Netflix: What Not To Do

One day the story of Netflix and the summer of 2011 will be told in an HBS case study, and the students who are required to study it will respond with a resounding and collective…wtf?

Here’s the very condensed version of how that case study will read:

In July, Netflix announces they are scrapping their “unlimited streaming plus one DVD at a time plan” and instead separating their streaming and DVD plans into two different offerings, thereby increasing by at least 60% the monthly cost for those who want a blended package.  Turns out Netflix didn’t anticipate that much as they wanted to exit the DVD business, an awful lot of people still want DVDs – if they’re anything like my parents, the word streaming sounds complicated and scary, and if they’re anything like me, they love the immediacy of streaming but also desire access to the vastly deeper catalog DVDs offer – and the economics of their business were no longer working.  (Seems they could have avoided that little bit of unpleasantness with some research, but since HBS case studies don’t editorialize – that’s the student’s job – I digress.) Not surprisingly, the announcement was followed by a very loud customer response, and they were PISSED.

Fast forward to September.  The company announces its US subscriber figures, which had grown from 6 million in 2007 (when they introduced streaming) to 24.6 million as of June 30, were going to drop by 600,000 over the 3rd quarter ended September 30 rather than increase by 1 million.  Ouch.

Netflix’s stock gets hammered (actually, it has been since the original announcement in July).  Then comes the long overdue mea culpa of sorts.  Reed Hastings, the company’s CEO, explains on the company’s blog why they did what they did and apologizes for the way it was handled.  He also announces that they are going to organize their two separate product offerings into two separate businesses – Qwikster for DVDs by mail, and Netflix for streaming – with separate websites, separate credit card info, separate cataloging of your likes/dislikes and recommendations, etc.

Now for my take.  His explanation makes good sense, and I applaud him for taking the step, even if it is two months late.  You don’t have to look far – AOL, Yahoo!, MySpace – to see how quickly a once high flier can become irrelevant.  But if you’re going to apologize, apologize.  That half-assed, “I’m-sorry-if-what-I-did-hurt-you” bullshit is no apology at all.  And two separate companies with two separate ways for customers to engage?  You just pissed off your subscribers and tried to make nice – now you’re going to make it harder for them do business with you?  As for the name – Qwikster – it sounds an awful lot like Quixstar, which is the name Amway used for a short time before they recently went back to using Amway (full disclosure:  Quixstar/Amway is a former client of mine).  Any idea how many millions of customers and employees Quixstar/Amway have?  And finally, to add insult to injury, nobody, it seems, bothered to check as to whether the Twitter handle @Qwikster was available before making today’s announcement.  Turns out (a) it is already in use by someone whose tweets make liberal use of very colorful language, and (b) misspelled versions, like @quixster, were available, but once the announcement was made, people jumped on ’em.

For a company that has done so many things so right for so long, they were bound to make a misstep – everyone does at some point.  But this was botched in a big way.  People don’t like their cherished brands that they have loyally supported to turn on them, and that’s what this price increase/two separate offerings has felt like from the beginning.  And with Wal-Mart-backed Vudu gaining steam (and having a much better streaming library IMO), there is a strong competitor in the wings.  I hardly think the mistakes are fatal; the recovery process will nonetheless be interesting to watch.


Fab is So, Well, Fab! And They’ll Even Give You $10 To Prove It

You may already be familiar with the flash sale site Fab.com that launched over the summer.  It rocks in a big way.  If your style vibe is retro/vintage inspired/whimsical/arty/don’t take yourself too seriously, it’s for you.  If it’s not, it’s worth checking out anyway.  You may find the options a bit hit or miss on any given day (the site typically features @ six or so new designers/artisans/product collections daily), but I promise you’ll find at least one must-have item in the course of a week.  And since the price points range from as little as $5.00 to as much as several thousand, there really is something for everyone – well, everyone who shares the above described esthetic.

And that really is the point – there is an incredibly strong product vision at work here, which tends to be missing in most other flash sale sites.  In the old days, this used to be called merchandising – picking the right product, combining it with the right product assortment so as to tell a compelling story, offering it at the right price point and displaying it in an appealing manner to a prospective customer that is likely to be receptive to it and want to buy it.  There are sadly almost no real merchants left anymore – there’s Mickey Drexler, who ran The Gap during its heyday in the 90s and more recently reinvented JCrew; Ron Johnson, the genius behind the Genius Bar and Apple Retail Stores, who is leaving shortly for JC Penney (I have no idea why); and no one else I can think of.  The Fab folks have restored my faith that some people understand there is more to building a successful retail business than a laser focus on reducing the number of shopping carts that are started and abandoned or maximizing the revenue per square foot – it requires a little art and a little magic.  And that, my friends, is called merchandising.  Not curation (which word should go the way of “synergy” unless used in reference to a museum or gallery exhibit), but merchandising.

Forbes has a nice piece on the company here.  Site is by membership only, BUT they’re running a deal now – if you use the link http://fab.com/wfente you’ll get a $10 free credit when you join.  The deal expires at 3:28pm ET on Friday, 9/16/11, so go to it.  It pays to know Spamothemag…


Kids Talking About Sex and Drugs – Is That Really So Bad?

That bastion of journalistic integrity, The Huffington Post, is launching a HuffPo High School vertical, which will be populated with posts by, not surprisingly, kids in high school.  Similarly, AOL’s hyper local effort, Patch, which is also overseen by Arianna Huffington, editorial doyenne of all things HuffPo and AOL, is seeking to recruit thousands of citizen bloggers as young as 13 years old.

What seems to have everyone’s panties in a twist beyond the usual argument about contributing bloggers to HuffPo going unpaid (which point I’ll address some other time) is the added wrinkle that with these new efforts they will be making money by “exploiting” child labor.  I don’t really see how this differs from Facebook, Twitter, Tumblr, or any other social media site that provides us all with a free platform from which to express ourselves, share stuff, etc.  And since these platforms – did I mention they were free? – are not philanthropic efforts, they must support themselves with some form of income.  Don’t hear anyone complaining much about them…

Forbes was kind of outraged; Ad Age was down right apoplectic.  Am I missing something?


Back to Life, Back to Reality…

Greetings and salutations…

It’s been a crazy long time since I posted.  I won’t go into the details, mostly because they’re not very interesting.  I did, however, have an epiphany of sorts, courtesy of my friend Jason, that every post doesn’t need to be a treatise requiring a full day of writing, editing and re-editing.  Rather, I can offer up some interesting (at least to me, and hopefully to you) tidbits several times throughout the day and week, and maybe do some serious pontificating once a week or so.  Thank you, Jason, for liberating me from my compulsive editing – I’m going to give it a try because while some people need an outlet for their creativity, I need one for my opinions.

Since this a back to school/work/real life day for just about everyone, I thought I’d ease us all back in with a toast of sorts to one person and one ad agency with two important things in common – they not only entertained us enormously over the years, but they also succeeded (judging by the volume of me-too’s, wannabe’s and copy cats they collectively generated) in altering the pop culture landscape.  The first is Freddie Mercury, who would have turned 65 yesterday and is the subject of today’s excellent Google doodle (although I think I would have chosen Killer Queen).  The second is Minneapolis-based agency Petersen Milla Hooks, which is best known for the iconic work they did for Target.  While client and agency parted ways this past spring (and the chain’s advertising has suffered significantly for it, IMHO), the last campaign they did together – for Target’s Missoni line, which debuts later this month – is vintage PMH and the kind of advertising that so successfully set Target apart from their competitors.  (Think Missoni would ever do a line for Wal-Mart?  JC Penney?  Hell, I bet they wouldn’t even do one for Macy’s.)  So what better time to take a look back, courtesy of Ad Age, at some of the great work they’ve done together.

PS:  2 points to whoever identifies the musical reference in the title – band AND CD.


R.I.P. RIM

First, my apologies to my very small but growing group of loyalists – if you’d had a month like the one I just had, blogging would have been at the bottom of your list of priorities too.  Thankfully, bones are knitting, surgical scars are healing, and life is returning to something that resembles normal.

One quick post before everyone scatters for the holiday weekend.  I have been a Blackberry loyalist for about a decade, and after much resistance, have recently come to terms with the very sad truth that the company’s products are going the way of the Motorola StarTac.  (Hmmm, since tech superstar Justin Timberlake is otherwise engaged in reviving one moribund former digital darling, maybe his The Social Network co-star  Jesse Eisenberg can help RIM out – I mean, they have similar credentials, right?  Just a thought.)  Not only have they consistently failed to innovate over the last few years, but their products don’t even keep pace with iOS and Android features.   Adding insult to injury, the developer community has abandoned them in droves – the death knell in the era of the smart phone and the iPad.  (Btw, can we all agree to abandon, at least for now, the generic “tablet?”  The only tablet of consequence is the iPad.)  Finally, the enterprise market, which RIM has long dominated by a substantial margin, is migrating in increasing numbers to the iPhone as employees demand the cooler, sleeker and (gulp) just plain better device.

One brave high level RIM employee has published an anonymous open letter to co-CEOs Jim Balsillie and Mike Lazaridis (well-respected tech site BGR has verified the employee’s identity) that gives a straight up account of all that is wrong with the company and some smart, clear cut moves that need to be made quickly to restore the company to its former glory.  Kudos to Mr./Ms. Whistleblower – after all, any schmuck can tell you it’s raining, but not everyone has the ability or good sense to give you an umbrella.

You can read the letter here and RIM’s unsurprisingly lame response here.

Happy 4th!


Looks like the Gray Lady is getting a dye job

I could not pass this one up – The New York Times announced this morning that Bill Keller is out as executive editor, to be replaced by Jill Abramson, a managing editor since 2003.  Keller will continue to write for the Times.

Why, you ask, did I find this a “must discuss” story?  Ms. Abramson will be the first woman to lead the Times in its 160 year history, which pretty much rocks all by itself.  But the powers that be didn’t make the change because they have diversity problems (although the paper has been criticized for its lack of diversity given its liberal slant).

If you ask me, they did it because Bill Keller seems to have become the poster boy for the “He-Man-Digital-Haters-Club,” while at the same time his employer is working mightily to maintain its relevance in the digital age.  The article he wrote for the NYT Magazine a few weeks ago didn’t help.  To imply that the Gutenberg press had a downside in that it “replaced remembering,” and to liken that to “Facebook friendship and Twitter chatter…displacing real rapport and real conversation” is to suggest that he uses these tools to maintain the appearance of keeping current but hasn’t yet figured out how to use them productively.  So rather than come clean on his own shortcomings, he’s decided to take a potshot at the rest of us, claiming that digital technology is only good for giving us more time for Farmville and “Real Housewives.”  The fact that he said it publicly suggests that he probably didn’t want to keep his job anyway.


Bubble, schmubble – LinkedIn got hosed by their bankers

Yes, LinkedIn (LNKD) went public yesterday.  Some important firsts associated with the IPO – first social network to go public, first company that traded on Second Market to transition to the NYSE (or any public exchange for that matter).  Big props due to Reid Hoffman, Jeff Weiner, and the entire LinkedIn team, past and present.  Contrary to the obligatory kvetching about “another dot.com bubble” – even Jim Cramer is getting into the act! (thank you, Jon Stewart) – LinkedIn is no fly-by-night company.  It’s got real revenues, real income, over 100 million users, and it’s taken almost 10 years to bring the company to the point where it was ready to tap the public markets and provide its investors with an appropriate exit and return.  So please, enough of the bubble chatter.

There is, however, one area in which this looks just like the 90s – the level at which the bankers priced the stock.  The notion of pricing in a “pop” – an expectation that the stock will trade up on opening day – is not new.   Investment bankers do this routinely to induce their clients to take the risk on a stock with no trading history.   But LinkedIn’s pop was ridiculous – priced at $45, it opened at $80, shot to $120, and closed at $94.25.   That means the institutions who bought the shares sold in the IPO (regular folks like you and me never get access to IPO shares unless we’re friends/family of the company) got in excess of a 100% return on their less than one day investment.

Now, I’m a capitalist through and through, and begrudge no one earning a profit, but I’m also a student of the Chicago school – that markets are efficient and security prices reflect complete information (i.e., I don’t know something you don’t know, and if I do, I can’t trade on it because that would be insider trading).  But clearly the bankers knew they were massively underpricing the offering (they were marketing the stock to those institutional buyers, so they knew what the demand was), and in so doing, screwed one client – LinkedIn – in favor of other clients – the institutional buyers.

Henry Blodget explains it best – and estimates that the amount LinkedIn lost is about $130 million –  so I won’t reinvent the wheel but rather provide you with his analysis.  And he of all people should know – he was voted the number one Internet/eCommerce analyst by Institutional Investor in 2000, only to be charged with securities fraud by the SEC in 2003 (http://en.wikipedia.org/wiki/Henry_Blodget).

So, what to do about this?  The market for IPOs among bankers is very competitive – they not only make a lot of money in fees, but as the above demonstrates, they are able to offer their best institutional clients extraordinary returns on their investments, thus insuring they remain their best clients.  There are no doubt a number of IPOs coming down the pike in the next 12 months, including the big kahuna, Facebook.  Let’s hope the management of those companies do their due diligence, dig in the their heels, and make sure they, their companies and their shareholders don’t get hosed.