The meme of the morning is Netflix (NFLX) splitting their business into two - retaining the Netflix brand for the streaming service and rebranding their traditional DVD-by-mail service as Qwikster.
I'm a big fan of Netflix. They've been one of the great "disruptive forces" stories of the past ten years. They took a new model into a space with a dominant player and now totally own that market.
The other great thing they've done is aggressively look to disrupt their own DVD business with a streaming video business. Most disrupters eventually become disrupted themselves (think Microsoft). But the best companies are those not afraid to eat their own young, and Netflix has shown a willingness to do so. And disrupters tend to need to be there early - before their customer base seems "ready" for the disruption. Again, kudos to Netflix for this.
From an operational standpoint, it makes sense to split these two businesses.
The tradition DVD business was really about logistics. What made Netflix a success was that they could quickly process all those DVDs, so users typically receive a new DVD within 2-3 days of dropping an old one in the mail. It's why five years ago, Netflix hired former postmaster general Bill Henderson as COO.
The streaming business is about scale in a totally different way. Rather than scaling for logistics, Netflix streaming needs scale in system architecture. In this new business, it's competing with Apple, Amazon and Facebook, not Blockbuster and Wal-Mart.
So, it's little surprise that operationally, Netflix wants to run these two businesses separately. What is surprising, though, is how they seem willing to divide the customer experience across the two systems.
I use both the streaming and DVD service. I'd love to stream everything through my Roku or on the iPad, but half of the movies my family wants to see are not yet available in their streaming service, either because they're too new, or conversely, too old (e.g. Close Encounters of the Third Kind was on my daughter's wish list last week). A single queue makes the hybrid model manageable until such time that the streaming service is more complete.
Netflix should look to Amazon for their model. I mostly buy ebooks these days, either for my iPad or my daughter's Kindle, but occasionally there are books not yet available in Kindle format (continuing her Spielberg theme, my daughter wanted to read Jurassic Park, only available in print). On Amazon, I do one search - and can see all formats available. The same applies to music - where I see digital downloads and CDs.
If Netflix wants to run these as two separate operations, that's their issue. But the divide should be hidden from the customer. The hybrid model is their big advantage. Otherwise, they open the door for Redbox or Blockbuster to take back some of the DVD market, while Amazon, iTunes and Facebook vie for the streaming and download business.
