Monday, October 10, 2011

Well, That Was Qwik!

Interesting move by Netflix, deciding to cancel its split into separate DVD (Qwikster) and Streaming (Netflix) companies (TechCrunch Article on Topic). I think that there are a bunch of lessons to be learned out of this one.

It seems as though Netflix failed big time in one of two areas: either it didn't do sufficient market research to know that its clientele would hate going to two different sites to watch movies, or the company does not trust the market research it conducted. Either way, this is a massive misstep and makes the once business case-worthy company seem pedestrian. The initial move to split DVD rental revenues from streaming revenues makes some sense, and the company was probably right to ignore the outcry from penny-pinching customers who didn't want to pay more for the same service. But this time, the customer has challenged one of Netflix's fundamental strategies moving forward and CEO Reed Hastings apologetically folded. Not a great sign of power.

So what's the next move? Does Netflix simply maintain its current infrastructure, with DVD rentals and streaming on the same site under different subscription plans? Will the DVD rental business fizzle out over the next few years as consumers turn more toward streaming and digital copies? What happens to Netflix's massive inventory of DVDs if rentals go by the wayside? And why hasn't anything been mentioned about the video game rental plan (a la GameFly) since that notorious letter over the summer?

It's going to be interesting to see where Netflix goes from here, but there is definitely a huge chink in the armor now.

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