Netflix's spinoff of the DVD business was done to prevent the fate befalling numerous other companies -- death from standing still.
Netflix (NASDAQ:NFLX) CEO Reed Hastings all but admitted the old Netflix model is slowly decaying. Netflix stock was slammed on news it lost 1 million disgruntled subscribers after launching a dual-pricing model, then the Netflix founder dashed off a now infamous apology that was more self-justification than a mea culpa.
In that missive, Reed Hastings actually had a very important statement we should all focus on:
“Most companies that are great at something — like AOL dialup or Borders bookstores — do not become great at new things people want (streaming for us) because they are afraid to hurt their initial business. Eventually these companies realize their error of not focusing enough on the new thing, and then the company fights desperately and hopelessly to recover. Companies rarely die from moving too fast, and they frequently die from moving too slowly.”
Say what you want about Netflix stock, its CEO and the rather ham-handed split of DVD and streaming businesses. At least NFLX acknowledges that DVDs are not long for this world and that Netflix can’t continue in its current form forever.
That’s a hard lesson many companies don’t learn. So while everyone is giving Reed Hastings and NFLX a poor review right now, consider the alternative: Netflix could be in the same boat as these once-popular consumer businesses that are now in very dire straits:
America Online: Yes, AOL (NYSE:AOL) still is around. Yes, it has next to zero debt, and creditors are what drive a company to bankruptcy. But Hastings was right to call it out in his memo to customers. This once-powerful Internet company is now the poster child for struggling tech companies that haven’t adapted. As InvestorPlace author and former AOLer Jonathan Berr reported recently, AOL’s subscription business generated $201.3 million, or 37% of AOL’s $542.2 million in Q2. Yet the company finished the second quarter with a loss of more than $11 million because dial-up revenue slumped 23%. Just imagine what will happen as this inevitable trend continues. With a mess of an org chart after the Huffington Post buyout and layoffs this spring and disgruntled Tech Crunch blogger Michael Arrington airing the company’s dirty laundry in public … well, you wonder how long AOL can carry on.
Yahoo: In a very similar boat is Yahoo (NASDAQ:YHOO), which recently has stolen the spotlight from AOL thanks to the ugly ouster of Carol Bartz. The company’s once-impressive search capabilities are now just a storefront for Microsoft‘s (NASDAQ:MSFT) Bing as the pair try to fend of the monster that is Google (NASDAQ:GOOG). In regards to display advertising and content, Yahoo is doing better than AOL — but revenue is tracking off about 15% in fiscal 2011 compared with the previous year. And that’s on top of a slight decline from 2009 to 2010. A change in leadership might rally the troops or spark interest in a private equity buyout, but it doesn’t stop the bleeding at Yahoo. As portal sites for legacy email addresses wane and Facebook and smartphone apps become the new way to get news, Yahoo will continue to suffer.
Nokia: It’s a testament to how fast technology changes that a company that is in many respects dominant right now still can be panicking and expecting certain doom. If you’ve never read the infamous “burning platform” memo from Nokia (NYSE:NOK) CEO Stephen Elop, I highly recommend doing so in its entirety. In a nutshell, the company leader admits Nokia has nothing close to Android or Apple (NASDAQ:AAPL) iPhone gadgets and has a stark choice — stand on its current platform of fading dominance as it burns to the waterline, or jump into the cold ocean waters and hope the company can swim somewhere before it freezes to death. Think that’s hyperbole? Well consider this: Nokia had an approximate 32% market share of the 1.43 billion mobile handsets shipped in 2010. That is simply stunning. Its share of the North American market? Just 4%. Presuming the rest of the world will soon want what U.S. smartphone users want and will follow this trend, the writing is on the wall.