Over the last few months, Netlix has been implementing a new direction in their business model. They raised prices on their service plans, and more surprisingly, they announced that they would split Netflix in half. The plan was to create a separate subsidiary company called Qwikster that would handle all DVD shipment, while Netflix would carry on as a streaming-only service.
Customers went crazy. It seems like every day the Wall Street Journal would have a new article about how furious customers were, how many were abandoning Netflix, and how Netflix’s stock value continued to plummet. It was shocking to me to see how this darling of every consumer demographic from hip 20-somethings to Baby Boomers fascinated by the ease of Netflix’s service, grew to be so fed-up with Netflix’s “improvements” and changes, that they simply jumped ship. The price increase alone caused the Netflix’s stock value to nose-dive a shocking 60%. In essence, Netflix almost committed corporate suicide by trying to change a business model that its customers loved.
And so today Netflix announced that it was canceling its plan to halve the company, precisely because of the anger and frustration and massive loss of customers.
This is proof-positive of the power of the free market. The government did not, and rightfully so, step in to save this company. Instead, Netflix was forced by the demands of its customers to maintain its business model that those customers preferred. THAT is the free market. It is a mutual agreement between the buyer and the seller. And if the buyer is unsatisfied with the new deal, they are well within their rights to simply walk away. In response, the seller can amend their model to satisfy customer demand, or they will die.
The problem is when the government makes special deals with preferred businesses or businesses with charismatic or wealthy lobbyists in order to survive the dissatisfaction of its customers or tanking sales. Microsoft understood this lesson as well when Vista bombed. So they hastily developed and released Windows 7, a far superior OS that is stream-lined, innovative, and user-friendly. Not quite as user-friendly as Apple products, certainly, but an improvement over the Vista debacle.
And so I say this: get the government out of the business of business. By artificially raising or lowering prices, manipulating the business cycle, giving special favors to certain corporations, and artificially controlling the economy with price fixing and subsidies, the government creates a false economy with unrealistic prices and expectations, all of which hurts consumers and muddies up the market with bullshit.
I applaud Netflix for listening to the demands of its customer base. Well done.
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