apology brings new backlash

Customer reaction brutal

Netflix customers called Hastings out on the master plan, which comes just a few days after the company said its subscriber totals will fall short of estimates. Few were buying it. A sampling from the reaction to Hastings blog post:

This just further encourages me to drop one of the services (or both). Without integrating the two services, it makes things much more difficult for customers who'd like both DVDs and streaming. We'll no longer be able to see when the DVDs in our queue are available on streaming, so that's a huge detriment, in my opinion. Also, it's obvious that the movie distribution companies are not fans of your streaming service, considering the huge accounts you've recently lost. So with this loss of content, your price change and your split of the services, you're now offering less for more. I still fail to see how any of this is a benefit to customers, though you are desperately trying to spin it that way, understandably. It's purely to make money by streaming (don't have to pay for that costly shipping or storing inventory or paying employees to perform the shipping). And I wouldn't be at all surprised if this "Qwikster," (really? sounds like Friendster, and we all know how well that did) ends up sold off elsewhere, probably again to the detriment of the customers. Maybe streaming really is the way of the future, but until your content improves, none of your changes have been worth the additional cost or pains in the ass to customers. I haven't heard one good word about Netflix since the price change announcement; all customers are less happy these days. Luckily, you still have more DVDs than Blockbuster, or even more customers (including me) would be long gone.

And.

Reed Hastings I'm going to take a slightly different tactic and leave the Netflix/Qwikster thing alone. Instead I wanted to touch on your comments about focusing on and building out the technology for the (now) Netflix streaming service. No one I've talked to has complained about the streaming technology in the Netflix DVD/Streaming split. What I hear from those people who love Netflix streaming is "I'm not interested in paying more for service when the content on streaming is abysmal and MUST be supplemented with DVDs by mail". As an engineer, the tech is always fun to build and streamline, but Netflix will live and die by its content, not marginal improvements to its underlying streaming technology.

And.

RIP Netflix & Qwikstupid or whatever it's called. Seriously...are you guys making an attempt at being the hipsters of usability? Making no sense and just flat out looking dumb to people around you? The price hike didn't bother me that much as I was already on a 3 DVD plan and my rates didn't go up as much as others on 1 DVD plans. Now you guys want to make things more annoying to use. I'm pretty sure it will be more convenient to throw my money at Apple & Amazon and have a much better usability experience. Sure, my recommendations may suffer a bit, but as it is, my kids streaming Hannah Montana reruns has pretty much screwed those.

And.

You're continuing to make a classic mistake: thinking you're something different than what everyone believes you are. You're not a DVD company and a streaming company: you're where I go to watch movies. That's it. The future clearly is streaming, but by separating and charging more for access, you're wildly less valuable to me. I'll likely cancel. You haven't listened to customer feedback. You're delusional and you're lost.

Related:

CNET: Netflix CEO's apology brings new backlash

Topics: Mobility, Hardware

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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