How robust will Netflix’ business model turn out to be? – Part 3

Just as I thought that the Netflix saga had come to an end with my blog post a few weeks ago (in which I wrote about Nextflix’ CEO Reed Hastings’ announcement to split the business into two separate units), the story has taken another twist. Last week, Netflix reversed its decision to split its business into two parts, streaming (Netflix) and DVD rental (Qwikster) and became a single unit again.

In a very succinct blog post, CEO Reed Hastings wrote: “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” but he did not offer any further explanations as to his reasons why.

What could those reasons be? Let me just speculate for a minute:

  1. Reed Hastings is speaking the truth – Netflix users genuinely struggled to have to use two different sites. Call me cynical, but surely a problem of this nature would have come to light in early stage user testing or forum groups?
  2. Too much change in one go – Perhaps the pace with which Hastings wanted to introduce business change was simply too high for most Netflix users. An official Netflix statement read: “We underestimated the appeal of the single Web site and a single service.” Nevertheless, make no mistake, online streaming does remain Netflix’ core focus going forward, despite this retracted spin-off.
  3. Unexpected amount of “churn” – The number of people who terminated their Netflix subscription as a direct result of the announced split was simply too high and was putting the overall business revenue at risk. I’m not sure if this was the case, but Netflix users still got a shock when Netflix was unified again, whilst keeping two separate price schemes for DVD rental and streaming respectively.

Main learning point: even though Netflix and its CEO were halted in their tracks to split up the business, there’s no doubt that Netflix strategic focus will be on streaming in the years to come. I’m sure that when the time is right (and Netlix’ users are ready) Netflix will spin off its DVD rental business and concentrate solely on online content streaming.

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Do you have Klout?

What is the appeal of Klout, a service which provides social media analytics that measures a user’s influence across their social network? The Klout Score uses data from a user’s social networks like Twitter and Facebook in order to measure:

True Reach – This measures the number of people you influence. It concentrates on the people who act on the content posted by a user, by responding or sharing it.

AmplificationHow much do you influence people? When a users posts a message or other content, how many people spread it further?

Network Impact – This measures indicates the influence by the people in my “True Reach”. How often do ‘top influencers’ (think Robert Scoble or Lady Gaga) share or respond to a user’s content?

The analysis is done on data taken from sites such as Twitter and Facebook and measures the size of a person’s network, the content created, and how other people interact with that content. Klout recently added LinkedIn, Foursquare, and YouTube data to its algorithm. Scores vary from 0-100, with 100 being the most influential.
Apart from giving you a score, Klout will also provide you with a ‘label’ based on your score and online behaviour; for instance, am I a ‘celebrity’, a ‘tastemaker’ or ‘thought leader’? To me personally these kinds of labels don’t mean that much to me, but I can well imagine that people will look at their scores and labels, which brings me back to the original question,what kind of people do care about their Klout Score and why?
  1. Social media junkies – I can well imagine that if you spend a lot of time on platforms like Twitter or Facebook you want to see what your impact is, even it’s just for fun.
  2. Am I having an impact? Klout will help you in figuring out the impact of the content you put out through your social media networks; who is responding to it and how?
  3. Am I making the right impact? I’ve seen posts from social media consultants advising people to use Klout as part of their ‘influencer strategy’, which I guess comes down to assessing whether you’re acting as a ‘thought leader’ or ‘tastemaker’ and if you’e reaching your target audience.
  4. Tailor your content strategy – Using Klout to generate insights regarding points 2. and 3. can help you in (re) assessing your content strategy and in making sure its customised to meet the needs and interests of your target audience.
  5. Other business related stuff – This is where things in my opinion get a bit murkier, but there are social media consultants who suggest using Klout scores to for example create candidate shortlists for job interviews, to put certain people on guest lists or to accept speakers (with a minimum Klout score) for an event.

Main learning point: Having looked into it, I can imagine who would use Klout and why. If you’re very active in the social media space, have got something to sell (be it content, a service or a product) or are generally interested in finding out your social media impact, then Klout can be a helpful tool. However, by its own admission, the Klout score is susceptible to people gaming the system and pulling all kinds of simple tricks to improve their score. Especially in cases where businesses start using the Klout score to select job candidates or invite people to events, it all becomes a bit too tricky for my liking. In short: I can see why people use it but it wouldn’t be for me!

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Learning from Ken Judy about instilling Agile values

The other day I listened to a podcast with Ken Judy about Agile, incremental product development. As a VP of Engineering at US publisher Simon and Schuster, it was interesting to hear him talking about him and his team instilling a culture of iterative development within the business. I then found a draft for a talk that Ken Judy delivered earlier this year which address the interest subject of “Instilling Agile Values for Creativity, Self-Improvement and Organisational Change – A Manager’s Perspective.”

I guess another thing to take into account is that Ken Judy is not a consultant but a practitioner who is learning by doing. Before going into his proposed ways of instilling Agile values, he reminds of the core underlying values of agile:

  • Collaboration over negotiation
  • Working software over specification
  • People over process
  • Responding to change over following a plan
  • “Quality over crap” (a useful addition by Bob Martin)

Judy’s draft talk reads more like a ‘note to self’, which is rather nice (I sometimes get fed up with some Agile ‘experts’ preaching Agile as the Holy Grail) and provides a clear link between proposed values and desired (organisational) outcomes.

There were a few ‘obvious’ suggestions in the draft (e.g. “don’t lie to your team” and “be honest about challenges”) but there were some really useful thoughts in Judy’s piece:

  1. Involve your team in decision making – Whether you call it democratic or Agile, involving the team in making those decisions which are likely to have a major impact on their working conditions, is an import value. Team input in decisions on team hires or project approach are good examples of this value.
  2. Have patience with the people in your team! – And have the faith that people can change or adapt their behaviour over time. It may sound like an obvious but I’ve seen many organisations were people were pigeon holed as ‘slow’ or ‘not a team player’, without management spending time and effort in trying to changing certain behaviours (focussing on finding a workaround instead).
  3. Get the teams into conversations – One of the things I really like about the Agile approach is that it’s based on a collaborative team effort whereby the team as whole takes responsibility for scoping a project and planning a sprint. Judy stresses the importance of getting team members involved in conversations, in brainstorming sessions (as early on as possible, I’s like to add to that).
  4. Focus on what you’re trying to achieve – I’ve seen a too often that people get a bit too hung up on Agile methodology and sticking closely to the Agile ‘rules’. Judy reminds us that’s ultimately about the desired outcome that you and your team are looking to achieve. I agree that this is an import value to bear in mind and not to forget that Agile in itself is an iterative and continuously evolving methodology.
  5. Providing the right amount of information is key – Another important value; keep it transparant but do be clever about the amount of info you share with your team. This means not overloading your team with (irrelevant) info but at the same time not acting as a ‘black hole’ in which all info disappears.
Main learning point: especially when you’re an Agile practitioner yourself or when you’re working with dedicated, cross-discipline teams, I believe that Ken Judy’s points about Agile values and how to best instill them act as a good reminder. Which values you end up implementing and how, depends largely on factors such as organisational context, the composition of the team and the nature of the product or project that you’re working. Above all, I like the fact that Judy stresses the iterative nature of Agile, where nothing is set in stone and where people like him learn and adapt on a constant basis.


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How robust will Netflix’ business model turn out to be? – Part 2

Back in February, I asked the question about the (long-term) sustainability of Netflix’ business model and I guess that some major events in Netflix’ life over the past week have provided some useful insights into answering that question:

  1. Splitting the company in two – On the Netflix blog, Netfox CEO Reed Hastings last week announced the split of the business into two separate parts. Netflix’ traditional DVD-by-mail business will be renamed Qwikster and the name Netflix will be retained for the company’s streaming activities.
  2. It’s not a spin-off – In his blog post, Hastings made it clear that both businesses remain part of the same company. However, Netflix has come to the realisation (albeit a bit slowly so it seems) that DVD-rental and streaming are two very different activities. Hastings explains: “So we realized that streaming and DVD by mail are becoming two quite different businesses, with very different cost structures, different benefits that need to be marketed differently, and we need to let each grow and operate independently.”
  3. Different brands, charged separately – Netflix’ recent price hikes meaning that its customers now have to pay separately for streaming and DVD rental (as opposed to paying a ‘package price’) caused quite a massive uproar and a decrease in the number of Netflix subscribers (and a significant share price drop to boot). I guess Netflix execs must have felt that to fully justify this price increase it had to package up both products separately, each with their own website, mobile platform, etc.
  4. Streaming is the future – To me, this split clearly shows that Netflix sees online streaming of content as its future. In his blog post, Hastings acknowledges that the days of DVD rental are numbered: “DVD by mail may not last forever, but we want it to last as long as possible.” One can imagine that in the not so distant feature Netflix will sell its DVD rental business (or terminate, depending on customer demand) and concentrate solely on its streaming business instead.
  5. Will Lovefilm follow suit? – Lovefilm which recently got acquired by Amazon is increasingly focusing its efforts on streaming. The Lovefilm Player is a good example of this strategy, streaming video content directly to users’ TV sets or game consoles.
  6. Content streaming is the way to go – In the past few days the ‘new Netflix’ has been announcing a video-on-demand rights deal with major Hollywood studio DreamWorks to beef up its content portfolio. Not only is this a logical step in Netflix’ ongoing quest to stream content across multiple platforms, moves like this one are critical if Netflix wants to gain a strong foothold in the content streaming market.
Main learning point: when I wrote about Netflix a few months ago I couldn’t envisage that it was going to overhaul its business model and approach to market. Whether this move was made out of choice or forced upon Netflix following a massive PR disaster, the fact is that Netflix has made its strategic intentions very clear: the days of online DVD rental are numbered, streaming is the future!


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