Netflix. No, wait, Qwikster. Hold on, the first was better, let’s stick with Netflix.

This past summer, I finally broke down and subscribed to Netflix.  I was tired of hearing everyone rave about how great it is to get caught up on their missed TV series and recent blockbuster films on Netflix.  Facing a summer without cable, I decided to take the company up on the free one month trial.  Realizing I had an “internet-ready” Blu-ray player, I was able to take advantage of the instant streaming and the DVD home delivery.  I loved the ease of the instant streaming, but then I slowly realized that the offering just wasn’t that robust.  Once I realized how easy the DVD delivery was, I kicked that usage into high gear.

After the first month of service, I was fine with paying $8 per month for the services I was receiving.  Then, midway through the month, I received an email stating that Netflix was separating their services and the rates were going to be essentially doubled ($8 for streaming, and $8 for DVD delivery).  I was now given three different pay scales in the matter of three months ($0, $8, and $16).  I was upset about all the changes, but decided to stick out the DVD charges for one month and suck up the additional $8.

Then in the middle of September, I received this email:

Dear Andrew,

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

p.s. I have a slightly longer explanation along with a video posted on our blog, where you can also post comments.

After this email, I thought, “Ok, now it’s time to cut the DVDs; I don’t want to have to manage two accounts.”  I went ahead and canceled my account effective at the end of the month.  I wasn’t the only one upset as bloggers and various critics took to the web and blasted the company for the choices it had made.  Moving past the DVD delivery and sticking with the instant streaming, I figured Qwikster do its own thing and it wouldn’t concern me.  Then, three weeks after the original email, I received this one today:

Dear Andrew,

It is clear that for many of our members two websites would make things more difficult, so we are going to keep Netflix as one place to go for streaming and DVDs.

This means no change: one website, one account, one password…in other words, no Qwikster.

While the July price change was necessary, we are now done with price changes.

We're constantly improving our streaming selection. We've recently added hundreds of movies from Paramount, Sony, Universal, Fox, Warner Bros., Lionsgate, MGM and Miramax. Plus, in the last couple of weeks alone, we've added over 3,500 TV episodes from ABC, NBC, FOX, CBS, USA, E!, Nickelodeon, Disney Channel, ABC Family, Discovery Channel, TLC, SyFy, A&E, History, and PBS.

We value you as a member, and we are committed to making Netflix the best place to get your movies & TV shows.

Respectfully,

The Netflix Team

Apparently Netflix didn’t know if it was coming or going.  There must have been so much consumer backlash and cancellations that Netflix figured the company had to back up and reset.  Good bye to Qwikster…we hardly knew thy.

This whole ordeal for Netflix shows how much the customer has an influence on the company.  It is important for a company to listen to its customers and keep them informed to changes it makes.  Netflix customers felt blindsided, not once, but twice.  Netflix forgot one of its key value propositions of convenience.  Netflix should have realized that competition was increasing in both the instant stream arena and DVD options.  Who knows what announcement Netflix will have in the upcoming months, but other companies should pay attention.  Consumers have a lot of power, and companies need to be cognizant of their interests.

By Andrew Akers