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Old September 16 2011, 11:07 PM   #244
Temis the Vorta
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Location: Tatoinne
Re: Netflix shoots itself in the foot... aka no more free streaming

Here's some good news stories, from the LA Times Company Town blog.

The people speak. Shares in Netflix dropped by almost 20% Thursday after the company said it expected to lose more than half a million subscribers in the current quarter instead of adding the 400,000 it had previously anticipated. The reason for people bailing out of Netflix is that it raised its prices. Starting this month, Netflix created one plan for its Internet streaming and another for its DVD-by-mail offerings, each of which costs at least $7.99 a month. That translates to a price increase of as much as 60% for folks who enjoy both both delivery methods. Coverage and analysis from the Los Angeles Times, Wall Street Journal and New York Times.
The real reason people are bailing is that Netflix botched the PR, and antagonized their customers in an economy where everyone is surly. The actual price increase is hardly ruinous. I switched to 2x DVDs, still get their entire mammoth library at my beck and call, and I'm getting them fast enough that I'm seriously considering scaling back to 1x (what with the new fall season and shows piling onto my DVR faster than I can watch them), saving a big four bucks a month, which might not even be worth the effort it takes to click that option.

For context, here's an interesting article about companies that have lost out in trying to build internet businesses - AOL and Yahoo - and what lessons they hold for Netflix (by inference).

Reinvigorating a Web giant is harder than, say, reviving a drug-store chain because of the peculiar economics of the technology world, where the path to greatness is built on network effects. Apple (AAPL) became the most valuable company in the world by understanding that when people buy iPods, they’re more likely to buy music from iTunes—and then iPhones, iPads, and anything else the Cupertino, Calif., company dreams up. Google mints money because googling has become an everyday occurrence for billions of people, and they’re less likely to switch search vendors once they sign up for Gmail and start sharing YouTube videos. Facebook, too, has become an unavoidable online common where 750 million people go to hang out with their friends. All made massive investments in uncertain but innovative technologies, winning hordes of new customers while raising the entry cost for rivals to match them.

By comparison, Yahoo and AOL have tried to live by Old Media rules while masquerading as New Media powerhouses. They have been and continue to be successful at building audiences: Yahoo alone receives nearly 700 million monthly visitors. They have young users attractive to advertisers, with 43 percent of their traffic coming from people younger than 34, according to ComScore (SCOR). But unlike Google or Facebook, Yahoo and AOL earn revenues the old-fashioned way—by employing rafts of reporters and maintaining costly ad sales teams to make sure the articles and deals keep flowing. It’s a model with lots of competition. “Switching costs are pretty low for [visitors to] both of these companies,” says Citigroup’s Mahaney. “There’s no real way for them to lock in customers.”
Lock in customers by either locking in habits, like Google does, or better yet, addicting them to something that they can't abandon - a Facebook page, a gmail account, and on Netflix, it should be the community - their status, their reputation and of course the ratings of the movies they've already created, which is a non-portable database but hasn't proven sticky enough on its own to stop people from bailing.

Social media games are a very good example of how to "trap"
people in a sticky web - players earn all sorts of virtual goodies, and can't take their goodies with them, so they're stuck forever with FarmVille or whatever because they can't bear to give up all the labor they've invested into something that doesn't even really exist. The players are spiders who are entrapping themselves in a sticky web they made themselves - brilliant!

Last edited by Temis the Vorta; September 16 2011 at 11:20 PM.
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