There’s Wisdom in the Willingness to Back Down

The big news in new media and entertainment this week has been Netflix’s decision to back away from its plan to split the company into separate DVD rent-by-mail and video streaming operations.

The plan would have required some 12 million Netflix customers who use both the mail and streaming services to create two accounts, manage two rental queues and pay two monthly subscription fees. Netflix would keep its name on its increasingly popular Internet streaming service, which has attracted 10 million subscribers on its own, according to its own guidance. The new rent-by-mail company, picking up on what Netflix started, would have been called Quikster.

After facing a deluge of protests via email, blogs and social networking sites, not to mention a loss of 1 million subscribers in the third quarter, Netflix walked back the decision, and its CEO, Reed Hastings, sent an apologetic email to all account holders.

Full disclosure: I am a Netflix user and still a fan of the service, despite the price increase that preceded the aborted separation. I still believe I get considerable value for the service, and, deep down, I knew the combination of unlimited mail rentals and unlimited streaming for $23 a month (less for those who opted to have fewer disks at one time) wasn’t going to last. The economics no longer added up.

Still, I thought it was premature for Netflix to throw over the mail business. Its streaming service does not have the depth in terms of titles to go by itself. And besides, DVDs is sometimes more preferable to streaming, particularly if you have a Blu-ray player or a less than optimal Internet connection.

While the media is doing its best to pile on Netflix for the blunder, I’d rather focus on the speed at which Netflix responded. Even though it is by far the leader in DVD mail rentals, it knew that wouldn;t last if it didn’t keep customers satisfied.

Netflix is only the latest in a number of examples that demonstrate how businesses grasp the the imperative of self-correction, especially in high-tech. For another look to Research in Motion’s BlackBerry PlayBook. The tablet computer opened to poor reviews, mainly because it had far less built-in functionality and applications, such as email, calendar and contact management, compared to competitors. Its original plan was to add these features piece-meal.

On websites, blogs and bulletin boards, RIM got an earful from its fanatically loyal customer base, which also punished the company in the marketplace by not showing up at the sales counter. In September RIM reported that it had shipped just 200,000 PlayBooks in the preceding 90 days. By comparison, Apple sells 200,000 iPads in a little over 2 days, according to Pocket-lint, a site covering smartphones and tablets.

In a second article, Pocket-Lint also reported:

In a conference call following the company’s latest earning report, that saw revenue down 15 per cent and profits down by 47 per cent compared to the previous quarter, the company told those listening that rather than trickle out small updates it would, instead, be opting ones which will have a bigger impact in the future.

The update, due in October, would include the long promised native email, calendar, and contacts as well as the Android App Player and BlackBerry Balance; all previously promised for the “summer.”

RIM has also promised improved BlackBerry Bridge support, enhanced web browsing, and the launch of a BlackBerry Video store that would offer over 10,000 films and TV shows playable on users TVs via the HDMI out socket on the RIM tablet.

Other examples of the private sector’s rapid self-correction after consumer outcry have been well documented. They include Facebook’s retreat from more aggressive information-sharing and Google’s agreement to remove pictures of individuals and private residences from StreetView upon request and to be less intrusive with the application in general.

Critics of “corporate America” should at least keep in mind the speed at which the private sector can move to address consumer pushback. Save for the BlackBerry PlayBook example, all of the instances above prompted someone, somewhere to call for government intervention to “fix” the problem. In each case it turns out the problem was addressed before the first government committee or task force could convene. (Still, the Congress and the FTC continue to harass Google, Facebook and Netflix for various activities they vaguely perceive as anti-consumer).

On the other hand, sometimes we wish that that government would react as quickly and pro-actively to citizen feedback. Certainly the mid-term elections of 2010 delivered a strong message that most Americans wanted Washington to rethink its strategy to re-energize the economy through bailouts, subsidies, repeated ineffective stimuli and quantitative easing, along with its increasing intrusiveness in American life, from issues as big as health care and school choice to as everyday as the light bulbs we use and the information we choose to share on line.

Another lesson in this is that despite the unrest that Netflix and other companies have stirred up among its customer base, by acting quickly, they all have managed to retain their customer goodwill. Although sometimes our culture sees apology as weakness, there can be an upside to the admission of a mistake and a commitment to move a new direction. Smart companies are aware of the price of arrogance. Would that governments were, too.