Johnson leaving is also a lesson that cut-and-paste strategy (applying what worked at Apple as-is to JC Penny without considering the differences between the two target customer bases - like the 'no sale' strategy) almost never works.
I've been reading all the comments here and at Reed's blog to understand what everyone has to say about the split. Internally, we've known about the split for some time now.
Why do you think this is a terrible move? Your comment has a lot of unflattering comparisons, but doesn't explain why the move is stupid.
Also, you're probably right that DVD as a service will not last forever, and Reed understands that too (he mentions this in the post as well - http://blog.netflix.com/2011/09/explanation-and-some-reflect...). DVD service may not last very long, but right now, it is a growing business.
It's a terrible move because you're splitting the business on an irrelevant implementation detail. There is one thing at the root of all this from a customer's perspective: watching TV and movies. Netflix as a unified DVD and streaming solution facilitated this well for reasons already mentioned; you could stream if streaming was available and desirable under the circumstances, but you could wait for the DVD if you had a good reason to do so, and these services both cooperated to enhance the customer's single experience and goal of watching movies.
There really is no reason this should not have been a significant internal restructuring offering the necessary resources to both divisions instead of a major public split like this. It's simply not a customer-facing issue. Now, as DVD becomes less and less relevant, Qwikster is doomed to an eventual shutdown, its users will lose their data (recommendations, rental history, reviews, etc) and/or Netflix will have to merge it back in to its database anyway, and there are just a myriad of other inconveniences from the user side.
Essentially, you broke something that was working well for its customers for the convenience of internal management and politicking.
Just to share my personal experience: My wife and I have been Netflix customers for years. Streaming is pretty convenient for us, but two major problems: 1) lack of content and 2) lack of subtitles / closed captions. Captions are important because we watch movies at night, after the kids are in bed. That means we keep things are quiet enough that you occasionally miss a line of dialog. Because of those two issues we're back to DVDs in the mail. Here's my point:
While the services were integrated we could play with the online service (wait for it to improve) while still getting DVDs through the mail. It didn't cost any extra to try a streaming movie or two. Now that they are separate, checking up on the online service has a much higher cost, both monetarily and in terms of effort. Personally I'm disappointed, I liked streaming a lot, but for us it just wasn't quite there yet.
As others have said, the two services are complementary. I might like to know that I could watch a movie instantly instead of waiting for it in the mail, even if that's what I'd planned to do. Or that I could get a DVD in the mail because it isn't available for streaming.
As a customer I feel Netflix cares more about promoting streaming than keeping me as a customer. Rather than holding the door open so I can take my time converting to online content, I'm being pushed. Maybe right into a the arms of a competitor, because I'm not feeling the love from Netflix.
I think Netflix has basically two kinds of customers: mainstream customers and long-tail customers. The mainstream will be fine with this, but for those of us who like to draw our content from the long tail, it sucks.
My wife and I were on streaming-only for a few months, but last month I upped our account to streaming+DVD again for just this reason -- the stuff we wanted to watch just wasn't available, and didn't look like it was going to be anytime soon.
Because the two services work well together. There are lots of movies and shows that you can't stream, but you can get on disc. Your data about what discs I rent improves your recommendations on the streaming side; and having one UI for both services makes me more likely to get them both from you. If Qwikster fully splits from Netflix, it'll have to compete on its own with other disc-only solutions.
Maybe you're going to radically improve your streaming library Real Soon Now; but, if so, the time to split is after that improvement, when streaming can better stand on its own.
It's a terrible move because how I go about finding a movie to watch is very important to me. I want to be able to search for movies, browse a genre, or rate movies and get recommendations all through one easy to use interface. I will decide whether I want to stream the movie or wait for it in the mail. How you handle it internally I don't really care. I'm even willing to pay for the services separately.
Now, let's compare to cable. If I sign up for Comcast cable with HBO, I would also pay for the services separately. But, I don't want to have two boxes with two remotes sitting next to my TV just so I can watch HBO separately.
When I log into amazon.com I can buy physical items like DVDs, or purchase digital items like eBooks or MP3s, or I can stream movies. Maybe they're handled internally by different departments. I don't know and I don't care. All I know is that I can do everything from one interface with one account. I don't need to go to amazulu.com to watch movies and kindlebooks.com to buy books.
Simply put, convenience is a HUGE value. Something that I am willing to pay for. I didn't even sweat the Netflix price hike because the value was still there for me. But if you're going to make it HARDER for me to find and watch a movie, I don't see how that's worth paying for.
It would be a debatably good move if the streaming catalog were deep. It is so shallow that during the DVD+streaming price hike/split, I canceled the streaming portion.
And, note that I'm setup perfectly for streaming. I have no TV/cable/dish. I get all my content from downloading TV and getting movies from you. If I could get TV from you on streaming, I'd abandon torrents.
It is really horrible watching Netflix implode like this.
I've been a Netflix customer for over 5 years.
To me, Netflix is a company that does DVDs-by-mail well, and also trying to grow online streaming.
Online streaming as it is right now is a baby.
It grows fast as every healthy baby does, but it can't be an adult yet as DVD business is. May be it will grow enough in the next few years, may be.
So when Netflix announced separate price for DVDs and streaming, i cancelled streaming immediately, because it is not ready for me yet as a separate product I'm willing to pay for.
It was good enough to have it as an addition, as a nice extra feature, but not good enough to pay extra.
So, in my opinion, there is (was?) one thing that Netflix is(was?) doing well, and now, what is this company doing anyway? What are their business? Oh, it's a video streaming over the internet, just like Hulu or Youtube?
From the outside it appears that Netflix is reacting late to market forces and business partners. Netflix had seemed to be growing in size and more importantly 'clout'. The 'media biz' is run on relationships, trading huge favors and controlling vertical markets. If Netflix has little influence or trading tokens then it will eventually be marginalized. Blockbuster seemed to be just just what it's title implies for a while, now it seems more like a blip.
Netflix is wrecking the huge advantage they have. Now it will be just another streaming company. Netflix has leveled the advantage it had, opening up huge opportunity for competitors.
The main reason for the split is the realization that streaming service and DVD service are two completely different businesses that need to grow in completely different ways. For example, in case of streaming service, we've just expanded to Latin America and the Caribbean (to 43 new countries). In case of the DVD service, we're adding a new video games catalog.
DVD service is still growing - it probably won't grow at the same rate for very long, but right now, it's growing. Streaming, on the other hand, is growing at a phenomenal rate. Therefore it makes sense to not hold up the growth of one service for the other to catch up.
In the time (about 6 months) I've been at Netflix, the one thing I'll have to call out is the absolute, undeterred focus that the company has. Simply put, Netflix fundamentally believes that it's best to do one thing really, really, really well, than to do many things reasonably well.
Splitting the streaming and DVD service isn't so much due to lack of ability to design the website to suit both options, but really as an indication that they are turning out to be different businesses altogether.
From the customer's perspective, they are not two separate businesses. They are one, strong business (well, were).
Streaming is most valuable when DVD is (a) there as a backup, and (b) managed with the same system.
Netflix has seriously decreased the value of their streaming offering by separating out the DVD and de-integrating their systems.
There is basically no reason to pay for Kwikster now (terrible name BTW), and the streaming is now an extra cost. We'll have our kids use Amazon Prime, which we already pay for. They're much less choosy for content anyway, and it cuts off another monthly bill.
Someone inside of Netflix should have had the balls to tell your CEO this was a stupid idea and customers would hate it.
You don't speak for all Netflix customers when you offer your perspective.
I joined Netflix because of streaming and I prefer to look at streaming only. When I joined netflix I got a DVD and didn't return it for a year. I didn't want to return it because I didn't want to get another DVD. In search results I never wanted to see the DVD results. I wanted to see what I could watch now. Content is such a key part of this. If the streaming service had the same or more content than the DVD business, nobody would care. But since they are still building that collection and struggling with content owners, people are freaking out.
Time will tell whether this was a stupid idea for the market at large. As a streaming customer, I'm indifferent. As a tech pundit, I think it was an important strategic move and I applaud Netflix.
I think you're throwing out the baby with the bathwater. There are straightforward technical solutions they could implement to address your complaints, but for those of us that aren't so extreme, there's no easy solution to the way they're breaking our desired usage.
I am a Netflix customer. I don't care what they do with their DVD collection. The only reason I occasionally ordered a DVD is because it was available in my subscription. Since the split, I've canceled my DVD service. I hate DVDs. I don't want to wait for them, I don't want to handle them, I don't want to remember to mail them back.
To me the split has zero impact on my perception of the value of the streaming service.
I looked at Amazon about 6 months ago, and there was no content of interest there that was not also on Netflix.
I am also a Netflix customer. I too canceled my DVD service. I haven't ordered a DVD from Netflix for months.
I had previously thought that if I ever did want to order a DVD again (for something not available on streaming), I could just reinstate the DVD service and order it. Now, it appears, I would have to sign up with a totally different system to get the DVDs. I'm probably not going to bother doing that.
I am baffled as to why they would split the DVDs into a different business altogether. It's a different product, sure, but need it be a whole separate business? I trust it makes sense internally to Netflix, and I presume it is projected to be more profitable. And if so, then I can hardly blame them for doing it. But as a user, I don't get it.
While there may be some business sense behind it, as a customer, I don't see any benefit for me. It may make things easier for Netflix, but how does it make anything better for me as a customer? This is the second time Netflix has made an announcement about changes that were seemingly for some good reason, but left customers bewildered.
If you had to pick between DVD and streaming service, and make one of them phenomenally better than what it is now, which one would you pick? DVD, because everyone knows and loves it? Or streaming, because it's growing rapidly? You get to pick one.
With the split, Netflix gets to focus entirely on streaming - make it better for the customer. Which means, more (and better) content, faster and better streaming service, Netflix on more devices, providing Netflix outside US and Canada etc.
And Qwikster gets to focus entirely on DVD service - which means expanding the DVD catalog, getting video game rentals for Wii, PS3 and Xbox 360.
As a customer, you get a much better Netflix and/or Qwikster experience. As a Netflix employee, I get to focus entirely on making streaming better, faster, available on more devices, and in more regions than we have today, without having to worry about compatibility with the DVD service.
I don't want my experience dominated by picking between one medium and another.
I want to pick from a unified comprehensive content catalog, and get the content on whatever medium is available/convenient.
I want a single unified queue which I can append and rearrange with ease, not have to maintain 2+ queues of content separated only by medium.
I want to add title X with the intent of seeing it on pristine Blu-ray, and then on a whim watching it right now when streaming rights are negotiated - _without_ having to do a deliberate search on another site ("nope, not streaming yet").
FWIW: I was at Kodak when they decided that the distribution model was more important than the customer experience. You remember Kodak? used to make film for cameras? film? nevermind. Big name in the photography business, now bulldozing five miles of disused manufacturing buildings for tax reasons.
Splitting the delivery departments was smart, realizing streaming is the winning long-term move was smart, unifying the customer-facing content selection to cover all media would be smart. If I pick a title, I want the choice of media subordinate, not dominant.
How does splitting them up make them each phenomenally better? Why should the customer care about Netflix's internal organization? Make the same changes, just keep the top level name and details like accounts/recommendations.
If I buy a Macbook Pro it's from Apple and if I rent a movie from the iTunes store it's from Apple... They are completely different business units internally, but to the customer it's the same company and I can use the same account for either purchase.
One theory, discussed by Bill Gurley in the post below, is that it'll put them in a better negotiating position with the studios, who were trying to get a percentage of Netflix revenues (not just the streaming revenue)...
This has the ring of truth--otherwise, why not just better separate the divisions within the Netflix brand, as many (angry) commentors have suggested?
An additional possibility that occurs to me is that the movie studios' well-publicized dislike and fear of the streaming business is hurting the physical DVD business. Netflix has had to accept some pretty bad terms from studios, like delaying their availability of new releases, in part because studios see Netflix as a long-term threat. Quickster, on the other hand, should be able to build better relationships with studios precisely because they're not a threat to the studios' long-term dominance.
Basically, it's true that this is not the most customer-friendly move in the short-term, but the movie studios' strategy in the medium-term was to kill Netflix. "Continue to grow in the same direction" was not an option because the studios hated it, and this way both pieces of Netflix have at least a chance to survive.
> If you had to pick between DVD and streaming service, and make one of them phenomenally better than what it is now, which one would you pick? DVD, because everyone knows and loves it? Or streaming, because it's growing rapidly? You get to pick one.
Depth of catalog is the most important feature for me. I especially like watching HBO shows without paying tons of money for cable. I also sometimes like watching really obscure films. Films which were released on DVD at one time, but where it may be hard to track down anyone to authorize licensing for streaming.
Which should I pick?
Before Netflix, I satisfied my tastes at the independent video stores around town. Netflix killed those. Naturally, I'm sensitive to any changes that might undermine the DVD service.
The best solution, as I've mentioned before, is to just allow obligatory licensing. Let Netflix convert its entire DVD catalog to streaming. Make it pay a fair statutory fee whenever it streams anything. If a content owner cannot be found, allow the fee to be collected by a designated rightsholder organization (something like ASCAP) until claimed by a verified owner of the content.
We had a few video stores that really specialized in the long tail. They sat right across the street from Blockbusters or Hollywood Videos. Stuck around a few decades, thrived on the indie image (sorted movies by director, that sort of thing). They made it through BB's reign, and passed away only recently.
But eh, that's my limited experience. I'd welcome more data. Call it a hunch for now, and an open question.
But divisions can't go bankrupt and die as easily. Qwickster or whatever it is has a death sentence. It's value wull be polished just enough to sell it off to suckers. And when it dies Netflix will just shrug.
Its probably just a marketing drone. The level of clueless ness at netflix is astounding. How about the we'll get rid of reviewers that are 40 times better than our clueless recommendation system and replace them at a future date with the getsapo facebook? Whats that you say gestapo facebook is illegal? Oh well we didnt want your opinions anyway. We replaced the customer with a robot.
I've been following Netflix for years and 'Focus' is Hastings' singular theme. They dodged cloning Hulu, Redbox, Youtube, various 5$\movie rental options, GameFly, etc. They ruthlessly cut out things like Friends features, used DVD sales.
I'm surprised the reaction here is so negative. Working for large companies the theme is usually waste, and inept decision making. This is a result of the size of the decision apparatus. I would think a lot of people here are fleeing that kind of a work environment or are at least aware of it.
Wearing a customer hat this sucks in the short-term, but perhaps pays off in the long-term if the internal decisions made are substantially sharper. Now you don't have meetings where people are wondering why stupid decision X was made, and the answer comes back 'because of this Y interaction with our legacy mail service' which has no long-term role to play.
It's hard to see from afar the complexity of the decisions that goes on at Netflix HQ every day. I don't think that's going to be appreciated when people are wearing their customer hats. Clearly, the short-term customer perspective is poor.
The problem I have with it is that it suggests a shift from customer focus to internal focus. That's certainly how they talk about it, and it's another kind of large-company error.
The happiest face I can put on this is that they've decided to focus on a specific kind of customer (the undemanding kind who will take whatever turns up on streaming) and kiss off the more discerning sort (who really valued the breadth of catalog, and didn't care as much about the medium). Which may or may not be a good business decision, but it's unsurprising that those customers are pretty cranky about it.
I don't quite understand this either/or "let's focus on the big thing" approach. I think most everybody agrees that the streaming business is growing much quicker and is the future. But as others have noted, the businesses are not independent from a user perspective, they form a synergy.
For example, when Motorola split into mobile/home and public safety/enterprise divisions, this made quite a bit of sense (and they were desperate anyway) because there was little overlap between those. To a lesser extent you can understand HPs spinning off the PC business to focus on printers, but in this case, although the underlying delivery mechanisms and business cases are very different both are DVDs!
Think of companies going the other way, consolidating information to create user synergy, i.e. Google adding tweets to search results.
Actually the other comment from b0b0b0b is pretty accurate - Netflix tries to gracefully degrade functionality when 'stuff goes down', so that people can still get the basic streaming service. Netflix also uses Chaos Monkey (http://www.readwriteweb.com/cloud/2010/12/chaos-monkey-how-n...)
When I read the article, I was a bit suprised by how he almost seemed proud of his tactics to rip people off and later bully them. Particularly, the part where he said "I’ve exploited this opportunity because it works. No matter where they post their negative comments, it helps my return on investment. So I decided, why not use that negativity to my advantage?"
This guy should be the dumbest criminal in modern times. He understood how powerful the internet was, and then decided to ignore it.
