Netflix in Flux

“I’m sort of sorry.” That, in essence, is what Netflix CEO Reed Hastings said this week in a lengthy company blog post, as he tried to respond to customers who are angry about a large price hike that was imposed back in July. Netflix figures that it’ll lose 1 million subscribers during the current quarter because of the boost.

“I messed up,” Hastings wrote. “I should have personally given a full justification to our members of why we are separating DVD and streaming, and charging for both. It wouldn’t have changed the price increase, but it would have been the right thing to do.”

Actually, maybe not. In addition to bristling at the price increase, customers are now miffed over the DVD and streaming split, saying they find the arrangement confusing.

Peter Drucker felt that mistakes, even large ones, were acceptable from a leader. As we’ve mentioned before, he was far more suspicious of those who didn’t mess up once in a while.

[EXPAND More]But Drucker would probably also have seen in Netflix a case of a company whose success owed to what he referred to as being the “fustest with the mostest,” a phrase taken from a Confederate cavalry general.  It’s the strategy of companies that lack an inimitable product or service but make up for it by being the most on the ball.

“The strategy of ‘Fustest with the Mostest’ demands substantial and continuing efforts to retain a leadership position,” Drucker wrote in Innovation and Entrepreneurship. “Otherwise, all one has done is create a market for a competitor. . . . Above all, the entrepreneur who has succeeded in being ‘Fustest with the Mostest’ has to make his product or his process obsolete before a competitor can do it.”

In this, Netflix has done quite well, as it has moved from snail-mail to online offerings. But by raising prices, the company broke one major rule that Drucker laid out for those taking the “fustest-mostest” approach. “The entrepreneur who has attained leadership by being ‘Fustest with the Mostest’ has to be the one who systematically cuts the price of his own product or process,” Drucker advised. “To keep prices high simply holds an umbrella over potential competitors and encourages them.”

Has Netflix forgotten how to be “Fustest with the Mostest?” Or is this just a temporary hiccup?[/EXPAND]