Monday, September 26, 2011

An Open Letter to Reed Hastings

Dear Mr. Hastings,

I am probably one of the few individuals who actually agree with your recent price increases and your recent spin off of your dvd service.  Given the rise in licensing fees and the additional expenses streaming adds as you expand to new markets and acquire users, the price increases are necessary to maintain a sustainable business.  Further, the nature of the two businesses are so different that they each should be their own entity.  By doing this, you segment your business into a mature market (DVD) and an market that is creatively disrupting the way we watch videos (Streaming obviously).  The DVD business can operate with the correct processes in place to maximize efficiencies while the Streaming business can remain nimble and flexible to spur new innovations.  This is really important because its process efficiencies that that will inhibit innovation and creative thought (See Microsoft) but it's also process efficiencies that support long-term growth of a company.

But this is all super nerdy bologna that your user base probably doesn't care about.  They want to know why the price increased by 60% and I fear that this has not been communicated effectively to your user base. Your company has failed to communicate that rising licensing costs and additional networking costs has created an unsustainable business model.  Your recent apology was good but it addressed your business model rather than prices.  So now you are in a PR nightmare.  What do you do next?

Transparency (the right kind) - Customers want to know why their fees increased 60% so tell them why.  Or at least be apologetic about raising prices.  Say something to the effect of, "we wish it didn't have to come to this but we had to raise our prices."  If this isn't communicated with your customer base, they will make their own hypothesis and it will likely not be to too favorable on your company.

Tiered Pricing for Streaming- Create a pricing model that provides more affordable price points (ie prices before the 60% rate hike).  Maybe limit streaming for value customers and do a similar pricing model that you do for your DVD business.

Seamless Integration (even if you sell off the DVD service)- As a user of your service, I don't want to have to go to two different websites and this could deter some of us from using your services.  Right now it is easy to move between steaming and DVD and it keeps me engaged with both services.  If I want to stream a movie, I often check my DVD queue as well.  If you separate the services too much people may stop checking their DVD queue when they stream or vice versa.  This could eventually lead to additional lost account.

So these are my thoughts, Netflix is still one of the more innovative companies so I have no doubt you will survive this recent string of bad press.

Good Luck!

No comments: