Chasing Ideas in The Big Apple

I totally set myself up there with a delayed follow-up…

In thinking about the question I posed on the fate of Qwikster last week, ultimately there were several things that came to mind. The first and foremost though is that - in my mind - the number one priority a company should have is the trust, confidence and satisfaction of its customers. And, in making any changes or alterations to any of its product lines, it should not disrupt any of these three critical sentiments. Its been said many times before and it proved true in Netflix’s case - it is very difficult and takes a long time to build consumer trust, yet one can lose it in an instant.

So when thinking about Netflix, I honestly was a little surprised in their execution. In particular, why is it that they didn’t simply make changes on the backend operationally and on their P&L? Why did they choose to create an entirely different site and force customers to maintain separate accounts? Were they trying to induce change and hasten the demise of DVD sales and encourage adoption of streaming? If so, based on the metrics that they surely have on customer use of them as a combo (and the backlash from the price hikes that came earlier this summer) how did they not anticipate the huge amount of disruption that such a move would bring?

In strategy development, its so important to think very carefully about what can go wrong. Is the potential residual damage worth the risk? Usually, there is an alternative solution that might not have the full benefit of the original strategy, but carries significantly less risk. When comparing strategies, a slightly lower return but with a lower risk is usually better than a higher return  with greater risk. For Netflix, it seems to me that they could have undergone an organizational re-design that would have separated the businesses on the backend, but from a customer facing perspective kept the user experience virtually the same. Over time, the customer facing site would gradually change as adoption of DVDs decreased on their own. Netflix could also then add in incentives and offers (say deals for streaming? loyalty rewards?) to try to get people to use streaming more (and DVDs less). I would hope they would also analyze the reasons why people kept going to DVDs over streaming (perhaps selection choice?) and start to whittle at the competitive advantage between the platforms over time. However, they must also have realized that DVDs could have been a way to provide content to users where streaming deals were lacking. I don’t use Netflix, so I don’t know their interface terribly well, but I would think a way to approach the problem from a product management perspective is to encourage people to stream content when its available and then offer the DVD as a back-up solution for when its not. From a pricing perspective this could be a pain, but users would definitely like it and over time you could really get a sense of what people were welling to wait for (and consequently which studios are worth negotiating with for streaming content). It’d also be a good way to try to transition everyone to streaming once those gaps in offerings close.

I think theres a lot we can learn from the recent demise of Qwikster, Netflix’s futile attempt of a separate DVD business.

Netflix was wise to think of how it could prepare for the inevitable shift away from DVDs toward streaming. Not only were the cost structures different for the two businesses, but they also had divergent operational and strategy needs that were difficult to reconcile under one single platform. On the one hand, you had a business that would be on its way out in under 5 years, but with a relatively simple supplier stream (DVDs by law can be purchased in bulk and then re-rented or sold at a different price point, a great but antiquated business model) and on the other hand you had an emerging streaming business, but with a complicated licensing model that has yet to be perfected (Netflix is constantly trying to negotiate contracts with distributors and recently lost a major one in Starz!). With these two platforms, it was only natural that CEO Reed Hastings would try to come up with a way to squeeze what was left out of the mature DVD business while it still lasted, yet set the company up for the future which is most definitely in streaming video.

That logic is perfectly fine, but there is one variable missing - the customers. From a strategy perspective, its absolutely critical to understand your customer first, above all, and ensure that they’re kept happy. Netflix badly misjudged this need as they were identifying a way to evolve their business model. With a completely separate website, login credentials and price structures, Qwikster would have been an incredible nuisance to the customer and disrupt the user experience. On top of that, Qwikster is an awful name (unless they were thinking of sinking in quicksand, which the product ultimately did). 

Its easy to criticize in hindsight. But the question is what should Netflix have done and what lessons can be learned?

Stay tuned for post 2 breaking down some options and chime in with your own.

Yesterday the world lost a true talent in Steve Jobs, co-founder of Apple and tech visionary. While people die every day - and every death should be mourned - Steve’s passing is all the more tragic as he had an impact on the world that is truly rare and a message that is not nearly prolific enough - to follow your passions, pursue your dreams and work tirelessly to see that they come to fruition.

As tragic as Steve’s untimely death may be - he was only 56 - we should take the time to reflect on the major themes of his life and all be inspired by his work. Steve Jobs was special because he had extraordinary vision, a tenacity to change the world and the work ethic and resolve to turn his vision into reality. For those of us who remain, we must do the same. While everyone might not have the vision or depth of talent of Steve, we can all do our best, we can all dream and we can all work hard enough to see our dreams come true. Whether your dream is to be an entrepreneur, an athlete, a teacher, a stay-at-home parent or president of the United States, you should resolve to do your best every day to make your dream come true. If you work hard enough and do your best, you just might make it.

For myself, this is a somber reminder. First that life is short, it does have an end - and the end can come far sooner than you think. In addition to Steve’s passing, a good friend of mine had a stroke at only 25…and he is in probably the best physical condition of anyone I know; life is full of uncertainty. Second, that you must pursue your passions relentlessly, you must stay focused and that you must do your best to improve yourself everyday to see to it that you are constantly moving forward. And third - above all - believe in yourself. When you believe, work hard, and are fearless, amazing things can happen.

Rest in peace Mr. Jobs, you were and will continue to be a true inspiration.