Netflix: A Cautionary Tale About A Change in the Weather
This is a sad story for me. I’ve been a loyal Netflix customer (and still am) since the first year they were in business. For years, CEO Reed Hastings and his team have appealed to me by simply supplying a great service at a fair price.
The company also impressed pundits and consumers alike by delivering disruptive value in the fast-changing home video market. Who else employed the crowd-sourcing model 5+ years ago to its best competitive advantage: a contest to build a better algorithm for learning consumers’ tastes and viewing preferences?
Who else forged deals years back with major TV and movie studios to build better inventory — or streaming content online AND making their name known alongside Blockbuster, effectively pushing that competitor (and many others) out of the picture? It was an almost breath-taking path of wins.
Then, something changed. In fact a great deal changed. The consumer marketplace became more savvy and social media injected complexity in the business plans of companies both large and small.
But so busy were Reed and his team in managing the expectations of the Street, that they didn’t appear to notice. The public market had been very good to his company and he was doing what he clearly thought was his fiduciary duty as CEO.
Unfortunately, Netflix stopped looking outwardly at change–and started looking in. They sought to merely maintain the status quo. In today’s consumer market, status quo is a killer. Social media has turned the model of decision making and power drivers upside down — and is putting them back where they belong: with the consumer.
If Reed Hastings had simply asked his loyal customers about a price hike, the splitting of websites and creation of Qwikster (the fastest Fail ever) and other mis-step decisions, he could have potentially avoided a massive customer defection (800,000 at last count–and they may never be back) and a more than 60% drop in stock price.
Netflix could have reached out simply and cost effectively through a variety of social channels ( You Tube, Twitter, Facebook, even supported by an ad campaign) to learn in advance of any strategy change what their customers wanted. They should have started a conversation. Instead, Reed broadcast his plan, already baked. And the market responded.
I view this as a cautionary tale for all companies large or small across every sector. If they don’t take stock of the ways in which their customers now connect and make their voices heard, than the market will punish them.