Netflix is laser focused on making customers happy

August 2, 2013: 12:56 PM ET

Ever since Netflix's 2011 stumble, when it announced a price increase and a spinoff of its DVD business, the company has concentrated on pleasing customers. The latest: allowing customers to create their own user profiles.


FORTUNE -- As Apple (AAPL) continues to send out near-daily barrages of product updates for iTunes, Netflix continues to focus squarely on improving its customer experience.

The latest example of this is Netflix's (NFLX) new user profiles, which allow up to five users per account to receive their own recommendations. This will, for example, allow regular guys to avoid their wives' lists of "chick flicks," and those wives to avoid being notified when Fast and Furious 14: The Stupiding is finally released for streaming. It will also allow kids to have their own profiles, meaning parents won't have to wade through Disney (DIS) Channel stuff when they're looking for something to watch. Sharing Netflix activity on Facebook (FB) will now be attached to the profiles, so a teenage boy's friends will no longer wonder why he spent Saturday night watching The Princess Protection Program.

A Slate V news video noted that "Netflix says it rolled out the change in the name of customer happiness, while financial analysts noted that it could be a savvy move for customer retention" (as if those things were somehow at odds).

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Customer focus is certainly at the heart of this move. In 2011, Netflix nearly imploded after its ill-advised announcement of a price increase and a plan to split off its DVD business into a separate company called Qwikster. The main problem was framing -- the announcements actually made sense but were issued with little regard for how customers might react. Since then (and really, all along -- the 2011 announcement was really a blip), customer focus has been the top priority. "I realized, if our business is about making people happy, which it is, then I had made a mistake," CEO Reed Hastings told the New York Times in April.

In July 2011, before the debacle, shares were at $295. They fell to $63 by November. On Friday, they were trading at about $246. Netflix is fully back.

In another example of customer focus, Netflix is reportedly working with makers of smart TVs to make them more appealing to buyers. Smart TVs are actually pretty dumb when it comes to customer interface and usability. On-screen menus are confusing, and remote controls are baffling. If Netflix can get manufacturers to improve these problems, it will likely encourage more people to sign up with Netflix, since smart TVs are made to make Internet TV easier to watch on the main living-room screen.

Easier-to-use smart TVs will also strike a further blow to cable companies, where the user interfaces are infuriatingly terrible.

Allowing five different users to have their own accounts makes it clear that Netflix is just fine with people sharing passwords, at least up to a point. The ability to do so, the company has apparently determined, is enough of a draw for many people to sign up in the first place that it makes up for whatever revenue might be lost.

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Bloomberg reported in April that about 10 million people watch Netflix for free thanks to password-sharing. That number came from Wedbush Securities analyst Michael Pachter, who at the time said Netflix needed to restrict password sharing in order to boost revenue. He even suggested excuses Netflix could use: "They can say they're cracking down on piracy. They can appeal to fairness."

But it was more than "fair" when Netflix tried to raise prices two years ago. The resulting furor proved that fairness often has little to do with how customers behave. And really, asking Netflix customers to sacrifice in service of "cracking down on piracy" wouldn't ever work even if that wouldn't be an outright lie. Piracy isn't their problem. And they certainly don't want Netflix lying to them.

Netflix seems to be taking a long view, similar to that of Amazon's (AMZN) Jeff Bezos: Don't worry too much about quarterly revenues, just keep getting customers on board, and continue working to keep them there. The trouble there is that Amazon is one of Netflix's chief competitors in video streaming, and competition for both users and streaming rights is only getting fiercer.

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