Netflix is a case study in poor decisions tanking a company

If you would have asked most experts in both the tech and business worlds back in June (just five months ago) what Netflix’ future looked like, most would have given a cautious-but-hopeful thumbs up. Those in the know would have acknowledged the challenges that face the company such as ISP throttling, logistical challenges with the rent-by-mail model, and fear from big telecom. Nobody would have said that the company would be on the verge of complete and utter failure before the end of the year.

That’s exactly where we are. No, they aren’t going to file for bankruptcy or close shop this year, but things are looking awfully grim for 2012. Yesterday’s 40% drop was the beginning of the end, but it wasn’t the catalyst. It was a series of unfortunate decisions over the past few months that sparked the spiral.

It all started with the decision back in July to raise prices the way they did. Note: I didn’t say that raising prices was the problem. It was the way they raised the prices that sent the company down the path to oblivion.

Back then, Netflix was still a company that had a positive outlook and that was viewed positively by consumers. It was convenient and inexpensive for what it offered. They were lobbying in Washington, taking on big telecom and cutting deals with content providers. They were on top of the world and they knew it.

That was the problem.

Rather than being a humble, appreciative company that respected its customers, they chose to pull out the wrong card, namely, “we’re raising prices and that’s the way it’s going to be.” It wasn’t quite that rude or blatant, but it definitely had the haughty feel often associated with a company that needs to be put in its place.

Put in its place it was as the outcry went viral. In one move, Netflix had effectively gone from a geek-cred must-have to a bait-and-switch despicable company that social media and the rest of the world no longer liked as much. It was a bad move. It was the start. However, it wasn’t catastrophic. They had the opportunity to fix it.

They didn’t. They made things worse. They created Qwikster. Then, they aborted Qwikster. In five short months they went from a company that had a plan and was ready to change the world of entertainment to a company that had no idea how to handle its customers, it’s company, the press, and just about every other player watching their situation.

They became an embarrassment, the once-mighty uncle who used to be the life of the family reunions but who somehow lost a marble or two and now doesn’t even get invited to Christmas dinner.

Netflix was a brilliant idea. It will always be remembered as the company that started the true transition away from brick-and-mortar entertainment distribution. They made streaming video cool and practical.

Competitors with a better business plan and stronger leadership will rise over the next few months. Someone will step up. More than one will take this potentially-lucrative business and become the next generation of streaming entertainment. They won’t have the infrastructure problems that Netflix created.

It could have been a sustainable company. Now, it’s unlikely they’ll still be a player by 2014.