Monday, September 19, 2011

Product Disintegration: Netflix and Qwikster Miss The Trick

Just when you thought they couldn't get any more stupid...

NFLX stock plummeted after the announcement in July that Netflix would separate streaming and DVD into two separate plans, effectively charging customers more for their existing subscriptions. Once at almost $305/share, by close on Friday, NFLX was worth about half of that -- a mere $155.19. As of this writing, it's dropped further to hover around $143, and in light of last night's events, it doesn't take a Wall Street broker to predict that for Netflix, it's only downhill from here.

NFLX stock prices from mid-June to today, Sept 19 2011

Last night, around 9 pm, CEO Reed Hastings sent out an email and posted a blog apologizing to customers for his arrogance and lack of communication... but not for the actions that are estimated to lose them 1 million users by the end of the year. Instead, he laid out plans to rebrand the DVD-only plan under the name Qwikster. This means a new website, a new movie queue, and a separate credit card charge. In other words, it means pissing people off.

Mr. Hastings, I'm glad to see you're eating that humble pie, but next time try a side of common sense. In a market where companies are increasingly striving for more product integration (Facebook connect, "sign in with Twitter," universal Google accounts), what would inspire you to break up a well-recognized brand? Netflix is now going to ask customers to log into two separate websites, keep two separate queues, and potentially lose hundreds or thousands of the movie ratings that dictate recommendations. Not to mention the choice of name, which recalls the late-90's trend of the ubiquitous suffix "-ster," at the same time evoking images of the corner liquor store with the prefix "qwik." And never mind that they didn't have the foresight to check into potential branding problems, like the Twitter handle @Qwikster, whose tweets are full of profanity and revolve around getting high.

Streaming is the future of Netflix. I don't think anybody with half a brain is arguing that. Companies need to focus on digital delivery of content, or they'll go the way of bookstores like Borders. Hastings explained that streaming and DVD delivery are “quite different businesses with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently.” But he's going about it in entirely the wrong way. Netflix streaming is not a complete service by itself. It's currently a supplement. You can't get most new releases via streaming, and browsing the options you do have is laborious. As a consumer, if you're going to charge me more for streaming movies, I want to know that you're planning on improving both the selection and the interface. Until you do make those improvements, I need the DVD service... and I shouldn't have to pay extra for it. Now, with the announcement that these will now be completely different services, Netflix has again jumped the gun. You need to create a complete service before you can market it independently.

Almost a year ago, I posted about when a brand should backpedal, arguing that many companies make an about-face too quickly due to the instant feedback the internet provides. Here is a notable exception. This is not something as simple as a logo change, which is more a matter of taste and does not effect product functionality. This is not something to which customers will become accustomed. This is a change which damages brand recognition, damages trust, and damages user experience. Now is the time to backpedal, and fast.

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