August 15, 2008

Is Netflix Going the Way of AOL?

Netflix is posting notices on its website that it is experiencing a major shipping delay. Does this remind anyone else of AOL's fiasco during the mid-nineties?

The similarities between the current Netflix problem and the AOL debacle are striking. In particular, Netflix, for at least the second time, has been unable to fulfill its basic duty, as advertised, of sending customers dvds from their "queue" within one to two days of receiving a viewed dvd back from the customer. At the same time, Netflix floods the Internet with annoying pop-up advertisements seeking new customers. I know several popular websites, including The Huffington Post, where Netflix's ads pop up every time I enter the site.

Sound familiar?

In AOL's case, AOL subscribers sued AOL, alleging that AOL falsely offered "unlimited" service for a flat rate, but did not have the capability to provide such service on a steady basis. AOL's customers -- and I was one of them -- constantly received busy signals when trying to connect to the Internet via AOL through their telephone modems. It was clear that AOL's liability was in large part due to the fact that it was sending millions of free disks in the mail (remember those?) soliciting new subscribers, while at the same time AOL knew that it did not have the capacity to handle the resulting influx of new customers. AOL eventually paid a huge sum to settle the class action lawsuit.

Along the way, AOL racked up gigantic losses and became a huge drag for parent company Time Warner, a drag that has long been reflected in Time Warner's depressed stock price. Time Warner has tried several times in vain to sell AOL. The name "AOL" has become a punchline ("America on Hold").

The lesson for Netflix, and other businesses, seems clear: if you want to avoid losing massive market share and goodwill that you will never get back, if you want to avoid becoming a worldwide joke, then do not paper the world with advertisements seeking new subscribers when you cannot meet the basic service demands contained in your contracts with your current subscribers.

Now pardon me while I go check out Blockbuster's website.

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At 1:03 PM, Blogger Barbara said...

It would seem that mail-order videos are (for now) the way to go and a little competition is always an incentive to provide better service. Right now everyone I know uses Netflix. Maybe it's time to look at the competition.

It seems rather a waste of time and money to be shipping DVD's around. Doesn't it make much more sense to develop something where you can easily download any video in existence and just be have it be deducted from your account balance? This may already exist (you know I am not a TV/movie guru!)

At 4:40 PM, Blogger media concepts said...

Barbara - I beleive that we're moving toward a download model for movies that will replace DVDs, just like iTunes and other music download services have supplanted CD sales. There's also pay per view movie downloads from your cable company. Netflix is in the download business as well, but if they cannot deliver their primary product using their (currently) primary delivery system, I believe their name will be mud and their ass will be grass.


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