It’s hard enough to change your business model without upsetting customers, but changing your business model by dividing the services you offer and requiring customers to make an additional account and pay an additional fee to access previously inclusive services without upsetting them is… downright impossible, as Netflix learned back in 2011 through the flop known as Qwikster.
The idea was to separate the streaming service from the DVD-by-mail service, to quit dividing focus and resources, and instead allow each to grow (or slowly fade into obscurity) independently. So Netflix established Qwikster as the DVD-by-mail service, which required a separate account and a separate monthly fee from Netflix, the streaming service. This change did not any benefits to consumers (unless you count the tacked-on addition of video game rentals), but managed to make the entire process less convenient and more expensive. Unsurprisingly, the change was not popular.
In fact, the market response was legendary. Here are some highlights: according to the VP of Product from 2005-09 (just before Qwikster), Gibson Biddle, “The negative response was swift. Within a week, Netflix was the butt of jokes among late night talk show hosts, but worse, Netflix lost 800,000 customers. Netflix’s market cap dropped from $18B to $5B.” The Huffington Post wrote of Qwikster: “The misstep suggests to the public that Hastings is out of touch with what his customers want, a perception that a CEO cannot afford to have. It was a smart decision to mercy-kill Qwikster as quietly as possible before launch—even if it did prevent the rubber-necking American public the catharsis of watching it fail.”
Of course, the failure did not escape the scrutiny of the internet (“But… but… my popcorn’s still in the microwave! RIP Qwikster 2011-2011” –@billamend 2011), and Qwikster is still remembered, not only as the biggest blunder of Netflix’s history (“From Qwikster to Emmy awards, take a look at the evolution of the streaming powerhouse that is @Netflix” -@VanityFair), but as a kind of touchstone for similar failures across industries to this day (“Dear @Patreon: Remember that one time Netflix was like “We’re gonna split into a DVD service called Qwikster and a streaming service called Netflix” and everyone was like NO and they were like JK? You can be like JK on this one. Look at Netflix. They’re fine. Just say JK.” -@brentalfloss 2017).
It would not be an overstatement to say that this choice to separate into Netflix and Qwikster was the quintessential “not going to ask what the marketplace, or even the customer, wants, just going to guess” business decision, and it’s possible that this massive negative response could have been avoided, or at least minimized, if they asked instead of guessed. Very few people are savants who can guess correctly what the market wants. Most of us need to back up our guesses with market research. In Netflix’s case, instigating the changes more gradually, and giving the user a choice on which services they wanted to pay for without requiring them to create an entirely new account, or just conducting a customer survey first could have reduced the overall backlash. Making sure that customer felt heard and considered before instigating such a massive change might have prevented them from needing to make themselves heard after the fact. Overall, this change should have asked less of the user, and to their credit maximizing convenience is something Netflix has begun to do more and more in the wake of Qwikster. The lesson might be that people will go out of their way, so to speak, for convenience.