With service split, Netflix overlooks customer experience

With service split, Netflix overlooks customer experience

Summary: Netflix splits its movie rental services into the DVD-by-mail "Qwikster" and streaming "Netflix" options. In doing so, it ruins a seamless customer experience. Here's how.

TOPICS: Tech Industry

Like a streaming Netflix movie, I'll make this quick.

Netflix CEO Reed Hastings announced this morning that the company was splitting its services into two: Netflix streaming movies and "Qwikster" DVDs by mail. Both services were formerly under the name "Netflix" and the announcement follows a new pricing scheme unveiled earlier this summer.

Many intelligent posts have already been written about the change:

I'm still waiting on CNET's Greg Sandoval to weigh in (update: there he goes), but in the meantime, I offer you a simple litmus test for the change.

My wife, a Netflix member, upon opening the announcement e-mail for the first time: "This is stupid."

Knee-jerk reactions can be dangerous, but from a branding perspective, they're often the most important.

In Hastings' announcement, he apologized for being "arrogant," lacking "humility" and "respect" for customers and failing to communicate with them as changes were implemented.

And yet this is precisely what we're seeing here: business first, customers second. The transition to streaming is hardly unexpected, but somehow Netflix manages to complicate an otherwise seamless customer experience in its move to separate potential from profitability.

Two services does no one but Netflix any good. From a branding perspective, creating a new one to send off into the sunset is confusing. Two statements on one's credit card is perplexing. And two websites to manage a single mental queue is unnerving.

Look, if you're a Netflix customer, you want to to one thing: watch a movie. You don't really care which channel it comes from. If you're at your beach house, you might want streaming; if you're at home, you might not mind DVDs. You're not thinking about the path it takes to get there -- you're thinking about watching a movie. Unless you can't watch that movie, you simply don't care.

Netflix's latest changes force you to care. But that's not how customers roll: we've seen in the music business (and the publishing one, too!) that you don't care how you get it, just that you do. Any complication of that is simply because a business doesn't know how to separate its books from the customer experience.

And that's what we see here. Qwikster (DVDs) and Netflix (streaming) makes a lot of sense in an Excel spreadsheet but it makes little sense on the couch. Cost structure, benefits, delivery, price -- we don't care. Give us the movie, and give it to us now. That's what we're paying for. That's what the word "Netflix" stands for in the mind of the consumer.

If it's not a slide into arrogance to think otherwise, I don't know what is.

Topic: Tech Industry

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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  • Agreed

    I had the exact same reaction as the author - the same knee jerk reaction that "this is stupid". I was a loyal member of Netflix - not of "Qwikster". And the name "Qwikster" doesn't make any sense: how does it have anything to do with movie rentals? It looks like a combination of Qwerty with with Nesquick. Netflix is a cool name, Qwikster is a joke.

    Andrew is right - this move might make sense on a spreadsheet or in a board room, but for the customer it feels like we are being disposed of into a stupid spin-off.
    • RE: With service split, Netflix overlooks customer experience

      @jco872@... I'm printing out a hardcopy of this article and mailing it to Hastings, it explains the problem so well.
      terry flores
    • RE: With service split, Netflix overlooks customer experience

      @jco872@... I agree, too.

      But I think investors are being stupid about this. If Netflix hoses their customers, they lose customers, which means they lose income. Netflix angering all of their customers should frighten their investors, not soothe them.

      Netflix surpassed Blockbuster by focusing on customer needs rather than focusing solely on maximizing their own profits. Now, Netflix is just as arrogant and profit-centric as Blockbuster was in their prime.
      • RE: With service split, Netflix overlooks customer experience


        If you look at the share price of Netflix investors do not appear soothed. At all. They seem to like this less than customers do. It is trading at less than half of its 52 week high.
  • RE: With service split, Netflix overlooks customer experience

    If Netflix was going to keep their DVD business,<br>they would have named it "Netflix DVD",<br>and their streaming business "Netflix Streaming".<br> They renamed the DVD section,because it would <br>complicate the sale of "Netflix DVD" to<br>a potential buyer.<br> Now,they wont be selling "Netflix",<br>in any form,they will be selling "Qwikster".
    • Exactly!


      Netflix management is proving they are as incompetent as HP's leaders.

      If you want to entice people to switch...why not offer ALL customers limited streaming capability each month?
  • RE: With service split, Netflix overlooks customer experience

    After having enjoyed a lead in the streaming business, they are now ripe for the picking by Amazon Prime. If you make more than 4-5 purchases from Amazon per year (I live in the sticks and in a state where Amazon has no tax nexus so I make many more than that) it makes sense to buy prime without the free streaming benefit.
  • RE: With service split, Netflix overlooks customer experience

    I really have to wonder about this. Every article and comment I've seen is how stupid this is (and I agree), yet Netflix is up 7 points in the market right now.
    • RE: With service split, Netflix overlooks customer experience

      @Aerowind - There's a difference between customers and speculators (I refuse to call them investors anymore). Anything that brings in more profit is interesting to Wall Street, even if it means firing employees and screwing customers. In the short term, the speculators are happy, but it will change as more customers desert Netflix in the long term.
      terry flores
  • RE: With service split, Netflix overlooks customer experience

    QWIKSTER, QUACKSTER, QUIZSTER...What difference does it make if the increased price remains the same while Netflix is looking to kill it off?
  • Guys, they don't give a rat's behind about DVD rentals..

    ...or DVD rental customers.. it too low margin a business to care about.. and it's dying.. they want to kill it .. that's why the streaming business gets the Netflix brand and DVD rdntals gets Quickster.. streaming is the future and where they make their money.. making it more difficult is likely by design on order to ween people off of DVD rentals and into 2011..

    they don't want to come out and say it, because they want your wife and people like her as streaming customers.. but bottom-line is.. DVD customers don't bring in enough money to warrant caring about.. join the rest of the world in 2011 and use the steaming service...
    • RE: With service split, Netflix overlooks customer experience

      When the price went up, I dropped the streaming. I could have gotten 3 discs out at a time for the same price as 1 plus streaming. Since streaming has NO new movies and I don't care about what they had (I rarely streamed anything anyway) I switched to 2 discs at a time for cheaper. If they end up killing "qwikster" off, they'll then be making even less money off me. It's a stupid move on behalf of CEO Hastings. I think he needs to go back and learn from the Japanese - first they taught us about TQM, maybe he should learn about "saving face" -either step down or just harakiri.
      • What you don't realize is that they don't care..

        @reziol ..as a DVD rental customer they barely make anything off you anyway.. if they ditch customers like you they can improve their streaming service and grow that business..

        and how cheap are you guys it's 8 bucks.. people spend $100.. $150.. $200.. or more a month on cable and are worries about 8 bucks ..now that's Freak'n CHEAP!!
    • Show me the movies

      @doctorSpoc You're completely right, but NetFlix is missing the big picture - literally: their streaming service lacks any recent block buster (pardon the expression here) movies! I was a streaming customer but got frustrated when mind of the hit movies were available via streaming. So I ditched the service this summer.

      If they want me as a customer - or at least want my money - they need to have the movies I want to watch. Right now, those are still on DVD first. But I buy or rent them locally since NetFlix doesn't provide them online and obviously doesn't care about customer service.
    • RE: With service split, Netflix overlooks customer experience

      @doctorSpoc <br>Thanks for pointing out the blatantly obvious to what are apparently founding members of the "DVD or Die" movement. Common sense and market reactions inevitably leads to the "shed & soon dead" status for DVD rentals. If confused, look up Blockbuster and Hollywood Video. Netflix currently leads the market but Redbox is an acknowledged threat.<br>Points to consider:<br>1. HD offers five times the amount of detail compared to (SD). DVDs only support SD and don't have the necessary storage capacity to satisfy the needs of HD.<br>2. Redbox now accounts for about 27% of the U.S. video rental market, up 9 percentage points from a year ago. (Forbes, 12/09/2010)<br>3. Revenue from Redbox rose 38% in the fourth quarter, and same-store sales were up 12.5% (money.cnn.com, January 14, 2011)<br>4. The concern by investors is that NetFlix cost structure will increase, particularly on the content side. (Forbes, 9/15/2011)<br>5. DISH Network recently bought Blockbusters assets and is bidding on Hulu.<br>6. The change has spurred about a million of its 25 million customers in the United States to drop their subscriptions, (2nd time in the companys history that it experienced any drop),and its stock has fallen almost 52 percent since the change was announced.<br>7. The name Qwikster on Twitter was not a DVD distributor but a man with an Elmo profile picture whose page was filled with foul language and drug use references. <br>While many of these "bullets" look quite good, the "expected" trend is continuing to be streaming movies. Netflix leads in this area, Redbox is currently trying out different possible partners to provide the service, and Hulu has recently started an HD streaming service, Hulu + (7.99/month). Having used both RB and NF, I dropped Netflix DVD service and went to streaming only (cost and convenience). I use RB for new movie & game releases (I can live with a 28 day delay for "new" movies), NF streaming for past TV series seasons episodes. Also, NF provides Blu-Ray products in streaming ($1 more/month), but most people, myself excluded, aren't set up to watch it above 480i. <br>Here's a good, unbiased column about the split: <a href="http://gigaom.com/video/netflix-qwikster-future/" target="_blank" rel="nofollow"><a href="http://gigaom.com/video/netflix-qwikster-future/" target="_blank" rel="nofollow"><a href="http://gigaom.com/video/netflix-qwikster-future/" target="_blank" rel="nofollow">http://gigaom.com/video/netflix-qwikster-future/</a></a></a><br>Finally...harakiri is actually either hara-kari or hara-kiri. (merriam-webster.com)
  • RE: With service split, Netflix overlooks customer experience

    Many of the articles I've read this morning point to a reality that current customers don't really like thinking about. DVD rental is dying a slow death. Even Blu-ray couldn't drag it back out of its slow death spiral. Netflix and others are doing decent business today but eventually that will far into a small niche market. Does Netflix really want to drag that side of the business along as it slowly dies or cut it loose now and not have to deal with it?
  • RE: With service split, Netflix overlooks customer experience

    What made Netflix great was the SYNERGY between complementary products from ONE VENDOR. You are in the process of destroying that synergy and will be a weaker company because of it.

    Your job as CEO is to enhance shareholder value. Please explain to me how these recent announcements will achieve that goal? How does losing billions of dollars of income from millions of loyal customers translate to a higher valuation for your company? Even if you sell off the Quikster side of the business, will the revenue you generate from the sale offset the loss in customer's ongoing revenue stream?

    Please take a look at your stock price as of late and then tell me that the general investing public believes that your decisions will continue to enhance shareholder value.

    As a long-term customer of both streaming and DVD services, after the split, I will be looking to your competitors for the complementary services.
    • DVD rental business is low margin, low profit..

      @thesuperstitions@... and use of optical media is dying.. streaming is WAY higher margin, high profit.. and is growing.. Netflix IS serving its stock holders by weaning its customers off of DVD rentals and into streaming.. that actually makes all kinds of sense/cents on just about every level and that's why their stock is up 7% today.. DVD rentals are the past and streaming is the future and where the money us at.. the market is aplauding Netflix more gently nudging its DVD rental customers into 2011/12.. might be hard to take if you are a DVD rental customer.. but you're a dinosaur.. that's the reality of it.. Netflix just realized they can't come out and say that.. need to be a little more gentle.. but this is definitely the right move.. and Wall St. agrees 100%...
  • do it like Gap

    Best comment I read on this was on the Netflix blog comments, from someone who pointed out that Gap.com has all their brands (Gap, Old Navy, Banana Republic, et. al.) coordinated on ONE website, with coupons, deals, shopping cart, credit card on file serving ALL the brands. It's an integrated website which works well for the customers and now Netflix is doing the EXACT OPPOSITE.

    They can still have TWO brands if they wish, something like "Netflix DVDs" and "Netflix Live" (please lose the stupid patronizing lame "Qwikster" name.)
  • streaming content just isn't there

    If streaming content were better I could see this move which, as others have pointed out, is nothing more than a precursor to getting rid of dvd rentals altogether.<br><br>BUT, and that's a big 'but', it isn't-- the content just isn't there on the streaming side. The time to make this move was AFTER they had secured better streaming content-- not before.<br><br>Purely from an MBA perspective, this was a huge ham fisted boneheaded move-- truly absurd. how much are they paying this guy anyway? sheesh.