In 2011 Netflix was taking the film rental industry by storm. Formed in 1997 as a DVD-by-post service in the US, they had been offering streaming and video-on-demand services for the last three or four years, too.
Netflix is one of the original ‘disruptor’ businesses. They revolutionised the video rental industry by focusing on the customer journey and experience. They took away the time consuming trips to the store, the ‘late’ fees and made it easy to access a bigger range of films than a shop could offer.
Their remarkable rise wasn’t without casualties, with Blockbuster Video the most famous of the victims.
Their disastrous year began with an unexpected price hike for their US customers. Their combined post and streaming service was to increase by a huge 60% – from $9.99 to $15.98 a month.
Both customers and investors alike were shocked at the rise. But that wasn’t all Netflix had in mind…
The DVD-by-post rental service was to be spun out under a new brand – Qwikster.
This wasn’t a mere name change either. They were to be two separate businesses. Existing customers would need to re-register on a new website. And worse, customers who subscribed to the combined services would too. They’d have one account with Netflix, and another on Qwikster. Separate websites, billing accounts, recommendation systems – the lot. The exact opposite to the ease of use that had made them such a success.
To make matters worse the @Qwikster Twitter handle had already been taken… by Jason Castillo – a ‘foul-mouthed pothead’ (according to the media). Castillo denies the drug taking, but the profile picture of Elmo the Muppet smoking weed only helped the media mock Netflix.
You can imagine the dollar signs appearing in his eyes too when he realised he might have a valuable Twitter handle in his possession. He hoped to make a lot of money… and wasn’t afraid to Tweet about it. Not the image Netflix would have hoped for.
With the price rise, and now the spin off, this was hugely damaging. Customers were turning their backs on the business in their droves.
Three weeks later Netflix announced their financial results – and they had lost 800,000 subscribers in the previous quarter – and it was the first times in years that their customer base had declined.
“We’ve hurt our hard earned reputation, and stalled our domestic growth” Netflix CEO Reed Hastings told Wall Street, on the news that their share price had dropped 37%.
Thankfully, Netflix saw the error of their ways, and the Qwikster idea was quickly forgotten.
What does good look like?
With the debacle of the Twitter handle being unavailable, it certainly gave the impression that this idea wasn’t particularly well thought through.
It went against everything that had made Netflix successful in the first place. Instead of thinking about the customer, they thought about themselves. They were so sure that streaming would be the future (and to be fair, they were right) they set up the business to make it easier for them to deliver that ‘future’ – but at the expense of the customer.