Netflix's last few months have been a complete disaster.
First, the company hiked prices by 60 percent. Then it announced plans to spin off its DVD rental service into a separate, poorly-named company called Qwikster. At each turn, Netflix failed to communicate its plans clearly, and alienated customers by removing features they loved.
Now Netflix has backtracked, after listening to its customers, and has cancelled plans to spin off Qwikster. However, by doing this Netflix is only making its situation worse--hear me out.
Sooner or later, Netflix will have to abandon DVDs. Optical discs are becoming irrelevant, and the infrastructure for mailing them to customers is expensive to maintain. The faster Netflix can move on from DVD rentals, the better.
Qwikster was meant to hasten the process. Splitting off the company would allow Netflix to focus on streaming, where it needs to grow the most.
Of course a split would've alienated customers. But as Netflix co-founder Marc Randolph--who is no longer with the company--wrote last month, it's a necessary sacrifice.
In his post, Randolph noted that, in Netflix's early years, the company stopped selling DVDs and renting movies a la carte. Netflix wanted to focus on streaming, so the company removed legacy features that slowed down this development wherever possible. Of course customers were angry, but Netflix ignored them and blossomed into the service that today's customer's love(d).
"By focusing on a narrower set of problems, it made engineering much more productive," Randolph wrote. "It made QA testing simpler. It made metrics more intuitive. And it paved the way for us to implement a process of rapid iteration and testing that ultimately ... led to the Queue, Unlimited Rentals, and No-Due-Dates-No-Late-Fees."
In other words, ignoring angry customers is sometimes the best way to move forward.
Today, we're looking at a similar situation to the one Randolph described. Netflix wants to leave its legacy DVD business behind, but risks losing customers by doing so. Only this time, Netflix is listening because the stakes are too high.
Netflix could have handled the situation a lot better. It could have come up with a more attractive name for its spin-off service than Qwikster. It shouldn't have announced the split while customers were still seething over its price hikes. It should have pacified customers by including some interoperability between DVD and streaming queues--at least, for a little while. But scrapping the spin-off entirely is a mistake that could result in a less attractive streaming service down the road.