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2x startup Founder & CEO who has gone to the Dark Side of VC. His first company, BuildOnline was sold in 2005, his second, Koral was acquired by Salesforce.com and became known as Salesforce Content, while Mark served as VP Product Management. In 2007 Mark joined GRP Partners in 2007 as a General Partner.  He focuses on early-stage technology companies, usually looking at Series A investment, and blogs at the aptly titled Both Sides of the Table.

3 responses to “Netflix Redux: Is It Ever OK to Fire Your Customers?”

  1. john trenouth

    This is a very convincing analysis. And you are probably entirely correct. But I would like to raise an issue. Like so much business analysis yours overlooks a very critical element: people.

    Yes you speak of Netflix customers. But customers don’t have experiences, they only have purchasing behaviours. But if we consider people with all of their desire, needs, habits and motivations, then the pricing model you suggest makes a bit less sense.

    In my opinion as a product designer, people don’t want to think. Even minor cognitive loads can at the right moment be show stoppers for people. Part of TV’s incredible appeal is it never asks you think — turn it on, select a station, veg. Cable complicated this by asking people to consider their own needs and wants and choose between bundles of stations at varying prices. People accepted this complication because the payoff was an incredible variety of programming.

    With a cheap and dead-simple pricing model Netflix didn’t ask any one to think and it delivers an ever greater variety of programming than cable. It combines the best of both worlds resulting in a service that redefines the game. Even my dad who can’t distinguish between a browser and Google and the Internet, is now about to cancel his cable because AppleTV + Netflix provides a much simpler, cheaper and better model for watching TV.

    Complicating the pricing model destroys the overall experience by demanding people think. It demands people stop and think about their wants, their needs, their behaviour, prices, and even other options. In this case demanding people think becomes a show stopper for many as its just easier to keep cable and not think.

    Complicating the pricing model makes Netflix nothing more than a competitor to cable. Of course being a viabile alternative to cable is probably a very good business. But personally I would rather redefine and own the new game than be the new kid on the block in a game owned by someone else.

    I’m not saying that my interpretation is right. But rather I wanted to take this example to illustrate how sound business analysis can, by filtering out human experience, steer us away from greatness and straight into mediocrity. And I wanted to show how by reintroducing human experience you can reasonable question what seems to be otherwise sound business analysis.

    (That said, I do think complicating the pricing model would be an enormous mistake).

    1. Mark Suster

      John, my simple case to respond would be … pay-per-view (e.g. pay as you go rather than all-you-can-eat) is an even larger business than Netflix. By an order of magnitude. I’m not arguing for complexity but rather for choice.

  2. john trenouth

    That helps crystallize my thoughts — choice is complexity. Furthermore choice leads to decision fatigue with very real psychological and behavioural consequences that favour inaction.

    So while pricing options afford greater cost-benefit optimization for customers (something good from a business analysis perspective) they also increasing decision fatigue (something bad from experiential perspective). Which will ultimate drive customer behaviour, I don’t know.

    So I wasn’t really disagreeing with you (I’m certainly not qualified to do so in this case). Rather I just wanted to show how sound business analysis can overlook aspects of human experience that could paint a different picture with serious strategic implications. Walmart recently made this mistake and it cost them billions in store redesigns (but thats another matter).