A lot has been written about Netflix’s recent announcements, related 60% stock price plummet, and then yesterday’s sooner-than-expected reversal. Most commentators panned Netflix’s tin ear, their inability to communicate, their sheer hubris at making things more inconvenient and more expensive for their customers. What were they thinking?

I couldn’t disagree more.

Breaking Netflix into two separate companies ahead of massive, unavoidable changes in their industry was a bold, visionary move. It took some serious balls. I felt certain it would be taught in MBA programs and referenced in business books decades from now.

And now the glorious experiment, the bold vision, has been cancelled.

Imagine if Kodak had spun off it’s film and processing business in 2000 into “Filmster.” (Ok, too hip, maybe just created a separate company for their digital cameras called “Kodak Digital.”)

Imagine if Microsoft had spun off Internet Explorer in 1999 after winning the first browser wars against Netscape, creating a separate “Internetster” OS separate from Windows. (Granted, for that one you’d also have to imagine that Microsoft understands the Internet even in 2011, and that anything Microsoft could ever escape the clutches of Windows -- so maybe not).

Both of these things are hard to imagine, roughly the odds of being struck by a meteor on your way to Starbucks.

But Netflix CEO Reed Hastings seemed to get it, laying out clearly in his blog post how he didn’t want to become the next AOL for dialup or Borders for books:

For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. 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. Companies rarely die from moving too fast, and they frequently die from moving too slowly.



As a Netflix subscriber, I really wanted to see this experiment through, to see how Netflix would prove all the naysayers wrong. To be one of the first companies to sacrifice its traditional business ahead of the curve to emerge victorious.

Unfortunately, I think the brilliance of this move was screwed up, or at least overshadowed, by poor communication and bad execution in two other messages:
  1. The price hike. Prices for most things go up, deal with it. In most businesses, if you don’t raise your prices you are in effect earning less money as time goes on from inflation. I always thought that $10 a month was too cheap for unlimited streaming and 1 DVD by mail (even though with 2 Roku boxes and an iPad at home, that DVD often sat neglected for months, saving Netflix the postage costs).

    Price hikes need to be spun, and should preferably coincide with either a) new services / benefits that are included or b) well accepted price increases elsewhere in the economy that everyone knows about that you can blame (e.g., rising fuel costs, postage increases, etc.). For what seems to be such an operational powerhouse, it was surprising to see Netflix not communicate the price hike as well as some local service providers I’ve seen.
  2. The two sites, two queues debacle. How hard would it have been to announce that if you signed up for both Netflix and Qwikster, that they would have single sign on (SSO) to let you switch between the sites? And either site’s queue would provide an integrated view of both streaming and DVD queues, like it does now? That might delay full separation for a bit, but certainly would not be hard to do from a technology standpoint.

    The fact that this rather obvious customer pain point was not addressed in their communication tells me either a) Qwikster was a last minute scramble to put a bandaid on the first communication disaster and not well planned, or b) Netflix wanted to sell off Qwikster in the short term, and couldn’t combine the sites.

So the grand experiment is over, and we’ll never know if the Netflix / Qwikster split was brilliant or doomed. The poor communication and stock price tank ended it before we could see.

My vote: try again in 2012, but pick a better name than Qwikster.