
NetFlix: America's Most Underestimated Company - mattrjacobs
http://www.slate.com/id/2265755
======
danilocampos
I love Netflix. They're a role model for other companies, and for me as a
person.

Netflix has succeeded on the strength of two things: integrity and ambition.

They _genuinely_ care about their customers. They work extra hard to make sure
people who give them money are happy to do it. In their call centers, CSRs are
friendly and empowered. They're instructed to err on the side of doing things
that are most likely to make a customer happy, instead of pissing people off
with stupid "it's policy!" behavior. In their distribution centers, they have
a hardcore quality control culture that goes to great lengths to ensure that
mailed out DVD's correctly match a customer's order.

Contrast this with their dying competition, who never once gave a damn about
customer satisfaction. Who, indeed, codified policies whose direct result was
to enrage customers.

As for ambition, Netflix has continually worked hard to make the service the
very best it could be, opening more and more distribution centers to minimize
the wait between returning and receiving your DVDs. Despite having every
reason to rest on their laurels, they decided they'd also be the Netflix to
their Blockbuster, going deep on the Watch Instantly strategy that's
redefining their business. Instead of waiting for someone else to come along
and make them obsolete, Netflix grabbed the bull by the horns.

This is one of the rare moments of modern capitalism producing something truly
excellent, on its merits, based on the needs of the market. If only we could
see similar disruption in larger and even more corrupt industries.

Honestly: I love these guys.

~~~
pmichaud
I wasn't so lucky with them. I was a good customer, but they started silently
throttling my account, and they wouldn't admit to it either. It's since come
out that that's exactly what they were doing.

If it's too expensive to send me that many disks, fine, but don't lie to me
about it.

~~~
danilocampos
I didn't know about this. So much for my remark on integrity. Do you know if
they still do this throttling?

I personally never ran into this -- I've never been more than a light-to-
medium user, except in spikes. Like when I when I discovered 24 six years ago.

edit: Here's something straight from the horse's mouth:

[http://money.cnn.com/magazines/fortune/fortune_archive/2007/...](http://money.cnn.com/magazines/fortune/fortune_archive/2007/05/28/100034248/index.htm)

"I stopped my subscription to your service because of your well-documented
"throttling" of frequent renters. How can you say you are focused on customer
service when you alienate your customers in this way? Bill Greenstein, Seattle

When we are short on new releases, which we try not to be, we believe it's
fairest to allocate those new movies to subscribers who have not rented much
recently. This upsets heavy users because they are not in the front of the
line for new releases. We are straightforward about how it works, but not
everyone likes that policy."

Eh, okay, assuming it begins and ends there, I can see the argument for doing
things this way.

~~~
pmichaud
I don't really go for new release type movie generally, so I call shenanigans.

I was a heavy user who got movies sometimes the day after I returned the last
one, which was great. Then I started getting them 3, 4, 5 days later.

They blamed USPS, even though no other mail to or from me was slow at all, so
I started tracking the returned movies. They uniformly were delivered back to
the warehouse just as quickly as before, but remained (via the netflix
interface) unreturned for several days after that.

Normally I'd chalk that up to simple incompetence: they just weren't
processing the movies very fast and/or their backend system was a piece of
shit. I could buy that.

But I'd seen just how efficient they could be when they _wanted_ to be, ie
before I passed the "heavy user" threshold, so I knew they were doing it
deliberately.

I get the logic, I'm a heavy user, they can only send so many movies before
I'm not profitable. But like I said before: don't lie to me about it.

I would've paid extra for a premium "heavy user" account if they had offered
me the option, but instead they pretended USPS was magically slow JUST for
netflix movies, and they permanently lost a customer.

Their loss.

~~~
rubyrescue
Addressing the 'Their loss' comment - Netflix could be happy you left from a
business standpoint. I've talked to wireless carrier network execs who can
speak specifically to the type of subscribers who they would like to encourage
to leave the network.

~~~
pmichaud
They are only happy because they weren't charging me enough, and I was willing
to pay that extra cost too, so it really is their loss.

------
Vivtek
Argh, a truly good article marred by one thing: the assertion that BitTorrent
is a competitor for NetFlix. This notion just won't die - I use BitTorrent,
sure - to get stuff I _can't_ pay for, because nobody is interested in selling
it to me. But I'd much, much, _much_ rather toss NetFlix their $9 every month
to deliver what I want without the hassle of BitTorrent, and that's the canard
that the entertainment industry just can't get past. Just because it's free
doesn't mean it's cheap. $9 a month is cheaper.

~~~
reitzensteinm
You might have morals and/or value your time, but actually I think the article
is dead on that they're competitors. A large segment of the population chooses
to pirate instead of pay. If BitTorrent ceased to exist (as a technology - not
the company), NetFlix would almost certainly gain some customers.

~~~
dkarl
Whoever prefers the hassle and crappy experience of using Bittorrent instead
of spending a few bucks a month for Netflix, their money isn't worth chasing.
It would be like Econolodge trying to market to the homeless population.

~~~
avar
I'm not in the U.S. so I can't spend a few bucks on Netflix. But your bad
experience with BitTorrent is probably purely a function of using the wrong
trackers.

I have access to some trackers where the download very rarely goes below
2MB/s, with 5-8MB/s being the average. Some of these have material like
discontinued music and foreign films that I could never get where I live, at
least not without significant hassle.

With this setup I can initiate a download for a foreign 720p film, go and make
some tea, and it'll be there by the time I come back.

That's quality of service I can't even pay for where I live, no matter how
much cash I fork out.

~~~
philwelch
To get access to those trackers, you generally have to be "cool enough", or
know the right people, which for me is impossibly daunting.

~~~
dkarl
Yes. Everything I found was junk; it was like Gnutella all over again. The
last time I tried to download a movie torrent, it turned out to be porn of a
type that I do not want on my hard drive. (That's why it was the last time.)

~~~
wvenable
To me, that result seems really non-typical. For the majority of movies you're
going to have hundreds of seeders -- they're not going to keep mislabeled
movies-as-porn.

------
papa
It's too bad there's no way to assign a universal "reputation" score to the
various pundits out there so that readers can better assess the value of their
published predictions. Michael Pachter, for instance, has been wrong on a
number of occasions (he predicted Sony would dominate the current console
generation and Nintendo would languish and MSFT would be #2 -- at least he got
the last part right).

Like the iPad which many pundits couldn't figure out, the consumers never
wrote off Netflix and that's pretty much all that matters.

~~~
kiba
A database that list all pundits' specific prediction and give them a rating
based on if they succeeded or not?

~~~
tomjen3
The problem is that you have to take account how unlikely a given prediction
would be in comming true - a person who predicts one in a million things but
only gets it right one out of a thousand is still way better than somebody who
predicts the results of coin-flips with 51% accuracy but in your system the
latter would be ranked far higher.

~~~
joe_the_user
Indeed,

You would have to give each prediction an "audacity factor", how unlikely it
_seems_.

The system would work in fashion where a 50% accuracy rate and a 30% one would
actually be considered the same accuracy. Either you get higher than a 50-60%
rate OR you get some of your predictions rated as having a high audacity
factor.

~~~
Goosey
There is a very good system for handling this type of thing: Prediction
Markets (<http://en.wikipedia.org/wiki/Prediction_market>)

The basic idea of a prediction market is like a stock market for outcomes with
an end point. If you make good predictions you will make 'money' and if your
predictions are correct but go against the common idea your rewarded even more
handsomely. Of course a true prediction market has a shifting price point
where you can choose to sell your 'shares' at any point, yada yada, but I
think the concept applies.

The trick is you have to have the pundits participate in order to make it
work. I suppose there could be some third-party that pulls their articles and
'ghost trades' for them?

However I think the truth is that pundits DON'T WANT to be held accountable.
Even if they are shown to be 'the most correct' they are still going to be
wrong some of the time and those will always be used as examples to attack
them and their views.

Just look at another comment in this thread that tears into this pundit for
his poor job predicting the Sony vs MSFT vs Nintendo war over this console
generation. This is a SINGLE data point being used to try and dismiss his
views.

edit: For anyone interested in prediction markets check out Inkling
(<http://inklingmarkets.com/>). I don't work for them, but I just think they
have done an awesome job of creating some useful software. I am trying to push
for this to be adopted internally for creating 'confidence metrics' of how
stable a build is going to be, or if a deadline is going to be hit.

------
blizkreeg
This is a tangential pricing-related question:

Why does Netflix, which is solving some hard and interesting problems both on
the technical (delivery/algorithms) as well as business side (licenses etc)
only charge $9-$15 a month whereas online services like dating sites and
project collaboration SaaS tools that are arguably much easier to build get
away with charging anywhere from $30 to $60 a month?

If pricing is about supply and demand, shouldn't Netflix be able to charge a
lot more (at least double of what they do now) since there aren't any
comparable services with the level of user satisfaction as Netflix. I would
gladly pay $30 a month for Netflix just because of how great the service is -
I mean unlimited instant watching, access to some amazing foreign films, DVDs.
Dating sites and some other SaaS services - dime a dozen. When a Match.com
asks me to pay $30 a month, I cringe.

I'm perplexed by this.

~~~
cowboyhero
Remember that Netflix came around in a consumer culture that was renting
videos and DVDs from corner shops for maybe $2-4 a pop.

Throughout their history, all of Netflix's pricing structures have been
designed to stay within that range.

It costs Netflix pennies to stream movies. ("Akamai charges a customer like
Netflix about 5 cents for an HD movie, compared with about 3 cents for
standard definition." See:
[http://www.businessweek.com/magazine/content/10_34/b41920385...](http://www.businessweek.com/magazine/content/10_34/b4192038586570.htm))

I expect their prices to rise, though. If they want to stream first run movies
(a la cable), they're going to have to pony up serious dough for the licenses.
That means higher costs to the end consumer.

~~~
rjurney
Why would they want to do that? They're kicking ass on the long tail.

------
iamwil
Netflix also has a company culture that tends to keep people motivated.
They've identified that a great place to work isn't a place with perks, it's a
place where you get to work on hard problems with great people.

And besides making users happy (which is important), at its heart, it's a
technology company, and it shines through when they're able to leap from
platform to platform to deliver the movies.

------
JoelMcCracken
I have been a Netflix subscriber since February 2006. It is the only service
that I have subscribed to for that long, and the only one I never, ever ponder
unsubscribing to.

~~~
mortenjorck
I've subscribed for as long, and Netflix occupies the same place in my
lifestyle. It's a testament to just how great the core service is that they
could make some very bad decisions, such as removing the entire social
subsystem of friends, lists, and notes, yet not once did the thought of
canceling cross my mind.

------
newmediaclay
Apple Stock vs. Netflix Stock over past 5 Years:
[http://www.google.com/finance?chdnp=1&chdd=1&chds=1&...](http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1282168239878&chddm=493833&chls=IntervalBasedLine&cmpto=NASDAQ:AAPL&cmptdms=0&q=NASDAQ:NFLX&ntsp=0)

------
trunnell
Netflix has a great engineering culture, not just a great stock.

Shameless plug: we're hiring good hackers. Check out <http://netflix.com/Jobs>

~~~
staunch
Your use of Silverlight makes me question that assertion :-)

~~~
trunnell
Why?

~~~
staunch
Biggest reason: support for Silverlight is crap on the Mac, nonexistent (for
video) on Linux. Market penetration for Silverlight is very low, so a large
percentage of Netflix users are forced to install it or upgrade for the first
time (which is lame).

Why _would_ Silverlight be chosen on its technical merits in an engineering-
driven company? I don't see many other companies making that choice and I
certainly wouldn't.

I happen to know that Microsoft is very interested in persuading big web sites
to use Silverlight. I always assumed someone at Netflix was bribed^Wpersuaded
with an XBox integration deal, or some other licencing/partnership deal.

~~~
sukuriant
Netflix has to deal with DRM. I've asked this question before, and it's not
just the "oh, this is good, let's use it!" they've experienced the linux
question plenty of times before. They have to submit to whatever their content
providers demand they use. Right now, it's Silverlight. :/

~~~
dhess
I don't buy that. Why is Flash good enough for Hulu's content providers, but
not Netflix's?

~~~
staunch
And why are they okay with Netflix not using Silverlight on the iPad/iPhone?

~~~
elq
because there is no silverlight for iOS.

Silverlight was chosen LONG ago (fall 2008). It was and is FAR better than the
shitty windows media player version of streaming.

Perhaps netflix has found other methods of DRM that the studios approve of
since fall 2008?

------
aresant
The killer app in this space is studio catalog - that's the competitive
advantage.

Distribution for NFLX is strong - but given the move for most new hardware
devices to include "Apps" integration, distribution is going to be a waning
advantage.

It's going to be an interesting battle, for instance what does the paperwork
look like in Netflix' studio agreements - can they sell to Apple?

~~~
cowboyhero
Astute. I think you're dead right about the studio catalogue.

Unfortunately, the studios are still trying to protect what they view as their
major customers: Retail chains (WalMart and Blockbuster) and cable companies.
They understand those business, they've made money with them, and file sharing
and secondary markets are negligible in those environments.

I've never thought about Netflix's agreements with third party distributors.
That's a good question. Originally, I assumed some money was changing hands
but maybe not. Maybe Netflix looks at it as a form of loss leader and a
strategic advantage in the long run.

It seems like every company that comes out with a set top or mobile device now
eventually includes Netflix. For consumers, Netflix is becoming a feature
that's just not anticipated, it's expected.

------
ketanb
Netflix succeeded because of having right values and great culture. The slides
explains their values and culture in detail. It is so much easy to visualize
why they are successful: <http://www.slideshare.net/reed2001/culture-1798664>

------
qjz
NetFlix simplified my life. The value of that is what I think is
underestimated.

------
deadmansshoes
On a recent visit to the states I got to try out Netflix, and on being told
you could watch any film you wanted was very impressed.

Turned out there are only certain categories of film (i.e. the ones that would
be on daytime tv..) you can watch on "freeplay" and anything good you have to
wait for a DVD in the post.

No wonder its cheap. Was still better than the adverts every 8 mins while
watching Rambo on a cable channel though.

------
Goladus
I won't become a netflix customer until they stop using pop-under advertising.

~~~
there
are you sure it's them directly and not someone advertising for their
affiliate account?

~~~
Goladus
No, but that doesn't really matter to me. If netflix doesn't realize it's
happening, maybe someone will notice my comment and do something about it.

------
stcredzero
Quite simply, they are in the business of renting video content to people
using newly available infrastructure. Put that way, theirs is a good business
to be in.

------
noelchurchill
I love Netflix. But Apple is gaining on them. At some point I might switch, or
just use both.

I'll certainly never sign up for cable tv.

~~~
chadgeidel
I think Apple's store has some great ideas, but I'm not going to pay for a
"one time rental" type of service when Netflix is an "all you can eat" type of
service.

I realize their "Instant" offering is still not as large as their DVD
offering, but it's growing all the time. I currently have over 100 items in my
"play it now" queue. I routinely switch items from my DVD queue to the "play
it now" queue, so it appears that they are continually adding more content.

~~~
noelchurchill
I've stuck with Netflix thus far because nobody can compare with their vast
catalog of movies (DVD or streaming). However when it comes to value, there
are months when I might watch many movies and really get the value out of
Netflix's "all you can eat" structure, but other months I might not watch any
movies and still pay the full subscription price. I think it probably averages
out to cost about the same as Apple's pay-per-view system, so to me it really
comes down to who has the best catalog of movies.

------
MikeCapone
I just wish the would come to Canada.

~~~
igrekel
Actually, Netflix is supposed to be available in Canada soon.

<http://www.netflix.ca/>

Mind you there are existing similar services.

~~~
jat850
Zip.ca is existing, similar... and awful. Which parallels a lot of tech-
oriented services in Canada (cell phones are a great example).

Hopefully the Netflix service in Canada nails it.

------
kh812000
Meh. Netflix was great for the first 6 mo. Then everything got stale and
nothing is good on streaming nor DVD. C'mon where's the remake of Tron for god
sake.... I've canceled.

