The Venture Edge

Peter hit the nail on the head when he said in his recent post that saying you’re sorry just doesn’t cut it. With third quarter results just out, Netflix lost 810,000 customers  between Q2 and Q3. That’s a lot of customers. Although the company increased its revenues this quarter, the full effects of customer loss won’t be seen until the 4^th quarter.   If that weren’t bad enough, the company has also lost billions in shareholder wealth with the stock down to about $93/share. So what is the real reason CEO Reid Hasting’s plan to split the company failed so miserably? It may be because either he never really understood his customers or he was simply arrogant enough to think that he knew best what they wanted. Either way he sacrificed the long-term value of loyal customers for for bad execution of a questionable plan.

A few months ago I received an email from Netflix notifying me that my price plan was going to be increased. Not just 5 or 10 percent, however, but an exact doubling in price -- from $7.99 to 15.98 a month. I like many other loyal Netflix customers (I had been with the company almost from the very beginning) were incensed by the move. We moaned, we groaned, we blogged, we posted, we complained. We did everything we could to express our displeasure to the Netflix powers that be. And while Netflix did listen to our pleas, the company made another boneheaded move: It split the company into two parts. Now a new company, Quikster, will handle the distribution of DVDs, while the distribution of streaming video will be retained by Netflix. Now, instead of dealing with one company, we are going to have to deal with two.