The Netflix Apology: A Case Study in Bad Customer Service

Did you get the Netflix apology e-mail in your inbox this morning, too? It's a cunning mix of acknowledging why people were upset with the seemingly arbitrary price doubling for Netflix Instant and DVD usage and completely missing what the objections actually were. It takes a special kind of person to be that oblivious.

I messed up. I owe you an explanation.

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

For the past five years, my greatest fear at Netflix has been that we wouldn't make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

Qwikster will be the same website and DVD service that everyone is used to. It is just a new name, and DVD members will go to qwikster.com to access their DVD queues and choose movies. One improvement we will make at launch is to add a video games upgrade option, similar to our upgrade option for Blu-ray, for those who want to rent Wii, PS3 and Xbox 360 games. Members have been asking for video games for many years, but now that DVD by mail has its own team, we are finally getting it done. Other improvements will follow. A negative of the renaming and separation is that the Qwikster.com and Netflix.com websites will not be integrated.

There are no pricing changes (we’re done with that!). If you subscribe to both services you will have two entries on your credit card statement, one for Qwikster and one for Netflix. The total will be the same as your current charges. We will let you know in a few weeks when the Qwikster.com website is up and ready.

For me the Netflix red envelope has always been a source of joy. The new envelope is still that lovely red, but now it will have a Qwikster logo. I know that logo will grow on me over time, but still, it is hard. I imagine it will be similar for many of you.

I want to acknowledge and thank you for sticking with us, and to apologize again to those members, both current and former, who felt we treated them thoughtlessly.

Both the Qwikster and Netflix teams will work hard to regain your trust. We know it will not be overnight. Actions speak louder than words. But words help people to understand actions.

Respectfully yours,

-Reed Hastings, Co-Founder and CEO, Netflix

So your solution to increasing the prices for a seemingly arbitrary reason is to start phasing out DVD rentals by splitting the company in half? That's insulting or incredibly foolish. I'm not sure which.

For starters, the new DVD rental name, Qwikster, is awkward. I see Qwikster and think of a chocolate drink from Nestle. The spelling is different but the intentional cutesy aspect is wrong for this company. Netflix is fast and sleek; Qwikster is the business proposition of a fourth grader. Perhaps the fundamental mistake is completely eliminating any reference to entertainment media in the new name.

Furthermore, there are no plans to connect the two services at all. Reed Hastings clearly says that you have to rate films separately in Netflix and Qwikster. You have to add them to your queues separately and you will not get a notice that a film on your DVD queue is available for instant streaming. I know I'm not the only person who pulled DVDs off of my DVD queue and switched them to streaming when I had both services. It was a great feature that will sorely be missed.

The biggest mistake here is assuming that people who responded so poorly to a price increase want to subscribe to two different services. At least under the Netflix brand, there's a sense of familiarity and only one bill. It might be higher than normal, but you know what you're getting. Why double the work of the customers if you care at all about customer service? Two sites means twice as many clicks, twice as many bills to pay, and twice as much to remember.

There will be people who don't read Hastings' TL:DR letter and not know what Qwikster is when there service switches. They'll think it's a scam and cancel the charge. Then they'll call to complain to Netflix that their service stopped. Will Netflix refuse to patch them through to Qwikster because it's a different company now?

One commenter on the Netflix blog post made an excellent point. Having separate companies might not be horrible if they were integrated. You can shop Old Navy, switch over to Banana Republic, and pay for everything in your cart from both stores at once. Why make it harder?

Netflix helped destroy the brick and mortar DVD rental industry. Now they seem determined to kill the entire DVD rental industry. The mentions of DVD not lasting forever sound like a company trying to phase out a department no one cares for. It's like how big department stores dropped pet and fabric sections from their stores. First you physically separate the service. Then you make it harder for the customer to get what they want. Then you just take it away.

Hopefully Netflix's stupidity is our gain. If they split the services, other DVD and streaming rental sites can gain some retail ground. If you want to rent DVDs from another site with better rates while sticking with Netflix Instant, you can without feeling foolish now. Nothing is stopping you. Now bargain hunt like your life depends on it.

Thoughts on the change? Sound off below. Love to hear from you.