Posted by: crudbasher | October 26, 2011

The Lesson Netflix Teaches Universities

Netflix has been putting on a show lately on how to shoot yourself in the foot. 🙂 They have committed two serious mistakes.

1. They tried to split their DVD business into it’s own completely separate company. After people pointed out how much of a dumb idea this was they scuttled the project.

2. They raised their prices 40%.

In my opinion reason #2 is why they lost 800,000 subscribers. Here’s why. (and yes this does relate to education).

Netflix at $10 was an expense that was easy to justify. Access to lots of streaming assets and an occasional DVD is a bargain for $10. Once you cross $10 it seems it gets put into a different category. Raising prices by 40% hasn’t been accompanied by a 40% improved product. Besides, it’s basic economics. If you raise your price, you will sell less product. (I’m not sure this applies to Apple heh)

Most companies are delighted to have customers pay for their product. However, I think sometimes companies don’t understand what they are selling. How can that be you ask? Simple, look to iTunes.

(cc) sylvar

When people buy a song from iTunes they aren’t actually paying for the music. What they are actually paying for is the convenience. iTunes makes it easy to buy something and then have it show up on your iDevice. If it was hard, more poeple would use BitTorrent to get it for free. (yes it’s illegal but most young people don’t agree with that)

Digital content is not scarce. It can be replicated an infinite amount of times with no loss of quality. When you buy a physical item you are compensating the creator for the loss of that product. With digital content the creator doesn’t lose anything. It’s a quandary for content creators that’s for sure.

Ok, so how does this apply to education? If you are in the field of higher education, you have to ask yourself the following question:

What do I think I am selling, and what do my customers (students) think they are buying? I think in most cases the universities think they are selling an education. I also think in a lot of cases students think they are buying an opportunity to get a decent job. This dichotomy will cause reevaluation of the arrangement as the price goes up.

Keep in mind, every time the students enroll in classes they are making a choice. What if half of them decide not to? Universities may be as surprised as Netflix.

Posted from Diigo. The rest of my favorite links are here.


  1. Another superb article! You hit the nail on the head about knowing what you’re really selling (and what your customers are buying). I wrote a post about this topic too earlier this year called “Do you know what business you’re really in?”, using Starbucks as my primary example –

  2. […] few days ago I wrote a piece about Netflix where I said Netflix misunderstood what people were buying from them. They […]

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