Wednesday, November 2, 2011

Is Netflix Going Down the Drain?

Netflix is an American provider of on-demand Internet launching media and flat rate DVDs throughout the United States, Canada, and Latin America. Netflix officially hit the market in 1997 and is headquartered in Los Gatos, California. The beginning of the company's subscription service came in 1999 and by 2009 it was offering a collection of 100,000 titles on DVD and had surpassed 10 million subscribers. A humongous feat indeed but two years later they now face some trouble.

Furthermore, shares within Netflix have plunged a total of fifty-two percent due to its significant price hike. Netflix was at one time Wall Street's favorite momentum tech stock but now if they do not watch out and adapt they are being considered the next AOL. What do they mean when they say Netflix will be the next AOL? People are simply referring to the fact that Netflix is committing the same mistakes AOL did by suddenly jacking prices causing customer satisfaction to completely deteriorate. Along with price increase, identity is starting to play a part in the issues for Netflix. AOL went "all-in" in trying to repaint their image from a basic and boring Internet company to a cool and hip provider. The only problem for Netflix is that they do not know what they want their new image to be. It is hard for a company to make a comeback and reinvent themselves when just the other week they announced they lost 800,000 subscribers from last quarter. Netflix needs to find a way to counteract these price hikes while at the same time providing the movies and show titles the customers want in order for their company to resurrect. I believe such a decline in profit has occurred due to a poor customer relationship management system. If Netflix actually used information about customers to gain insights into their needs and behaviors then they could provide the proper shows and movies with a respected fee for the customers.

Netflix still has a lot going for them even though it is in a bit of a struggle. There are pros and cons to this drastic loss of customers. The cons are certainly numerous considering the amount of money they are losing from so many subscribers leaving, the dissatisfaction of customers, and criticisms. However, this should act as a wake-up call for Netflix and that certainly is a pro. Perhaps it is better that this happened sooner rather than later thus providing Netflix with time to adapt. Times are changing and Netflix needs to realize that. They are a company with high differentiation considering how few companies there are that rival Netflix. For example, look how quickly Netflix ran Blockbuster out of business. With proper focus and dedication I believe Netflix can rebound from this humongous share drop and revive themselves as the powerhouse that they were.

1 comment:

  1. I think you have a great point here in your article. Though I don’t believe that what you stated was Netflix’s only problem. I personally see the problem being their business model. What Netflix started with was a model which allowed any subscriber of Netflix to receive 2 or 3 dvds of their choosing sent to their home and allow them to keep the movies for an unlimited amount of time until the customer’s either tired of the movies or had enjoyed the movies and wanted to move onto something new. Additionally, Netflix offered a “live streaming” feature on its website which would allow any subscriber to stream movies over the internet to their computer screen—this idea was revolutionary and had clearly had the potential to explode in the market, as it did. The only thing Netflix would have to continue to do would be to update its database of movies as new films were created and released while still balancing the physical dvds with that of those which they allowed to stream live. The problem for Netflix arrived when they decided to trash their original business model and attempt to earn a greater revenue by not only raising their prices for their service—but by also splitting the service they had into two separate services and charging for each individually. What this means is that anyone who subscribed to the service would now either have to pay more to be allowed to use both services or to give one of the services up so that they might be able to afford the other. This is what I feel has made Netflix struggle. How Netflix should actually handle the situation is tricky—because they are a business they want to earn the most profit as possible but at what risk are they willing to go? Is there no other alternative to what they’re doing? Perhaps increasing the amount of advertising on their website—or create commercials on their live streaming movies before the users are allowed to watch them. It seems as though Netflix hasn’t exhausted all its options—its simply remaining stubborn.