I am baffled by the latest move of Netflix to separate their business into a DVD only business called “Qwickster” and a streaming business.

They must have some incredible customer research they have done to support this, but I think it’s a terrible idea.  Why?

They built there entire brand on the success of an easy to use DVD by mail service.  I think Reed Hastings was a genius in designing the service and evolving it to be a true consumer focused experience.  When your happy customers get a red envelope in the mail it is a joyful moment.  It is so hard to get to a scaled business where you delight your customers with this value on a monthly or weekly basis.  It’s the kind of rare consumer value that you leverage to go build more products – like an add-on streaming service.  To throw that piece away is like surgically removing a thumb from a hand because you don’t need to hitchhike anymore so what’s the point? It just gets in the way right since we don’t hang on branches anymore…

Beyond this, the streaming service alone kinda sucks. There is not enough high quality content there for it to stand on its own, and HD doesn’t really work yet.  In the conversations about rights with studios, you lose the DVD side now, and any opportunity for sell through for the DVD.  Also 3D is taking off, so consumers will still need a high quality physical model for a while to come.  For your subscribers, you lose synergies in supporting both of my needs simply therefore you lose the right to ask me for more money to get both in a seamless product.  So now you’re giving me a sub par streaming service with not enough content and I still need to go to a DVD store or have another subscription with Quick-star to get that.  Thanks a lot – way to reward me for being a loyal subscriber for years and growing with you in the streaming business.  I would have watched ads for you damn it and still paid my subscription!  Did you think of that?

Lastly – you lose consolidated preferences between the two services.  The fact that you know me well means I trust your recommendations on the streaming side, based on my orders on the DVD side and vice versa.     From Reed Hasting’s blog post:

“Another advantage of separate websites is simplicity for our members. Each website will be focused on just one thing (DVDs or streaming) and will be even easier to use. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated. So if you subscribe to both services, and if you need to change your credit card or email address, you would need to do it in two places. Similarly, if you rate or review a movie on Qwikster, it doesn’t show up on Netflix, and vice-versa.”

What??!  It’s going to be better and it’s about simplicity but you’re making me change my credit cards on two sites and you won’t share preferences. I don’t get it.  You lose the value of the bundle.  Yes there is a cost, but isn’t it worth it if you can tell a bigger story about where you’ll take it next?  Obviously he wants to separate these groups and then sell off each to different bidders but I don’t think that’s the best plan because you’re cratering value before you sell.

OK, off my soap box.  I feel bad for Reed.  I think he knows he built an incredible service on the DVD side and too many people are telling him he’s got to cut it back to get to margins (welcome to the public market).  But you can’t kill your baby to please the market.  Sometimes you need to tell the market to shut up and let you lead.  There’s a guy named Steve Jobs who’s done this a few times already.

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