Qwikster
From Invertopedia, the encyclopedia of how things fail
Qwikster was the name Netflix gave its DVD-by-mail business when it announced, in September 2011, that it would split DVDs and streaming into two companies with two websites[3]. It came two months after a price change that raised the cost of the DVD-and-streaming bundle by as much as 60%[1][2]. Netflix dropped the split on October 10, 2011, but kept the prices[5], and reported losing about 800,000 US subscribers in the quarter[7][8].
Contents
The bet
Netflix believed its future was streaming and that DVDs by mail were a shrinking business with a different cost structure[3][9]. Splitting the bundle into two $7.99 plans would push customers toward streaming, and an analyst said at the time that streaming subscribers were "more profitable subscribers"[2].
Giving DVDs their own name, their own chief executive and their own site would let each business run on its own terms[3]. Netflix expected customers to follow, and in September forecast it would lose about 600,000 US subscribers in the quarter[8][1].
What happened
| Jul 12, 2011 | Netflix splits its $9.99 streaming-plus-DVD plan into two $7.99 plans. Keeping both now costs $15.98, from September 1 for existing members.[2] |
|---|---|
| Jul 2011 | The stock hits an all-time high above $300.[4][1] |
| Mid-Sep 2011 | Netflix cuts its subscriber forecast by 1 million for the quarter.[5] |
| Sep 18, 2011 | Reed Hastings writes "I messed up" and announces Qwikster: separate websites, separate queues and two charges on members' card statements. "There are no pricing changes (we're done with that!)," he adds.[3][4] |
| Sep 2011 | Close to 10,000 people reply publicly to the post and video, most of them angry.[9] |
| Oct 10, 2011 | Netflix drops Qwikster. Hastings writes that "for many of our members two websites would make things more difficult." The price rise stays.[6][5] |
| Oct 24, 2011 | Netflix reports that US subscribers fell from 24.6 million to 23.8 million in the quarter, its biggest loss ever.[7][8] |
| Oct 25, 2011 | Netflix shares plunge 35% in a day, to about $77.[1] |
The kill shot
Customers had just been hit with a price rise of up to 60%. Then they were asked to do extra work, two sites and two bills, so the company could be organized the way it wanted.
Netflix's own shareholder letter named the main wound: "Our primary issue is many of our long-term members felt shocked by the pricing changes, and more of them have expressed that by cancelling Netflix than we expected"[7]. It called the Qwikster flip-flop's effect on its reputation "relatively minor"[7].
Qwikster made a bad month worse. One customer's reply put it plainly: the only saving grace of the price rise had been managing DVDs and streaming from the same queue, and the split took that away[9]. "So this really wasn't about me, the customer, but rather, Wall Street?" one industry analyst asked[4]. A Citi analyst called the price rise and the abandoned spin-off two "major execution errors"[1].
Red flags ignored
- Two shocks in a row. The price change and the split came about two months apart, so the apology announced a new inconvenience instead of a fix.[6]
- The customer did the work. Members with both services would have had to update their card and address on two sites, and comments on one would not show on the other.[3]
- An apology with nothing in it. The "I messed up" post kept every price in place.[3]
- Built for the business, not the buyer. A survey on fan site HackingNetflix found 75% of respondents called the split a bad idea.[4]
The cost
About 800,000 US subscribers lost in the third quarter of 2011, more than the 600,000 Netflix had forecast[1][8]. Home Media Magazine put the net loss at 810,000[7].
The stock fell from above $300 in July to about $77 on October 25[1], after a 35% one-day drop[1]. Netflix still made $62 million that quarter[7][8], and its executives wrote that the episode had "hurt our hard-earned reputation, and stalled our domestic growth"[7].
The inversion
Don't make your customer do extra work to fit your org chart. If a price change has to happen, make it once, explain it before it lands, and never pair it with something that makes the product harder to use.
What survived
Netflix itself, which is why this is a recovered failure. It kept DVDs and streaming under one name and one account, and kept the new prices[5][6]. Its bet on streaming held: by then only 7% of new US streaming members also wanted discs, and Netflix expected DVD subscriptions to keep shrinking[7].
References
- ^ “NFLX: Netflix stock tanks as 800,000 subscribers flee”. AP via The Christian Science Monitor, October 25, 2011. The 35% drop to $77.23, the stock above $300 three and a half months earlier, 23.8 million US subscribers, down about 800,000, the 600,000 forecast, the up-to-60% price rise, the Citi analyst quote.
- ^ “Netflix Announces Price Increase”. NPR Morning Edition, July 13, 2011. The $9.99 bundle becoming $15.98, the $7.99 plans, the September 1 start for existing subscribers, the analyst quote on streaming subscribers.
- ^ “Netflix DVD Service Now Qwikster, CEO Apologizes for Rough Transition”. SiliconANGLE, September 19, 2011. The Sunday-night post, "I messed up", Qwikster's details, Andy Rendich as CEO, separate sites and charges, the "no pricing changes" quote, the different cost structures.
- ^ “Netflix CEO Reed Hastings: 'I Messed Up'”. Home Media Magazine, September 2011. The September 18 date, the stock high above $300 in July, the NPD analyst quote, the HackingNetflix survey.
- ^ “Netflix killing Qwikster but keeping price increase”. CBS MoneyWatch, October 10, 2011. The October 10 reversal, one account for both services, the price rise kept, Hastings's "two websites" quote, the mid-September forecast cut.
- ^ “Netflix's Qwikster Debacle”. MIT Technology Review, October 11, 2011. The plan scrapped the day before, the sequence of two announcements, and the case that they should have come together.
- ^ “Netflix Posts 810K Sub Loss in Q3”. Home Media Magazine, October 24, 2011. The 810,000 net US loss, 23.79 million US subscribers, $62 million net income, and the shareholder letter quotes.
- ^ “Netflix Continues to Reel, Losing 800,000 Subscribers”. Rolling Stone, October 25, 2011. US subscribers from 24.6 million to 23.8 million, the biggest drop in its history, the 600,000 forecast, $62 million profit.
- ^ “Netflix CEO Apologizes for Price Increase, Announces Qwikster Service to Mail DVDs”. ABC News, September 2011. Hastings on the streaming future, nearly 10,000 public replies, the lost single queue.