What Netflix did right, and what it did wrong

Netflix can’t seem to do anything right, if you ask its customers. Meanwhile, tech analysts are heaping praise on the company, though the market isn’t as sure — Netflix stock is bouncing up and down on the company’s decision to split its DVD and streaming businesses into two separate companies. Right now, it appears that Netflix may have done the right thing for its business in the wrong way.

What it did right: Streaming is the future of video. There are few people arguing with that idea; it’s almost impossible when you look at the success of, yes, Netflix or Hulu, Amazon Prime, Apple or Vudu, just to name a few. Netflix said it would lose 1 million customers in its guidance last week, but a closer look shows that it expects to lose 800,000 DVD customers and only 200,000 streaming customers, tech writer Dan Frommer pointed out. DVD-by-mail is an expensive business, and the audience for it is shrinking, making it smart to spin off that part of the business and leave it to whatever future it may have.

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Netflix CEO Reed Hastings apologized to subscribers for missteps the company made when changing their pricing and services.

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Entrepreneur Mark Suster praised Netflix chief executive Reed Hastings for positioning the company for the future and taking a painful plunge before the market left him behind.

Venture capitalist Bill Gurley said that Netflix is right to split the company into two businesses since — from a operations standpoint — DVDs and streaming really are two businesses. Splitting lets Netflix show studios exactly how many viewers it has for streaming content, which may result in better digital deals, he said.

The company also made a smart move by adding video game rentals for the Xbox 360, PlayStation 3 and Wii to its DVD-rental business, diversifying the Qwikster model. If it builds its game catalogue, it could have a chance to pull customers away from Redbox or GameFly. If it takes the games model a step further into streaming, it could have a chance at disrupting the EA-Steam-GameStop streaming battle brewing over online games.

What it did wrong: With customers, however, Netflix hasn’t won any points. Hastings’s apology for not communicating with users about the price changes has made his customers even more upset, since he isn’t apologizing for changing prices but simply for not telling users about it more clearly. That set off a lot of backlash from consumers who felt it was a disingenuous apology. The company also, perhaps, took the split too far by not offering users the chance to have their recommendations, queue management and billing come from the same company.

And the company flubbed the way it handled the product announcement in the Web 2.0 era. As TechCrunch was the first to point out, the @qwikster handle on Twitter is not only already taken, but it belongs to someone whose main concerns seem to be smoking marijuana and going to sleep. Hardly the first brand association that a company would like to make, and a major failure on the PR front. The company didn’t set up a Facebook page before announcing the launch, either.

There’s also that name: Qwikster. The “-ster” suffix hasn’t done anyone any favors since Napster, after all, and it sounds so very dated. It’s so bad, in fact, that Frommer thinks the name is bad on purpose to kill the DVD business as quickly as possible.

What do you think of the changes? And what do you think of the name? I want to hear your suggestions in the comments.

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