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Permalink Reply by Mike Lachapelle on September 20, 2011 at 2:16pm

There was an interesting article in the newspaper this morning about companies who are splitting themselves into separate, independently run businesses. It cited Tyco International (manufacturing), Kraft Foods, Ralcorp Holdings (rating agency), McGraw Hill (publishing) and Conoco Phillips (energy) as all having announced plans split their businesses as conglomerates seem to have fallen out-of-favour with investors. ITT is planning to spin off its defence and water segments. ADT is planning on separating its fire and security businesses.

One might hazard a guess this new strategy is about isolating different segments from each other in preparation for shifting them out of the company, i.e. abandoning the business, or focussing innovation into smaller components. I don't think client needs are very high on the agenda at these companies.

It is interesting to see this strategy is playing out across multiple business sectors. It may have little to do with innovation and and a lot more to do with corporate strategy around divesting unprofitable or unwanted business.

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Permalink Reply by Mike Lachapelle on September 20, 2011 at 2:49pm

Further thoughts on the logic behind the separation. Business Insider article cites a licensing issue.

The dvd rental business is based on buying the property and distributing it - no separate license fee. The streaming business until now has been based on a per-view basis. It seem there may be a change in the air, in that movie rights owners want to base the licensing on a per-subscriber basis. That would mean the Netflix database would contain millions of subscribers who don't stream video but rent it. So Netflix could wind up paying license fees for subscribers that generate no off-setting revenues.

Best way out of this, separate the two businesses so Netflix is paying fees only for people who actually stream video.

This is not a service innovation initiative as much as a cost management initiative. Here's the reference for the article:

http://www.businessinsider.com/with-all-due-respect-to-reed-hasting...

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Permalink Reply by Josh Cramer on September 20, 2011 at 3:40pm

Netflix may have identified several differences between the two segments.

 

Key Activities are certainly different between the two.

At present, Customer Segments may also be different.

The Value Proposition may be slightly different - DVDs offer the latest premium content within a few days, while streaming offers non-premium content instantly. Or is the real value proposition just having on-demand video content at a basic level?

 

There are other differences too, but I wonder about the timing of the move.

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Permalink Reply by Mary Kay Plantes on September 21, 2011 at 10:59pm

I like to think of the business model as starting with the customer and from the data it appears there are many customers who are both DVD and streaming users. So from that perspective, Netflix has created indirect costs without any incremental benefit. From the business model canvas, I also wonder if partners will be less interested with the division. I appreciate why it is easier to run the company as two; but is that what is best?

 

My take is that the company was way too early in making this split vis a vis the customer base. As more of us have connections between computer and TV, etc. we may morph to the on-line model only. But I still see a ton of Netflix envelopes being delivered where I pick up mail at my UPS box.

 

 

 

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Permalink Reply by Erwin Fielt on October 11, 2011 at 10:02am

Netflix VP: Why We Moved "Too Fast," And Why "We Were Wrong" On Qwikster

So much for risk. After massive customer backlash, Netflix keeps DVDs in-house, kicks Qwikster to the curb. A company rep tells Fast Company why.

See this article in Fast Company.

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