What was Reed Hastings thinking? After decades building his reputation as one of the most data-savvy, customer centric, and innovative corporate leaders of our generation, the Netflix CEO stumbled badly when he announced plans to split Netflix operations into two separate businesses. After a barrage of criticism from customers, stockholders and analysts, Netflix announced Monday that it will abandon the ill-fated plan.
What About Customer Experience and Data Management? Netflix seems to have failed to consider the customer experience they were creating…and the role that data management, technology, and process best practices play in creating that experience. They must have been so focused on the strategic aspiration of focusing on fast-growing streaming video that they forgot the basics...
To put it bluntly, their plans would have intentionally created data silos (something most savvy companies strive to eliminate!) and as a result would have reduced benefits to customers from existing data assets, technology, and processes. Ironically, the same company that sponsored the pioneering Netflix Challenge—effectively crowd-sourcing the optimization of their movie recommendation model--was planning to intentionally create a less integrated, less customer-friendly version of itself.
Replacing a single service with two. Netflix had announced that it would “spin off” the DVD portion of its operations into a separate business called “Qwikster,” which would be accessed via a separate website, billed separately, and operated independently. Netflix subscribers would access streaming video only. Related price changes would increase the combined cost of subscribing to both the DVD and video services.
Data Silos: a Sure-Fire Path to Bad Customer Experiences. By splitting a single service into two, the Netflix plan would have made existing data assets less valuable by creating two silos. On one website, customers would have access to the library of available DVDs. On a second website, they could select on-demand video content. While most firms are striving to integrate their data, the Netflix plan would have “ripped apart” an existing data ecosystem of significant value
Less Customer Value via Data Silos. By creating two operational silos, with associated data silos, Netflix would have degraded both of the two main drivers of customer value:
- Access to videos The primary reasons customers subscribe to Netflix is to watch movies and TV shows…how content is delivered is a secondary consideration. Replacing a a single subscription to the complete library of available titles with two subscriptions to partial libraries would degrade the customer value proposition. Looking at this from an information management perspective, this is the equivalent of splitting a single “product master” into two databases…
- Customer convenience. Aside from watching videos, Netflix delivers a major customer-experience benefit through convenience. Customers are able to easily search and find movies they want to watch (actively and via predictive recommendations!) and add these movies to their Queue. By splitting their service into two parts, Netflix would have reduced this benefit also. According to the Wall Street Journal, customers would have needed to log into two websites to search the library of available titles…something they can presently do via a single portal:
"The split-up plan would have meant Qwikster would handle billing for the DVDs-by-mail service while Netflix would bill for the online viewing. Their two websites wouldn't have been linked, meaning customers would have to check both sites to see whether a movie is available on DVD or for online viewing. Viewing recommendations for one wouldn't factor in movies from the other operation." (read the whole article here)
Ironically, Reed Hastings and the Netflix team may have lost sight of basic principles of data management, customer experience, and process optimization because they thought they had “mastered” these domains. Their fall from grace reminds us how important it is to protect, maintain, and enhance these core enablers of business results.