This post identifies eight lessons to be learned from how recent and upcoming changes have been managed and communicated by the leaders at Netflix and Facebook. These lessons reflect classic leadership imperatives, but with a new Digital Era twist. Readers are invited to share additional insights as well.
By now most people have heard about the dramatic changes made by Netflix and Facebook and the resulting hue and cry - and backlash - resulting from them. In the case of Netflix, the change was a one-two punch of unbundling services and increasing prices, followed by an announcement that the DVD and streaming services would be split into two companies (see the Netflix blog posts from July 12 and September 19 for details). And with Facebook, there were significant changes on the home page, including a revised News Feed and the addition of a real-time ticker, and announcements at their f8 conference of more significant changes to come (see this FB page for details).
Generally speaking, Netflix is faring far worse with its changes than Facebook is. The commentary and comments in cyberspace are overwhelmingly negative, and many customers have either downgraded their plans or dropped the service altogether. Netflix reduced its customer projection by one million subscribers for the third quarter (here's the announcement), and its stock price has dropped over 50% (from $291 on July 12 to $129 on September 23). The initial uproar over the changes to the Facebook home page was more vociferous than the reactions to previous changes, but it died down within a few days, after people got over the initial shock. That doesn't necessarily mean that folks are happy with the changes, however, and we have yet to see if there will be any significant consequences in user participation resulting from their changes.
I've read dozens of articles and probably hundreds of comments on the changes at both companies and can't help but reflect on the leadership failings evident in both cases. In this post I share some of my thoughts on the lessons organizations of all types can learn from the mistakes made by both companies, on both organizational and individual levels. The underlying themes - respect and listen to your customers, be open and honest, think short term and long term, learn from your mistakes - are universal and timeless, but they manifest themselves in new ways in the Digital Era.
What other lessons would you add?
- Courtney Shelton Hunt, PhD
Customers Really Do Matter
A common response to Facebook users who complain is "You're getting the service for free, so get over it." But Facebook users DO pay, by sharing their personal information and allowing the company to sell that information to advertisers. And with the current and pending changes, that price is definitely increasing - not just in terms of risks to their privacy, but also with respect to their ability to define their own user experience by opting in and out of different features and functions. Given its business model, Facebook's priority in making changes is to entice advertisers, but it's not in their long-term best interests to do so at the expense of their users.
In a similar fashion, Netflix's actions seem to be focused on what they think will appeal to investors and what makes the most sense for their internal operations, not what makes sense for subscribers. One of the evolving realities of the Digital Era is that content is primary, medium is secondary. When it comes to entertainment, people don't want to rent DVDs or access streaming, they want to watch movies and TV shows. By prioritizing channel over content, Netflix alienated a huge segment of its current subscriber base, many of whom are leaving or plan to leave. The 80-point drop in its stock price after revised subscriber project indicates that investors and customers should not be viewed as mutually-exclusive stakeholder groups.
People Don't Like (Unwelcome) Surprises
We can give credit to Facebook for the announcements about upcoming changes they made at the F8 Conference. But why couldn't they give people a head's up about the changes to their home pages? Facebook has a very spotty history when it comes to letting users know about platform "improvements," and their lack of communication creates a lot of unnecessary angst, frustration, and negative chatter. They could save themselves a heap of negative press by developing a better approach to communicating upcoming changes.
By Reed Hastings' own admission, Netflix has been similarly guilty of poor communication. But as his "non-apology apology" demonstrates, they haven't learned from their previous mistakes. That communication could almost be viewed as a bait-and-switch: Lure people in with a mea culpa, get them to drop their defenses, and then hit them with another surprise - and even worse news. It seems pretty clear now that the DVD/streaming company split was probably in the works when the price change was announced in July. And in the wake of the September announcement, there's been a lot of speculation that there's a "third punch" coming - selling off the DVD business perhaps? Netflix doesn't necessarily need to reveal its specific plans, but they could do a much better job of informing people about the strategic direction in which they are heading.
Sincerity and Authenticity Still Matter
The now-infamous email - and related blog post - from Reed Hastings on September 19 started out on an encouraging note: "I messed up." He admits to lacking respect and humility and being arrogant and uncommunicative, and he vows to be better on all counts going forward. Then, about halfway through, he tosses it all out the window by adding insult to injury with the announcement that they're splitting DVD rentals and streaming into two companies. It's virtually impossible to read that post in its entirety without wondering if the notion of irony is completely lost on him.
I haven't heard a lot of commentary on this, but I felt that the folksiness and personal tone of Hastings' September 19 email/post were a bit contrived. I have no doubt that he read/approved the message (at least I hope he did), but I don't think he wrote it. It was too perfect, too polished. Though the idea of "authenticity" is feeling overplayed to many folks, it still has value, especially from a leadership perspective. If a company is going to offer a highly-spun PR piece, they should be honest about it and not pretend that it's the reflective musings of a CEO. (For a contrasting example, see this story about Carol Bartz's announcement to employees about being fired as Yahoo's CEO).
Embrace and Listen to Engaged Users - Don't Ignore or Dismiss Them
The fact that people feel passionate enough to express their extreme dissatisfaction with an organization's products and services should be viewed as a gift. Ignoring negative comments is the path of least resistance and may be effective in the short term, but it may not be a viable long-term strategy, especially when the volume of comments is high and there are repeated episodes of expressed discontent. There were almost 13,000 comments on Netflix's July 12 post, and over 27,000 comments on the September 19 post - and thousands more throughout cyberspace. It's easy enough to dismiss these comments as the rantings of a vocal, emotional, non-representative minority, but that's a risky proposition. With a projected loss of 1 million subscribers this quarter, the Netflix case demonstrates that there wasn't just talk, there was also action.
Netflix had an incredible opportunity to truly listen and respond to the feedback they got in July, when the first change was announced. Instead, they not only ignored the comments and stuck to their proposed changes, they effectively thumbed their noses at the "complainers" by announcing more changes that displeased subscribers. Will they listen now? It seems highly unlikely.
Facebook hasn't seen any significant reduction in users yet, but that doesn't mean it's not a distinct possibility. For a social networking company, they have a long (and ironic) history of being unresponsive to user feedback and consistently conveying the impression they know best what their users want. For many users, their arrogance is wearing thin, and even if the switching costs are high, their willingness and ability to abandon Facebook when the bad outweighs the good shouldn't be underestimated.
Do Your (Cyber) Homework
Netflix claims it anticipated a drop in subscribers after its July 12 announcement, but it seems from the September 15 shareholder letter that the drop was much greater than they expected. Interestingly, they predicted no change in the number of individuals subscribing to both services, but many of the comments I've read indicated that people were switching from combined services to only one, which would lead me to think there should have been at least some decrement in that number. Were they reading the same expressed intentions I was?
The more critical failing on Netflix's part, however, was their name choice for the new DVD rental: Qwikster. Not only have they been ridiculed for the name mercilessly, it turns out that the Twitter handle has already been taken, by a guy named Jason Castillo. That lack of digital due diligence might be expected of a rookie, but it's an inexcusable error by a company with the level of technological sophistication Netflix has.
Moving Too Quickly can be as Hazardous as Moving Too Slowly
Hastings justified the changes at Netflix as being reflective of their desire to not wait too long to move based on anticipated market changes. He was referring in particular to the expected decline in demand for DVD rentals as more customers opted for streaming services. That prediction may ultimately come to pass, but the change is hardly imminent. There are some large obstacles to overcome first, including technological limitations (e.g., limited access in rural communities), content limitations (limited variety of streaming content), and pricing concerns (for both content and access). Given these challenges, it would seem the shifts in their business model could have been made a bit more gradually, which would have reduced the backlash.
Don't Define Your Niche Too Narrowly or Too Broadly
Netflix seems to be redefining itself from a company that facilitates personal access to entertainment content (a broad scope) to one that offers access to specific types of content through specific media (a narrow scope). That strategy may ultimately be successful, but based on current realities it appears quite risky.
Facebook's taking the opposite tack, trying to be "all things to all people - across all time and situations." As evidenced by the history of failings at other digital behemoths like AOL and Yahoo, being too big is a similarly risky proposition. Check out this story in the New York Times for some interesting perspective.
Learn from Your Mistakes - and Those of Others
Cyberspace is rich with cautionary tales that directly relate to Netflix's and Facebook's current situations. As just noted, AOL and Yahoo have both suffered from trying to become complex content and activity aggregators and internet gateways. And Borders' recent bankruptcy was due in no small part to their inability to recognize that they were in the content business, not the medium (e.g., paper books) business. Though it's easy to identify what makes those cases different, the leaders at Netflix and Facebook would be better off focusing on the similarities to avoid falling into the same traps.
They also have tremendous opportunities to learn from their own past mistakes. For example, in addition to negative feedback and customer backlash, Facebook has received a lot of criticism and pressure from a variety of sources regarding their privacy controls. The current and upcoming changes present new risks on top of the old risks (see this story for details), but Facebook seems to have blithely (arrogantly?) ignored them. It remains unclear why they haven't gotten the message that they have a responsibility to ensure that users can maintain maximum control over the privacy of the information they share and the activities in which they engage. Their inability to "get it" causes both them and others to expend precious resources that could be focused on more productive endeavors.Lead image excerpted from this comic strip.