Monday, June 21, 2004

"Our brand is about freedom"

From September 2003, here's evidence Netflix is not deliberately slowing down delivery of DVDs. It would work against them if they did.

InternetRetailer.com - Now playing: Netflix shows how to be new-age web entrepreneur:

Hastings insists that Netflix is not concerned about the number of DVDs it has to ship to subscribers each month, because he figures that large numbers of shipments will lead to more subscribers. "Our brand is about freedom to watch as many movies as you want, freedom from late fees," Hastings says. "For us to continue to succeed, we have to embody that freedom for consumers. The more DVDs our customers watch, the more they enjoy our service, the more they tell their friends about it and the longer they stay on as subscribers."

Two years ago, he notes, the average length of time a customer remained a subscriber was one year. "Now it's about 1-3/4 years," Hastings says. "The longer the better."

2 comments:

  1. Totally disagree. I have been using Netflix for two years now. On occassion, when I start getting alot of DVDs, all of a sudden, I wont get my new selection for a week. Absolutely no explanation. I honestly think they hold back when you start watching too many....not that I really mind, I still think Netflix is the greatest thing since sliced bread...

    ReplyDelete
  2. Thanks for the comments. There are certainly a couple of ways to look at this.

    In the simplest form, more DVD churn == more cost for Netflix. There are two opportunities for generating ripples in the system that essentially reduce the variable costs.

    First, they can ship something from a different center -- there's no cost differential for them. In fact, this may even be done to balance the distribution network with demand. For example, there's a facility in Tacoma. On average, it takes one day from mailbox to mailbox, thus a video they say is shipping today will most likely arrive tomorrow (or Monday if a weekend). If the video is shipped, say, from New York, it might take three days. It still goes back to Tacoma, but my theoretically perfect queue has lost a couple of movies.

    The U.S. Postal Service could be the "fall guy." With 9 digit zip codes and volume, the USPS is very efficient. But every once in a while, a government holiday kicks in, or there's a burp in the system, or something mysterious disrupts the schedule. We can't really tell, because there's no tracking, but we can agree that any delays do not hurt Netflix, and may in fact be beneficial.

    Looked at another way, there is negative value for the perception that one cannot have "unlimited videos" per month. Practically speaking, it's highly unlikely that Neflix's average customer churns through 20+ videos a month. I'm guessing it's probably closer to 8, once the novelty wears off. (As an analogy, think of your garden variety wireless plan. Most people buy "400 minutes," thinking they'll actually use it, when in fact they use closer to "200 minutes." If I'm consistently close to 400 minutes, I may bump up to the next plan because the penalties for going over are severe.)

    Without hands-on knowledge of Netflix, it's purely speculation.

    ReplyDelete