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What’s in a Name?

Written by Bill Tanzer

 

All the talk these days is about the economy. Retail sales were flat in August and unemployment continues to lag.

Is job creation coming from the large corporations and conglomerates? Turn instead to the privately owned firms less than five years old. While Bank of America plans on laying off 30,000 workers this year, about 400 smaller firms started since 2007 have hired more than the same amount. Check out Inc. for a list of those companies. The magazine also lists the top 5,000 companies, which accounts for more than 370K jobs in the last three years.

Small businesses are the foundation. Entrepreneurs set things in motion, often putting their own financial lives on the line by investing personal savings, using homes as collateral, paying bills with credit cards and foregoing paychecks for several years until the business takes off.

Every small business that stays in business should be commended. The five-year mark is a major milestone, as many companies fail within the first year.

On the other hand, some businesses become incredibly successful and lose sight of their beginnings. Netflix comes to mind. The movie rental service made major waves this summer, enraging its sizeable client base, after announcing that online streaming and hard-copy DVDs would be split into two companies. And two separate fees. And two separate queues/websites to select movies and geez, two separate headaches. That sound you hear is the voice of millions of subscribers who immediately took to the streets, well, internet, and complained.

This week, the CEO and founder of Netflix, Reed Hastings, sent out an apology. Not to apologize for the decision, but to explain the decision and the way it was announced.

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).

The last part is correct. Many big companies that run off track, trying to become a catch-all or hop on every trend, fail if they renege from the core business.

What is Netflix’s core business? Providing entertainment on demand. So streaming and DVD rentals actually go hand in hand, as they complement each other. Subscribers look forward to new releases on DVDs while catching up on older films available via streaming.

Let’s face it, the streaming option just does not feature a ton of recently released films. It actually takes months before a new film is streaming, although available via DVD. Subscribers cancelled in droves when presented with the new price change: either pay for one, the other, or both.

Now that the split is in place, do you think an explanation will placate the subscribers who are angry? I’d still be angry because this is a fundamental flaw. The company is veering from its core purpose and alienating its own customers who will likely seek other rental options.

Plus, the company name itself is changing. The hard-copy DVD rentals will be known as Qwikster while the streaming option will remain Netflix. As someone said, why are they taking a well-known brand name and cheapening it? Netflix is well-known. The new name sounds like a copy-cat, an imitator, or a fake.

If Netflix gets its act together, and starts offering more newer releases online, perhaps this snafu will be just a blip in its company history. Or maybe not. As you may have noticed, the stock price continues to tank.

September 19, 2011

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